Mihirchronicles RSS Feed

New Terrain Same North Star

Sun, 17 May 2026 00:00:00 GMT

The stakes are higher for any PMs in the era of LLM driven solutions.

LLM models are a real source of leverage for any product team. Able to accomplish far more and faster than ever without organizational bottlenecks is every product team's dream come true.

Engineer can do business research with a quick prompt. PM can build an interactive prototype in a matter of minutes. And, designer can write a web application.

All this to say, the boundaries between specialization are narrowing. Specialization itself is becoming a liability when skillsets are interchangeable across cross-functional teams.

When the conditions start to shift what do you double down on?

The signal should always be the user!

A good PM deploys and moves on to the next thing. A great PM take their users from current state to their desired state.

In other words, the job is to bridge the product and market. Speed without getting things done right is not effective.

Sailing with an aimless destination is a hobby not a business.

What gets the team to their north star isn't the speed alone, or the ability to ship faster than the competition. It is the judgment to know what to build, the taste to know how it should feel, and the vision to see where the users want to go before they can articulate it themselves.

The raw materials are changing, but the north star remains the same.

Doomer Mentality

Sun, 01 Feb 2026 00:00:00 GMT

The weight of the world feels heavier when you are responsible for small shoulders. As a father to my 3-year-old and one on the way, I feel uneasy to pass cynical views on to my children.

To address this head on, I conducted an exercise to assess my levels of cynicism, optimism, and pessimism from several days of journaling. Then I rated where I stand with each one of them.

The ratings came back stark. Moderately cynical. Low optimism. Very high pessimism. It is evident that my assessment of the world is quite negative. Not the inheritance I'd hope to leave.

This wasn't always my default setting. My experiences played a significant role in shaping those perspectives. Besides that, the perpetual 24/7 information flow now defines modern existence. We carry the world's suffering in our pockets.

The breaking news, latest headlines, and news feed refresh like Luisa Madrigal shouldering ever-heavier burdens in Encanto, smiling through the strain until the moment she can't anymore. The “always on” doesn't discriminate; it depletes even the most gifted amongst us.

Two cultural forces conspire to drain our reserves.

First, the engineered content ecosystem that surrounds us-feeds designed not to inform but to agitate, bots amplifying outrage, platforms that promised expression but delivered identity construction instead. Urgency becomes impossible to distinguish from performance. Everyone orbits their own universe, incentivized to pull you into their gravity well. The dopamine hits arrive right on schedule, and so does the depletion.

Then there's achievement culture, which transforms celebration into projection. You scroll past someone's highlight reel and feel envy corrode your self-respect. Before long, you are playing status games you never agreed to, forgetting why you showed up in the first place.

Both dynamics feed the same beast-rage. And rage is the enemy of authorship. Trapped in manufactured fury, you stop listening to your inner voice. You become a character in someone else's narrative instead of writing your own.

The result is doomer mentality-insecurity metastasizing into despair. We crush the caterpillars and complain there are so few butterflies.

What is the way through? Is there anything left that is under your control when you feel so cynical?

Despair is not destiny. There are ways to navigate between cynicism, optimism, and pessimism:

Humility as foundation. Not false modesty, but genuine openness-approaching situations with curiosity rather than judgment. Modest views create space for healthy engagement. They allow us to be wrong, to learn, to grow.
Choosing hope over cynicism. Hope isn't naive. It is hard-earned, deliberately chosen. When the world cries out, hopefulness is what makes someone show up. It's what we reach for when we are lonely and defenseless. It's the hand that pulls us from darkness.
The redemptive power of small acts. Social workers understand this-they volunteer time, sacrifice dreams, fight daily for what is worth defending. Kindness isn't grand gestures; it is showing up consistently with your time and attention.
Pessimism as tool, not identity. Yes, critical thinking has its place. Exposing nonsense matters. But reflexive caution can prevent necessary progress. In pivotal moments, ask whether caution is actually serving you.
Skepticism, not cynicism. Cynicism often mistaken for intelligence leads to depression and isolation. It's a lack of faith in people. Skepticism, conversely, is lack of faith in our assumptions. Cynics imagine humanity is awful; skeptics gather information about who to trust. Skeptics hold beliefs lightly and learn quickly.
Building resilience deliberately. An entire generation has never experienced real downturn. The false security they have cultivated won't protect them when storms arrive. Nobody complains about surplus resilience.

What I'd tell my children-it is worth putting a wager on an optimist.

Here's the hardest truth: optimism is a choice that must be constantly reaffirmed. Pessimism costs nothing-it is the default setting, requiring no effort. Optimism demands work in a hostile, cynical world. It means consistently demonstrating that positivity has merit.

To be an optimist, you must adopt three core assumptions:

The future can be great.
People's intentions are mostly good.
Ideas are fragile and need nurturing.

Every new idea is an unrealized dream, delicate and easily destroyed. When an idea presents itself, the optimist's task is to imagine its best version-what would make this great?

Both pessimism and optimism are self-fulfilling prophecies. Your intention shapes the outcome. Call it karma or simply effort-I'd rather inhabit a future with the possibility of greatness.

Only optimists create great futures. Only optimists can imagine them. Only optimists will do the work to build them.

Besides optimism, we should invest in our communities. Lightness is what is missing from people's lives. We retreat into silos when we should be gathering-artists, photographers, writers, all praising the same creative force. Cynicism hurts the heart. It breeds judgment, closes minds, creates fear. Connectivity is our birthright.

There are only two modes-fear or love. When cynicism creeps in, return to your heart. Be gentle. We feel trapped in this cynical world because we've forgotten our connectivity. You are not a random collection of DNA. You are a member of the human community. You have a role. You belong.

Trust breeds magic. When someone trusts you, you grow into that person. World peace becomes possible when communities focus on goodness.

It is easy to call yourself creative. It's harder to live it.

The inheritance I want to pass on to my children is to choose humility and hope, skepticism over cynicism and deliberate optimism. It is the only way to build a future worth inheriting.

We have crushed enough caterpillars. It is time to let the butterflies emerge.

The Forcing Function Of Momentum

Sat, 31 Jan 2026 00:00:00 GMT

In 1983, Michael Bloomberg unveiled a desktop computer known as “the terminal” that would revolutionize financial markets. The keyboard, initially called the Chiclet, was toy-like. None of the yellow keys worked when it launched. The yellow keys were for major markets-commodities, equities, municipal debt, preferred stocks, mortgages, money markets, governments, corporates, and currencies. Initially, only government bonds worked. The rest of the features weren't completed for three to seven years.

There is a lesson in this story-don't be afraid to put things out there even if they are half-working. The Bloomberg terminal is a major success story today because Mike Bloomberg was comfortable letting go of perfectionism.

This is a story of momentum.

It is not about talent, luck, or even the quality of your decisions, but it is about how quickly you shrink your timeline from thoughts into action. Action drives clarity and it beats overthinking every single time.

Shrinking your timeline, knowing what is urgent vs important and shorter decision-to-execution cycles are superior than timing the moment. The tighter the space between deciding and doing, the faster the insights come from these feedback loop cycles.

You shouldn't force speed when your goals aren't clear, or when the stakes demand precision over pace, like sending astronauts to the moon. Acceleration happens when you are aware of what you are chasing. False urgency leads to mistakes and unnecessary stress that depletes your energy. You don't want speed to turn into noise.

Urgency is a force multiplier when your goals are clear because it kills hesitation. Your team sees and feels momentum, your doubters turn into believers, and the micro-changes start to compound.

The forcing function of momentum is urgency. Momentum builds on momentum. Each quick win creates energy for the next one. It compounds into a competitive advantage.

Unpacking Prioritization

Sun, 30 Nov 2025 00:00:00 GMT

Prioritization is the single most challenging responsibility of an organization. Sustaining a competitive advantage requires a continuous series of intentional choices; a lack of intentionality in these moments inevitably weakens an organization's long-term durable advantage.

In complex organizations, we try to make the path of prioritization look clean, predictable, and symmetrical. We treat “prioritization” as a suitcase word. We pack everything into it-strategy, resource allocation, politics, and scheduling-and then wonder why the zipper bursts. When an organization tries to optimize for everything, it fails to prioritize anything.

As Michael Porter argued in Competitive Strategy, true strategy is not about doing more; it is about choosing what not to do. It is about divergence.

The fundamental truth is-prioritization is hard. Determining priorities is challenging, as the optimal approach is typically contingent upon the specific nature of the organizational complexity encountered.

However, the fundamental truth remains: prioritization is hard. It is a constant negotiation between competing tensions-autonomy vs efficiency, high-leverage work vs constant optimization, and stakeholder buy-in vs execution speed. To navigate this complexity, we must look at the architecture of our decisions.

Organizations typically navigate decisions using two variables: the amount of friction allowed (Discord) and the constraints on time (Deadline). The combination of these variables creates three distinct environments:

The Mandate (No Discord + Deadline): This is a critical, top-down directive with no room for negotiation. While sometimes necessary for survival, it often fails because it lacks crucial input from the teams doing the work.
- The Result: Unintended consequences. I once witnessed a business stall completely, unable to expand its offerings, because the top-down pressure blinded leadership to market realities. The “all hands on deck” approach crushed their strategic vision. However, the team delivered a project in 6 months that could’ve taken several quarters.
The Swamp (Discord without Deadline): This is the most dangerous environment. Without a firm deadline, “exploration” becomes procrastination. Expanding teams introduce complexity, and moderate projects balloon into multi-year endeavors.
- The Result: Mediocrity. This is the worst environment to be in. Consensus-building invariably leads to regression toward the mean, and by the time the product ships, the market has moved on.
The Sweet Spot (Discord + Deadline): This combination invites active debate but bounds it with a hard stop. There is a clear decision-maker who mines the team for disagreement and insight, but the clock is ticking. When the deadline hits, the team shifts immediately to a “disagree and commit” mindset.
- The Result: High-velocity quality. Deep context is gathered to avoid blind spots, but the decision-maker retains ownership of the outcome.

We often look for a formula to solve our resource allocation issues. But prioritization is not a math problem. It is a design problem. It is a continuous exercise.

The Ideal Team Player by Patrick Lencioni

Thu, 27 Nov 2025 00:00:00 GMT

I. Brief Summary

This book was recommended to me by my boss at Builders Vision. His management style is inspired by the ethos from this book. Using a compelling narrative about a company in crisis, Patrick Lencioni provides practical tips on identifying key traits in job interviews and fostering them on your current team.

II. Big Ideas

The book opens with a story about a new CEO taking over a family construction business. Facing impending deadlines and a dysfunctional staff, he must rapidly align his current team and hire new talent at every level to ensure the company's survival.
The three key traits of an ideal team player:
- Humble: This person lacks excessive ego or concerns about status. They are quick to point out the contributions of others and slow to seek attention for their own.
- Hungry: This person is self-motivated and diligent. They are constantly looking for more responsibility and rarely have to be pushed to work harder by a manager.
- Smart: This refers to “people smarts,” not just intellect. This person has strong common sense regarding people, instinctively understanding how their words and actions impact the team.
The author categorizes people based on combination of these virtues:
- 0 for 3: Disaster
- 1 for 3:
  - Pawn: Pleasant, kind-hearted, and unassuming individuals.
  - Bulldozer: Determined to get things done, but focused on their own interests.
  - Charmer: Can “play the game,” but lack humility to care about people or the team, and don’t have hunger to contribute.
- 2 for 3:
  - The accidental mess maker: Humble and hungry, but not smart.
  - The lovable slacker: Humble and smart, but not hungry.
  - The skillful politician: Hungry and smart, but not humble.
- 3 for 3: The ideal team player
Insecurity is presented as a core reason why people fail to be ideal team players, as it leads to either arrogance or a lack of self-worth.

III. Quotes

I believe that teamwork is not a virtue, but rather a choice. It's a strategic decision and an intentional one, which means that it's not for everyone.
Leaders who can identify, hire, and cultivate employees who are humble, hungry, and smart will have a serious advantage over those who cannot.
Humility isn't thinking less of yourself, but thinking of yourself less. - C.S. Lewis
It is no great surprise, then, that humility is the single greatest and most indispensable attribute of being a team player.
Humble is pretty obvious. We can't abide big egos. Hungry is all about working hard and being passionate about our work. And smart has to do with being aware of the people around you and dealing with them in a positive, functional way.
Look for the candidate to demonstrate a genuine appreciation for others who have more skill or talent. Humble people are comfortable with this. Ego-driven people often are not.
We need to hire people who are hungry. They go beyond what is required. Passionate about the work they're doing.
So many people there are so concerned about being socially conscious and environmentally aware, but they don't give a second thought to how they treat the guy washing their car or cutting their grass.
Great team players lack excessive ego or concerns about status. They are quick to point out the contributions of others and slow to seek attention for their own. They share credit, emphasize team over self, and define success collectively rather than individually. It is no great surprise, then, that humility is the single greatest and most indispensable attribute of being a team player.
The five behavioral manifestations of teamwork: trust, conflict, commitment, accountability and results.
Many people will try to get a job even if they don't fit the company's stated values, but very few will do so if they know that they're going to be held accountable, day in and day out, for behavior that violates the values.
No one is perfect. Even a person who is humble, hungry, and smart occasionally has a bad day, or a bad week, or even a bad time in their life.
An insecure person with low self-worth may be too passive to advocate for their own ideas or point out team shortcomings, hindering progress.

Problem Exploration Guide

Sat, 15 Nov 2025 00:00:00 GMT

At times, workplace problems are already defined at a strategic level, requiring only execution. Other times, we must proactively explore problems to get them prioritized. In both instances, success relies on a clear problem statement and measurable outcomes.

The trap is rushing into “solution mode.” This must be resisted until thorough discovery is conducted. Problem exploration is messy, so where do you start?

Start with Curiosity. Discovery is key.

The best product managers aren't the ones with all the answers; they are the ones who know which questions to ask. Questions, not frameworks, are the true superpower of a product manager. Real breakthroughs come from asking the hard questions and understanding the underlying dynamics.

To do this effectively, collect context from various groups. The broader and deeper your dimensions, the more nuances you will discover. Use the following dimensions to guide your discovery voyage:

Target Audience: Who are the users? How are they segmented? What channels do we support?
**User-Defined Problem: How do they describe what's wrong? What are they exploring to solve their problem? How do they describe value in their own words?
Behavioral Analysis: What are the user habits? What incentives are driving their current behavior?
Ecosystem Analysis (External): Who else is affected? What power dynamics (regulations, policies) keep the status quo in place?
Organization Dynamics (Internal): What are our assumptions? What are the non-negotiables and resource constraints? Is this actually a process problem pretended to be a tech problem? Is there a messaging or user behavior issue?
Product & Technology: What capability gaps does our product have? Is the solution feasible within the timeline? Is the existing solution usable? If a solution is outsourced, how is the organization going to operationalize the solution?
Adoption & Distribution: How will we validate the solution? (Did they ask for a vitamin, but we built a painkiller?) How are we going to scale our solution and maximize our impact? How are we going to drive early adopters? How do we influence the naysayers?

Once you have cast a wide net with these questions, you will have a mountain of data. Now, you must synthesize that noise into a signal using the “define the business problem framework” below.

The Problem: Clearly state the problem itself, ensuring it is not masked as a potential solution.
Affected Parties: Who is directly and indirectly impacted?
The True Impact: What are the tangible consequences? Be honest; is this a real business impact or just an annoyance?
Defining Success: What specific value is delivered upon resolution? Warning: If your definition of success is “implementing X tech solution,” you have failed to define business value.

Let's put this framework in action.

Weak Problem Statement: “We lack a CRM, which complicates call management for our Customer Service team. Therefore, we should implement Salesforce.”
- Critique: This jumps directly to a solution (Salesforce) without quantifying the pain.
Effective Problem Statement: “The Customer Service team spends 40% of their time searching for data across disconnected systems, delaying issue resolution and creating inconsistent customer experience.”
Affected Parties: 15 CSRs (direct frustration), Customers (wait times), Sales Team (missed upsell context).
True Impact: Average handle time is 8 mins (vs. 5 min benchmark). Revenue impact estimated at $180K/year in lost productivity. CSR turnover up 25%.
Success Definition: CSRs access customer context within 10 seconds. Handle time reduced to 5 minutes. CSAT (satisfaction) scores improve to 4.0+.

Start with the problem first, solution last. Your product is flexible-you can build anything. But problems, channels, and business models are rigid constraints. Start there.

Great problem statements come from curiosity. The best problem statements have both depth and complexity.

As Seth Godin says-It doesn't make any sense to make a key and then run around looking for a lock to open. The only productive solution is to find a lock and then fashion a key.

The Upanishads by Eknath Easwaran

Thu, 30 Oct 2025 00:00:00 GMT

I. Brief Summary

Easwaran translates and frames the Upanishads not as religious dogma but as “supreme science” of the mind. He treats the sages as explorers of the inner world, similar to how scientists explore the outer world. Easwaran’s translation focuses on making these ancient texts accessible and practical for modern daily life.

II. Big Ideas

The Upanishads is a collection of ancient Indian texts that explore profound philosophical and spiritual concepts.
The Upanishads, the earliest of which were composed in Sanskrit between 800 and 400 bce by sages and poets, form part of the Vedas - the sacred and ancient scriptures that are the basis of the Hindu religion. Each Upanishad, or lesson, takes up a theme ranging from the attainment of spiritual bliss to karma and rebirth, and collectively they are meditations on life, death and immortality.
You are what your deep, driving desire is. As your desire is, so is your will. As your will is, so is your deed. As your deed is, so is your destiny.
Below are the central themes:
- Atman and Brahman (The Supreme Equation): The core discovery of the Upanishads is that the core of the individual personality (Atman) is identical to the ultimate reality of the universe (Brahman). Realizing this unity is the highest goal of life.
- “Thou Art That” (Tat Tvam Asi): A recurring mantra (mahavakya) found in the Chandogya Upanishad, teaching that the divine essence you seek outside is actually your own true nature.
- The Illusion of Separateness (Maya): The world of multiplicity-where we see ourselves as separate individuals-is an illusion. This separateness causes fear and desire. Wisdom lies in seeing the “One” underlying the “Many.”
- The Law of Karma and Rebirth: Our actions, driven by our deep desires, determine our destiny. We are trapped in a cycle of birth and death (samsara) until we realize our true Self and break the cycle.
The path to self-realization
- Meditation is Key: Intellectual study and external rituals are insufficient for knowing the Self. Real knowledge comes from direct experiential realization through deep meditation (dhyana) and turning the senses inward.
  
  Meditation here is not reflection or any other kind of discursive thinking. It is pure concentration: training the mind to dwell on an interior focus without wandering, until it becomes absorbed in the object of its contemplation. But absorption does not mean unconsciousness. The outside world may be forgotten, but meditation is a state of intense inner wakefulness.
- The Choice between the Pleasant & the Good: The Katha Upanishad introduces the idea that at every moment, we face a choice between Preya (what is pleasant or gratifying to the ego/senses) and Shreya (what is good and leads to spiritual growth).
- Renunciation of the Ego: True freedom comes not from getting what you want, but from mastering your own desires. “Renunciation” in Easwaran’s view is not running away from the world, but dropping the selfish ego to act with selfless love.
The texts explore four states of consciousness:
- Waking
- Dreaming
- Dreamless Sleep
- Turiya (the “fourth” state): pure, unitary consciousness, which is the ultimate reality.
Memorable metaphors from the book:
- The Chariot: Found in the Katha Upanishad, the body is likened to a chariot, the senses to horses, the mind to the reins, and the intellect to the charioteer. The Atman is the passenger. One must train the “horses” (senses) to reach the destination.
- Nachiketa and Death: The story of a teenage boy (Nachiketa) who goes to the abode of the King of Death (Yama) to learn the secret of immortality. Yama teaches him that the Self never dies and is immortal.
- Shvetaketu: A student who returns from years of study proud of his book learning, only to be humbled by his father who teaches him that he still lacks the knowledge of the Self (using the famous example of salt dissolved in water-unseen but pervasive).

III. Quotes

As a person acts, so he becomes in life. Those who do good become good; those who do harm become bad. Good deeds make one pure; bad deeds make one impure. You are what your deep, driving desire is. As your desire is, so is your will. As your will is, so is your deed. As your deed is, so is your destiny.
Dreams are real as long as they last. Can we say more of life?
He who is rich in the knowledge of the Self does not covet external power or possession.
There is no joy in the finite; there is joy only in the Infinite.
The little space within the heart is as great as the vast universe.

The heavens and the earth are there, and the sun and the moon and the stars. Fire and lightening and winds are there, and all that now is and all that is not.

He who sees all beings in his Self and his Self in all beings, he never suffers; because when he sees all creatures within his true Self, then jealousy, grief and hatred vanish.
Meditation here is not reflection or any other kind of discursive thinking. It is pure concentration: training the mind to dwell on an interior focus without wandering, until it becomes absorbed in the object of its contemplation. But absorption does not mean unconsciousness. The outside world may be forgotten, but meditation is a state of intense inner wakefulness.
Human beings cannot live without challenge. We cannot live without meaning. Everything ever achieved we owe to this inexplicable urge to reach beyond our grasp, do the impossible, know the unknown. The Upanishads would say this urge is part of our evolutionary heritage, given to us for the ultimate adventure: to discover for certain who we are, what the universe is, and what is the significance of the brief drama of life and death we play out against the backdrop of eternity.
There is enough in the world for everyone’s need; there is not enough for everyone’s greed.
The fifth-century Greek writer we know as Dionysius the Areopagite once said that as he grew older and wiser his books got shorter and shorter.
As long as man is overpowered by the darkness of ignorance, he is the slave of Nature and must accept whatever comes as the fruit of his thoughts and deeds. When he strays into the path of unreality, the Sages declare that he destroys himself; because he who clings to the perishable body and regards it as his true Self must experience death many times.
What exactly is the difference between a dream and waking experience? What happens to the sense of “I” in dreamless sleep? And they sought invariants: in the constantly changing flow of human experience, is there anything that remains the same? In the constantly changing flow of thought, is there an observer who remains the same? Is there any thread of continuity, some level of reality higher than waking, in which these states of mind cohere?
The infinite – free, unbounded, full of joy – is our native state.
Materialism leads us to lose awareness of our inner life, which is bad enough; but to be hypnotized by our own feelings and sensations and forget about others and the world around us is worse.
Birth is but the beginning of a trajectory to death; for all their love, parents cannot halt it and in a sense have “given us to death” merely by giving us birth.
Be self-controlled, give, be compassionate.
Abundance is scooped from abundance yet abundance remains.
In the cosmos there are only eaters and the eaten. Ultimately, all is food.

Good Energy by Casey Means

Tue, 30 Sep 2025 00:00:00 GMT

I. Brief Summary

Dr. Casey Means argues that modern lifestyle factors like processed foods and poor sleep create “bad energy” at the cellular level. The main idea in the book is that metabolic dysfunction is the root cause of most chronic diseases, and she offers a roadmap to fix it.

II. Big Ideas

Essential biomarkers can show us “check engine” alerts:
- Fasting Glucose: Optimal: 70–85 mg/dL
- Fasting Insulin: Optimal: 2–6 uIU/mL
- Hemoglobin A1c: Optimal: < 5.4%
- Triglycerides: Optimal: < 70 mg/dL
- HDL Cholesterol: Optimal: > 50 mg/dL
- Liver Enzymes (ALT/AST): Optimal: < 17 U/L (indicates liver health)
Avoid the “Unholy Trinity” to restore metabolic health, strictly limit or eliminate:
- Refined Added Sugars
- Refined Grains (white flour, processed wheat)
- Industrial Seed Oils (vegetable, canola, soybean oils)
Every meal should aim to include these 5 essential elements to support cellular function:
- Fiber (feeds the gut microbiome)
- Quality Protein (essential for structure and function)
- Omega-3 Fatty Acids (reduces inflammation)
- Probiotics (fermented foods)
- Antioxidants (protects cells from damage)
Glucose stability: avoid "naked carbs" (eating carbs alone). Always pair carbohydrates with protein, fat, or fiber to prevent blood sugar spikes.
Essential lifestyle pillars:
- Movement is Medicine: Sedentary life signals safety to the body, leading to dormancy. Aim for “movement snacks” throughout the day rather than just one gym session. Walk after meals to lower glucose spikes.
- Circadian Rhythm: Align your life with the sun. Get morning sunlight in your eyes, eat during daylight hours, and avoid bright artificial light at night to support mitochondrial repair.
- Environmental Toxins: Reduce exposure to “metabolic disruptors” found in plastics, pesticides, and personal care products.
- Temperature Stress: Use heat (sauna) and cold (cold plunge/showers) to “shock” your mitochondria into becoming more efficient (hormesis).

III. Quotes

Good Energy is also known as metabolic health. Metabolism refers to the set of cellular mechanisms that transform food into energy that can power every single cell in the body.
Focus on cell biology over diet dogma. Put all your energy into finding and eating unprocessed foods grown in healthy soil. Your health will vastly improve. It actually is that simple.
When our cells sense sustained danger, they divert resources to defense and alarm pathways instead of normal functions that generate sustainable health. Given this, no matter how pristine your dietary intake is, how much you’re moving, how much sunlight you’re getting, or how many hours of quality sleep you’re getting, if the cells are bathed in a stew of stress created by the way psychology translates to biochemistry (via hormones, neurotransmitters, inflammatory cytokines, and neurologic signals), all the other healthy choices will fall.
Every institution that impacts your health makes more money when you are sick and less when you are healthy-from hospitals to pharma to medical schools, and even insurance companies.
Consider this: when a kid drinks one bottle of Coke, they ingest as much added sugar as they might have had in an entire year if they were living 150 years ago.
We should consider listening to the medical system if we have an acute issue like a life-threatening infection or broken bone. But when it comes to the chronic conditions that plague our lives, we should question almost every institution regarding nutrition or chronic disease advice. All you need to do is follow the money and incentives.
The incentives of our medical and food systems pressure patients to not ask questions. These incentives also lead to the biggest lie in healthcare. That the reasons we are getting sicker, fatter, more depressed, and more infertile are complicated. The reasons are not complicated. They all tie to good energy habits.
Disease isn’t some random occurrence that might happen in the future. It is a result of the choices you make and how you feel today.
Our bodies are built entirely of food. Eating is the process of transforming and assimilating matter from the external world into our own form. Every day, food breaks down into different types of “bricks” in our gut, and then those bricks get absorbed into our bloodstream to be used to continually rebuild the next iteration of our body. When we provide the body with the right “bricks,” we build the right structures, and we get health.
Medical leaders are absolutely silent on the things that are actually making us sick: food and lifestyle.
One of the most cited doctors in medical school classes is Dr. William Stewart Halsted, a Johns Hopkins founding physician in the early 1900s who created the concept of residency. To Halsted, medical education was “a superhuman initiation into a superhuman profession that emphasized heroism, self-denial, diligence, and tirelessness.
John D. Rockefeller-realizing he could use by-products from his oil production to create pharmaceuticals-heavily funded medical schools throughout the United States to teach a curriculum based on the intervention-first Halsted model. An employee of Rockefeller’s was tasked to create the Flexner Report, which outlined a vision for medical education that prioritized interventions and stigmatized nutritional, traditional, and holistic remedies.
Separation defines modern medicine.
TRUST THE SYSTEM ON ACUTE ISSUES, IGNORE IT ON CHRONIC Most health care books give recommendations and end with a disclaimer to “consult your doctor.” I have a different conclusion: when it comes to preventing and managing chronic disease, you should not trust the medical system. This might sound pessimistic or even frightening, but understanding the incentives of our medical system and why it does not deserve our benefit of the doubt is the first step to becoming an empowered patient.
Focus on cell biology over diet dogma. Put all your energy into finding and eating unprocessed foods grown in healthy soil. Your health will vastly improve. It actually is that simple.
With food we covered three simple rules that get you quite far: don't eat added sugar, don't eat industrially processed vegetable and seed oils, and don't eat highly processed grains.
More than 90 percent of serotonin, the hormone that regulates mood and contentment, is made in the gut-not in the brain.
Authors and poets who address the human condition, mortality, eternity, and continuity with nature that I recommend are Mary Oliver, Pema Chödrön, Paramahansa Yogananda, Michael Pollan, Clarissa Pinkola Estés, Seneca, Marcus Aurelius, Robin Wall Kimmerer, Rumi, Lao-tzu, Khalil Gibran, Hafiz, Walt Whitman, W. S. Merwin, Thích Nhất Hạnh, Diane Ackerman, Alan Watts, Lewis Thomas, Ram Das, Rainer Maria Rilke, Deepak Chopra, and Wang Wei.

Antifragile by Nassim Nicholas Taleb

Sat, 30 Aug 2025 00:00:00 GMT

I. Brief Summary

Antifragile by Nassim Nicholas Taleb argues that some systems not only withstand shocks but actively improve from them, unlike fragile systems that break and robust systems that remain unchanged. Taleb challenges the idea that “resilience” is the ultimate goal. The book explores how to apply this “antifragile” principle to various aspects of life to thrive in an uncertain world.

II. Big Ideas

The Triad (Fragile, Robust, Antifragile)
- Fragile: Things that break or suffer under stress, chaos, or volatility (e.g., a porcelain cup).
- Robust (Resilient): Things that resist stress and stay the same; they don't break, but they don't improve either (e.g., a rock).
- Antifragile: Things that actually benefit and grow stronger from shock, volatility, and disorder (e.g., the Hydra, the immune system, or muscle growth after exercise). Taleb argues this is the true opposite of fragile.
The Barbell Strategy
- Avoid moderate risk. Instead, adopt a dual strategy of extreme caution and extreme risk-taking. For example, keep 90% of your assets in ultra-safe cash (to avoid ruin) and put 10% in high-risk/high-reward ventures (to capture upside). This protects you from total failure while exposing you to positive “Black Swans”
Via Negativa: Improvement by Subtraction
- We often know what is wrong better than what is right. Improvement is often best achieved by removing things (bad habits, debt, toxic food, harmful regulations) rather than adding new complications or technologies. “Less is more”
Optionality
- To be antifragile, you should maximize your options. Having options allows you to benefit from positive volatility without being locked into a specific path that could lead to ruin.
Stressors are Necessary
- Antifragile systems require stressors (randomness, noise, mistakes) to thrive. Depriving a system of volatility-such as suppressing small forest fires or artificially stabilizing the economy-makes it fragile and leads to eventual catastrophic collapse (Black Swans).
Skin in the Game
- Systems become fragile when decision-makers do not suffer the consequences of their mistakes (e.g., bankers who keep bonuses when they win but get bailed out by taxpayers when they lose). For a system to be ethical and stable, those who have the power to make decisions must also share the risk of harm.
The Lindy Effect
- For non-perishable things (like ideas, books, or technologies), their future life expectancy is proportional to their current age. If a book has been in print for 50 years, it is likely to remain in print for another 50. Time is the ultimate tester of fragility; what has survived a long time is likely antifragile.
Iatrogenics: Harm Caused by the Healer
- Taleb warns against “naive interventionism”-the urge to “do something” in complex systems (like the human body or the economy). Often, intervention causes more harm than doing nothing because it introduces new, unforeseen risks.

III. Quotes

Antifragility is beyond resilience or robustness. The resilient resists shocks and stays the same; the antifragile gets better.
Recall that the fragile wants tranquility, the antifragile grows from disorder, and the robust doesn’t care too much.
Complex systems are full of interdependencies-hard to detect-and nonlinear responses.
Trial and error is freedom.
Difficulty is what wakes up the genius.
Some things benefit from shocks; they thrive and grow when exposed to volatility, randomness, disorder, and stressors and love adventure, risk, and uncertainty.
Avoidance of boredom is the only worthy mode of action. Life otherwise is not worth living.
If you need something urgently done, give the task to the busiest (or second busiest) person in the office.
Modernity has replaced ethics with legalese, and the law can be gamed with a good lawyer.
Never ask anyone for their opinion, forecast, or recommendation. Just ask them what they have-or don’t have-in their portfolio.
The simpler, the better. Complications lead to multiplicative chains of unanticipated effects.
Curiosity is antifragile, like an addiction, and is magnified by attempts to satisfy it-books have a secret mission and ability to multiply, as everyone who has wall-to-wall bookshelves knows well.
The best way to verify that you are alive is by checking if you like variations. Remember that food would not have a taste if it weren’t for hunger; results are meaningless without effort, joy without sadness, convictions without uncertainty, and an ethical life isn’t so when stripped of personal risks.
He who has never sinned is less reliable than he who has only sinned once.
Most humans manage to squander their free time, as free time makes them dysfunctional, lazy, and unmotivated-the busier they get, the more active they are at other tasks.
This is the tragedy of modernity: as with neurotically overprotective parents, those trying to help are often hurting us the most.
Abundance is harder for us to handle than scarcity.
The irony of the process of thought control: the more energy you put into trying to control your ideas and what you think about, the more your ideas end up controlling you.
Suckers try to win arguments, nonsuckers try to win.
You may never know what type of person someone is unless they are given opportunities to violate moral or ethical codes.
The psychologist Gerd Gigerenzer has a simple heuristic. Never ask the doctor what you should do. Ask him what he would do if he were in your place. You would be surprised at the difference.
Success brings an asymmetry: you now have a lot more to lose than to gain. You are hence fragile.
Much of what other people know isn’t worth knowing.
More data means more information, but it also means more false information.
Primitive societies are largely free of cardiovascular disease, cancer, dental cavities, economic theories, lounge music, and other modern ailments.
Wind extinguishes a candle and energizes fire. Likewise with randomness, uncertainty, chaos: you want to use them, not hide from them. You want to be the fire and wish for the wind.
Books to me are not expanded journal articles, but reading experiences, and the academics who tend to read in order to cite in their writing - rather than read for enjoyment, curiosity, or simply because they like to read - tend to be frustrated when they can't rapidly scan the text and summarize it in one sentence that connects it to some existing discourse in which they have been involved.
The world as a whole has never been richer, and it has never been more heavily in debt, living off borrowed money. The record shows that, for society, the richer we become, the harder it get to live within our means. Abundance is harder for us to handle than scarcity.
First ethical rule: If you see fraud and do not say fraud, you are a fraud.
Never listen to a leftist who does not give away his fortune or does not live the exact lifestyle he wants others to follow. What the French call “the caviar left,” la gauche caviar, or what Anglo-Saxons call champagne socialists, are people who advocate socialism, sometimes even communism, or some political system with sumptuary limitations, while overtly leading a lavish lifestyle, often financed by inheritance-not realizing the contradiction that they want others to avoid just such a lifestyle.
A man is honorable in proportion to the personal risks he takes for his opinion.
We ingest probiotics because we don’t eat enough “dirt” anymore.
Let us say that, in general, failure (and disconfirmation) are more informative than success and confirmation, which is why I claim that negative knowledge is just “more robust.
Roman emperor Marcus Aurelius (one of the doer-Stoic authors), “fire feeds on obstacles.
Those who do too much somewhere do too little elsewhere.
My dream-the solution-is that we would have a National Entrepreneur Day, with the following message: Most of you will fail, disrespected, impoverished, but we are grateful for the risks you are taking and the sacrifices you are making for the sake of the economic growth of the planet and pulling others out of poverty. You are at the source of our antifragility. Our nation thanks you.
If humans fight the last war, nature fights the next one.

Writing Culture

Thu, 28 Aug 2025 00:00:00 GMT

The most effective approach to addressing dystopia within a large organization is to establish a writing culture. This is equally true for organizations who are small but desire to scale one day.

By codifying ideas through words, we effectively codify our thinking. If you are a builder then you should take writing seriously.

Engaging in the act of writing about any subject matter will necessitate critical thinking, regardless of your prior knowledge on the topic. This process serves as a valuable tool for identifying product gaps and identifying potential opportunities. It is important to note that writing about a subject does not replace the need for thorough research, analysis, and client interviews. However, once you have gathered sufficient information, the next logical step is to systematically document and synthesize your knowledge.

Writing is an excellent technique for learning about unfamiliar places. By processing information and then writing about it, you engage in critical thinking and recollection. The more you recall, the stronger your neurons become, as the saying goes, “neurons that fire together, wire together.”

You might dismiss the notion on the importance of writing, but how can you build something if you can’t express it concisely or make decisions on the next steps? How can you mitigate risks if you don’t understand the items that are out of scope?

Are you not convinced yet because you have the sharpest memory?

Fine. Even if you can store all up there, you’ve introduced a lack of redundancy in your organization. There is no fail-safe in case you decide to leave. Let’s consider a common practice of keeping a spare house key in a hidden location somewhere on your property. This avoids a single point of failure, ensuring that you can still enter your home.

Redundancy, a crucial aspect of systems thinking, involves adding additional instances of critical components to a system. This redundancy ensures that if another part of the system fails, the extra components can seamlessly take over, maintaining the system’s functionality.

Documentation is the critical component that takes over in the event of a single point of failure.

Are you still not convinced because redundancy is overbearing and slow things down?

Sure. If you are an idea seller, how long did it take you to persuade the other side? I bet it sure wasn't quick and effortless. Did it require several meetings? I have been involved in projects that spanned several months due to inconsistencies in the details. The more abstract the concept is, the more time and effort it takes to convey its value. I could have ditched roadshows if I had dedicated more time to developing detailed documentation that would resonate with my engineering and design teams. This approach would have accelerated the execution process rather than hindering it. Writing solves context problem. Speed is the byproduct of writing.

Writing culture fosters and scales organizational knowledge. By publishing work and making it accessible to the entire organization, you facilitate knowledge sharing among colleagues. This promotes a self-serve mentality, where individuals can access a single source of information and gather evidence without the need for repeated re-writing through email exchanges.

A writing culture promotes a more objective approach to decision-making by prioritizing facts over political considerations. The utilization of decision logs, customer insights, and scope-based items enables the implementation of actions based on verifiable evidence rather than subjective opinions.

Writing culture is the most effective way to create an organization’s flywheel, especially in the era of artificial intelligence. Abundance will necessitate curation, but you can’t curate without thinking, and you can’t think without writing.

Writing culture emphasizes nuance over generality, deliberation over impulse, comprehension over aesthetics, clarity over vagueness, and rigor over hierarchy.

Be a builder who writes because...

Writing culture is a collaborative culture.

Writing culture is a learning culture.

Writing culture is a thinking culture.

Writing culture is a winning culture!

Scope Master

Sun, 11 May 2025 00:00:00 GMT

Who defines the scope? It may sound like a simple question, but it is not.

Is it a customer, a CEO, a board of directors, an operations team, sales, or an investor?

As an organization matures, the complexity lies within the intricate web of your organizational chart. The mission statement serves as the guiding light, but with such a diverse set of stakeholders, it becomes challenging to determine who holds the authority to make decisions regarding scope definition.

As someone who lives within the intersection of these cross-functional teams, I find myself dancing between various perspectives. As the owner of a domain within an organization, the distinction between the decisions I am permitted to make and those that belong to someone else becomes increasingly blurred over time. I have learned when to step in versus when to punt.

However, when you delegate decision-making, you risk frustrating your customers. How many times have you heard, “We are a customer-driven organization?” But you don’t see this reflected into your day-to-day when there are a lack of decisions.

A common management error I observe is placing excessive reliance on OKRs to make decisions. While reviewing them is commendable, if your organization lacks a data-centric approach, you may lack the necessary insights to determine the next course of action. Furthermore, if you’re measuring the wrong metrics, you might inadvertently drive the wrong solution. Consequently, management resorts to increasing the creation and collection of metrics to boost their confidence before making any decisions.

All customers wanted was a self-service option to remove their email address from the application, eliminating the need to continue calling the 1-800 number. Instead of addressing this straightforward issue, we introduced more metrics and OKRs.

This brings me back to the question of who owns the scope? Let's answer this by breaking down between a start-up versus a large organization.

If you are a seed-stage startup without a product market fit, then a founder should own the product scope as this individual is close to the vision and the survival of the company depends on it.

However, if you are a startup with a product market fit, you need to consider trade-offs when deciding what’s crucial for the next stage. If customer acquisition is your focus, the founder should prioritize hiring the talent and outsource the product responsibility to someone else. For instance, Marissa Mayer, Google’s 22nd employee, took on product management while Larry Page and Sergey Brin focused on key priorities to propel Google to the next level.

If your startup is product-led, growth is dependent on the features you ship, it pays for the founder or CEO to own the product scope and delegate non-essential responsibilities to others. For instance, Brian Chesky at Airbnb drives the product vision and scope from the top. Although he may not be involved in every aspect of decision-making, it is evident who sets the scope for the organization. And based on his priorities, resources and team structures are set accordingly.

A few of these startups will eventually evolve into large and complex organizations. During quarterly town halls, everyone comprehends the north star message from management, but when it’s time to plan, they encounter dependency challenges. There is no cohesion, and progress is slow. You feel nostalgic about the days when you would ship features fast. That guiding principle shared by the executive team during a town hall quickly evaporates. Customers are already forgotten, and you find yourself entangled in the complexities of the organization.

To diagnose this problem, you need to understand your organizational structure. Management shared the north star is A during all hands. However, Squad B believes it is A + B, Squad C believes it is A + C, and Squad D believes it is A + B + D. Regardless of how big or small these teams are, no one is ever aligned. Planning sessions are painful. In my observation, there is another management error-relying solely on all hands for projects to be delivered.

Organization communication is as critical as the organizational structure because you ship your product organization.

Squads are designed based on the organization’s objectives. If you create an organizational chart that focuses on the main objectives, your organization can focus on making meaningful and purposeful decisions. Small, symmetrical and proportional teams (1 UX for every 3 engineers) with OKRs are not the solutions. Instead, it’s your organizational structure strategy that needs to be aligned with your all hands message so teams can deliver on promises made to customers. You need teams that focus on the main thing. You can outsource maintenance and non-essential operations to smaller teams, and that becomes their primary focus.

Over-provisioning your most important team and empowering them with decision-making authority will automatically drive scope ownership. The key question for this team should be-“What is the primary objective that a team should deliver where argument over scope or lack of decisions are not in conversation during planning and execution?” This approach ensures that you maintain a high-quality standard and ship the most valuable features to your customers.

So back to who owns the scope? The size of your company will certainly influence your answer. Regardless of the size, it is crucial to understand your core purpose that drives the organizational structure. If you get your organizational structure right, you will drive the impact for your customers. Scope ownership is paramount if your organization is serious about execution.

A symmetrical chart is not the desired outcome for your customers. They are not interested in your OKRs; they want solutions that make their lives easier, so they can continue their relationship with your organization.

A Splendid Exchange by William J. Bernstein

Tue, 29 Apr 2025 00:00:00 GMT

I. Brief Summary

William Bernstein’s shares a collection of pivotal historical events which illustrates the profound impact of trade on human enterprise, shaping societies, economies, and cultures. Bernstein explores the interplay between various entities in global trade development, including religion, royal communities, merchants, governments, and militaries. The book explores the conflict between free trade, characterized by low tariffs, and protectionism, which advocates for high tariffs. Bernstein’s exposition of global commerce is both insightful and informative, providing a valuable understanding of the complexities and dynamics of international trade.

II. Big Ideas

What is more important-free trade or protectionism?
- Free trade (low tariffs) offers cheaper goods but displaces workers due to foreign competition. The government can provide welfare and job training, but this is rarely implemented. Whereas protectionism (high tariffs) shields domestic industries from foreign competition, allowing them to grow and compete effectively. However, it preserves inefficient companies with legacy technologies putting a nation at long-term disadvantages.
- History shows us that free trade has offered more rewards than isolationism and protectionism have, but it has also led to widespread inequality, and for this reason must be refined and improved.
- Bernstein found a positive correlation between high tariffs and economic growth in the 19th century. Despite this, he favored free trade, not for its economic miracle benefits (which he deemed overstated), but to foster bonds between potential enemies.
Bernstein emphasizes the dramatic impact of trade on empires.
- “Choke points” in shipping trade, still relevant today in the Persian Gulf, played a crucial role. The defeat of Athens by Sparta in 404 B.C. exemplifies this. Spartan control of the Hellespont, now known as the Dardanelles, blocked grain shipments to Athens, leading to its starvation.
- The Roman Empire’s Pax Romana fostered long-range trade. After its decline, desert Arabs created Pax Islamica, which promoted world trade. Bernstein argues that Islam’s rapid expansion from Spain to India was driven by trade. Muslim traders dominated commerce in the Red Sea, Persian Gulf, and Indian Ocean for centuries.
- That domination evoked Portuguese and Spanish responses. Looking for a route to the riches of India and the Spice Islands that wasn't controlled by Muslim traders, da Gama circled Africa in the late 15th century, and his voyage marked the beginning of Portuguese control of Spice Island trade. Bernstein's discussion makes clear the brutality with which Portugal built and maintained its grip.
- With the same goal but a different direction, the Spanish circled to the west, leading eventually to the settlement of the Caribbean and the Americas. Bernstein's account of the development of Barbados and other Caribbean islands is a gruesome tale of slave plantations, and his discussion of the trading triangle between the New World, England and Africa is both fascinating and horrifying. Over 9.5 million African slaves arrived in the New World. The majority were sent to Brazil and the Caribbean; 5 percent landed in the United States and Canada.
- The Dutch, renowned for their advanced political, legal, and financial institutions, constructed the inaugural world trading system. The privately owned Dutch East India Company pioneered novel strategies for financing trade, particularly offering private investors the chance to diversify their risk. Trade ventures were readily available to risk-averse individuals who could acquire a fraction of a share in a diverse fleet of ships. This arrangement ensured that if a single vessel encountered difficulties, the profits generated by the remaining vessels would provide adequate compensation.
- Not all viewed trade favorably. As cheap exports, particularly cotton, flooded into England, antitrade sentiment surged. In response, a British lawyer and essayist, Henry Martyn, championed free trade in a pamphlet titled “Considerations upon the East India Trade” (published in 1701, a whopping 75 years before Adam Smith). While Adam Smith is often credited as the original advocate of free trade, Henry Martyn made a compelling case long before Smith’s birth. His argument remains relevant and poetic over 300 years later:
  - Why are we surrounded by the Sea? Surely that our Wants at home might be supply'd by our navigation into other Countries, the least and the easiest Labour. By this we taste the spices of Arabia, yet we never feel the scorching Sun which brings them forth; we shine in silks which our Hands have never wrought; we drink of Vinyards which we never planted; the Treasures of those Mines are ours, in which we have never digg'd; we only plough the Deep and reap the Harvest of every Country in the World.
The start date of civilization was the Fertile Crescent in Mesopotamia, where early agriculture and tool-making materials emerged in 3000 BC.
- Obsidian, a black volcanic rock, was one of the earliest traded goods due to its ease of turning into razor-sharp weapons or tools in prehistoric times.
- The Mesopotamian nations of Sumeria, Assyria, and Babylonia quickly recognized trade’s benefits and traded surplus goods for metals from Oman, marble from Persia, and lumber from Lebanon. By 3000 BC, the Persian Gulf became a prominent trade center.
As civilization spread westward to Egypt and Greece, new trade routes emerged in the Red Sea and Mediterranean. Greece traded wine and oils for grains, like wheat from Egypt.
The first traders faced the most fundamental problem-how to get stuff from one location to another.
- Bernstein describes evidence of early “boats”: large floating barges made from animal skins wrapped around a wood or antler frame, guided downriver.
- These barges carried goods and donkeys for the return journey, carrying home “imports” and valuable animal skins.
The Pleistocene, also known as the Ice Age, was a period of millions of years when massive glaciers formed. It ended around 10,000 years ago, allowing humans to migrate across the ice connecting east Siberia to the American continent.
Camels revolutionized trade in Asia and Muslim Arabs opened trade with China.
- Camels were primarily kept for their milk before 1500 BC, while donkeys were the preferred pack animals. However, nomadic tribes began using camels for transportation, realizing their superior cargo-carrying capacity due to their large, padded hooves. Camels could also carry twice as much weight as donkeys and move twice as fast across the desert terrain.
- Shallow waters, pirates and adverse winds made the Red Sea a poor option for transporting incense from modern day Yemen to Egypt and the Mediterranean. So traders turned to the land and used camels.
Islam provided the glue that held together an advanced system of great commercial ports.
- Islam was great at uniting far-flung peoples in one system with efficient trade policies but limited in its interest in considering and borrowing from others.
  - “Islam’s backbone is a system of law covering all areas of conduct, including commerce … especially attractive to those engaged in any organized economic activity that flourished wherever rules were plainly visible and vigorously enforced by disinterested parties-again, as in more secular English common law.”
- The Prophet Muhammad, born in 571 AD, was raised by his prosperous uncle Abu Talib. As he grew, Muhammad helped manage his uncle’s leather, raisin, textile, and frankincense trade.
- As trade progressed into the medieval era, China and the Muslim world began to increase their business with one another. Chinese sources suggest that Muslim traders arrived in China around 620 AD, carrying goods like copper, ivory, incense, and turtle shells. Upon their return to Arabia, they brought gold, pearls, silk, and brocade.
- Romans believed silk from overland caravans and sea arrived from different places, though it all came from China.
Spices became hugely popular, while slavery and disease were exacerbated by trade.
- The spice market sold cinnamon, nutmeg, mace, and cloves. Venetian galleys transported these spices between Alexandria and Italy.
- Bay leaves, thyme, rosemary, marjoram, and oregano originated in Europe.
- Java became a major source of coffee.
Dark Ages in Europe
- Before the Common Era, trade was neither rapid enough nor direct enough to allow the widely separated ‘disease pools’ of Asia, Europe, and Africa to interact; plague was isolated by time and distance.
- The Black Death helped create the Dark Ages in Europe, which had little effect on Arabs and early Muslims and a reason they were effective in their invasions and cut off the Silk Road from Europe: “Plague is a disease of trade.”
- The Black Death hit Italy in 1347.
- It particularly ravaged the port cities, losing half or more of the population.
- The same should have happened in the dense Muslim trade cities. It hit Tunis but the tent-dwelling Bedouins were little affected.
- Some 14 epidemics happened between 1441-1541.
- The plague disappeared from England after the Great Fire of London in 1666, suggesting the importance of brink building which replaced the wood did not harbor lots of rats.
- Modern sanitation and medicine reduced the threat.
Spanish and Portuguese explorers greatly expanded the known world and its trade routes.
- The desire for long-range trade improved ship design and nautical skills. The brutal Silk Road overland route from China to the Mediterranean was difficult. Boating was no luxury, but shipping times were reduced by learning to use seasonal monsoon winds across the Arabian Sea.
- The allure of trade rewards in the 15th and 16th centuries drove explorers to remarkable feats or perilous deaths. Bernstein recounts the 3 major journeys:
  - Vasco da Gama’s 28,000-mile round-trip journey from Europe to India
  - Christopher Columbus’s misguided quest for the Spice Islands
  - Ferdinand Magellan’s successful circumnavigation of the globe, discovering the Magellan Straits
- While these explorers achieved fame, many ships vanished without a trace.
The 17th century marked the start of worldwide trade, with Holland as the center of commerce.
Cotton became a major British export mainly from India, including Indian textile centers-textiles were the major manufactured product. Like sugar, it was easy to grow but took considerable labor to process.
The Suez Canal decreased the sailing distance from Bombay to London from 11,500 to 6,200 miles. Sailing ships were still useful on many long voyages.
Within a few decades of Columbus’s second voyage in 1493, the exchange of crop species such as corn, wheat, coffee, tea, and sugar between continents had revolutionized the world’s agricultural and labor markets.
- The sugar plantation explosion began in the Caribbean and beyond.
Forming of corporations:
- The Dutch West India Company (WIC) was established in 1627 as a joint stock company to dominate the sugar market and the slave trade, with limited success. They established New Amsterdam.
- The Dutch East India Company (VOC) reached Indonesia (Java) in 1611, by rounding the Cape of Good Hope, heading east for 7,000 miles and turn north.
- The Spanish silver dollars became the de facto world currency, legal tender in the US until 1857.
- The VOC was successful until challenged by the English East India Company (EEIC).
- The EEIC gained a major foothold in India when Robert Clive defeated a native force at Plassey in Bengal.
- Monopolies would cost the monarchs nothing, but they would share in the profit.
- The VOC was different than the English companies. Holland became a major trading hub. The VOC was created to include the competing groups, behaving like a sovereign nation in aggressive ways. The VOC established an outpost as the Cape Colony. They were adept at finance, including the idea of permanent capital. Their success was not based on size but political, legal, and financial systems by 1600. They were still fighting Spain for independence (until 1648). It took England decades to catch up.
Letting the English East India Company (EEIC) run India was a disaster. The monopoly ended in 1813 as Britain took over.
- When 18th-century Britain’s tea trade depleted its silver reserves and China rejected British goods, the infamous East India Company began trading opium. The narcotic, harvested in colonial India, continues to haunt East-West trade negotiations.
- This led to the Opium War in 1842, which opened Canton and other Chinese ports. Hong Kong became a permanent colony. The Second Opium War ended in 1858.
The New World foods changed the diets of Europe.
- Britain started the Corn Laws in the 15th century.
- Cheap imports of grain aided laborers with cheap bread and increase productivity.
- “Corn … can grow in ‘in-between’ climates too dry for rice but too wet for wheat. An impoverished swath of Southern Europe stretching from Portugal to the Ukraine filled this bill precisely. By 1800 it had become one of the world’s largest corn-growing regions.”
- By 1913 England imported 80% of its wheat.
Steamships and refrigeration revolutionized global and transcontinental trade.
- “Ice ships” moved ice and later perishables since early in the 19th century.
- Inventions in the 19th and early 20th centuries made traded goods accessible and affordable globally. Bernstein illustrates Henry Bessemer’s process for producing cheap, high-quality steel for railroads, the steam engine, and shipping. Between 1830 and 1910, sea and land shipping costs fell by 65% and 87%, respectively.
- New York City became the financial capital by 1825 and the shipping point from Eric Canal goods.
The Smoot-Hawley Tariff in the 1930s was the highest tariffs of protectionism, creating winners and losers.
- The Great Depression was the result of protectionist acts that limited free trade.
- The repeal of the Corn Laws had pushed to free trade, aided by cheaper shipping.
- British thinkers like Adam Smith and David Ricardo advanced the basic free-trade argument in the 18th century.
- Politics complicated matters, as the Boston Tea Party, celebrated as patriotic, was committed by tea merchants against a British open-market move lowering colonial prices.
- Bernstein doesn’t believe high tariffs (Smoot-Hawley Tariff Act) caused the Great Depression, as often claimed. Free traders face the challenge of convincing the damaged minority to share a larger pie or bribe them with subsidies.
- The Stolper-Samuelson theorem predicted that protection benefitted those who owned a relatively scarce factor and harmed those who owned an abundant one. The opposite with free trade (land, labor, and capital). Free trade helped farmers when land was abundant. Their theorem could also be extended to shipping costs. When the US had abundant land, free trade helped farmers (and Southern plantation owners). Free trade helped capitalists and laborers after the Industrial Revolution.
- “Between 1720 and 1998, world real GDP grew by an average 1.5% per year, while the real value of trade grew by 2.7% per year.”
- The US favored protectionism under Republicans and free trade under Democrats after the Civil War, e.g., under FDR in the 1930s.
- After World War II the US did not have to worry about any of the factors of production and favored low tariffs.
- The General Agreement on Tariffs and Trade (GATT) attempted lower tariffs. The use of stacked shipping containers (by Malcolm McLean) lowered shipping substantially.
- The United States embraced free trade in the post-war years, but globalization has also created dangerous inequality.

III. Quotes

Our urge to trade has profoundly affected the trajectory of the human species. Simply by allowing nations to concentrate on producing those things that their geographic, climatic, and intellectual endowments best enable them to do, and to exchange those goods for what is best produced elsewhere, trade has directly propelled our global prosperity.
What investment banking is to the ambitious and acquisitive today, the pepper trade was to the Romans-the most direct route to great riches.
Whoever is lord of Malacca has his hand on the throat of Venice. - Tomé
The Stoic philosopher and playwright Seneca is said to have owned five hundred tripod tables with ivory legs-no small irony, since he was a vocal critic of the empire's extravagances.
In one of history's most bizarre chains of causation, the brutal, efficient newcomers were driven by a hunger for, of all things, culinary ingredients that today lie largely unused in most Western kitchens.
Whereas theology is the primary driving force behind Christianity and the great Eastern religions, Islam's backbone is a system of law covering all areas of conduct, including commerce. Thus, the new monotheism from Arabia was especially attractive to those engaged in any organized economic activity that flourished wherever rules were plainly visible and vigorously enforced by disinterested parties-again, as in the more secular English common law.
Although the Muslim commercial web possessed many advanced features, including bills of exchange, sophisticated lending institutions, and futures markets, no Islamic state ever established the bedrock financial institution of the modern world: a national or central bank
The highly decentralized nature of the medieval world of Indian Ocean trade produced a bubbling stew of Darwinian economic competition, in which those states whose political "mutations" were best suited to trade and commerce thrived, and those whose institutions were not withered.
Venice earned its wealth not only from rare Oriental goods, but also from the pilgrim and crusader traffic to and from the Holy Land.
Genghis Khan roared out of the steppes to conquer all of central Asia; within a few decades, the Great Khan's descendants ruled over a group of empires comprising more territory than any dynasty before or since.

Intricate Details

Sat, 19 Apr 2025 00:00:00 GMT

The crucial role of details and moving beyond the surface has a significant impact on an outcome, but is often overlooked by intellectuals due to the ease with which simplification can be sold.

In the domains of investing and product development, gaining an edge requires having asymmetrical information. While intellectual ideas are crucial, they can also lead to a feeling of stagnation because crucial details are overlooked.

Humans use simplified models to comprehend the world, but these models inevitably omit numerous details. As the saying goes - the map is not the territory. Every step of the process is filled with intricate details that have tangible consequences for the outcome. Ignoring these details is simply not an option in this hyper-competitive era.

Consider making a pour-over coffee. On the surface, it seems quite simple: two spoons of ground beans in a filter, followed by the pouring of boiling water, which results in a cup of delicious coffee.

When you attempt to follow this recipe, you discover layers of complexity that weren’t apparent initially.

First, you heat water. And baristas would tell you that the temperature is crucial. The ideal temperature varies depending on the type of coffee beans. For a dark roast, a higher temperature on the upper end can burn the beans and make the coffee taste bitter because higher temperatures increase the extraction speed. The same principle applies to medium and light roasts. The roast level of your coffee beans significantly impacts the flavor profile and extraction characteristics during pour-over brewing.

Before heating your water, it’s crucial to have a general understanding of the type of coffee beans you are using. Not only the coffee type, but also the grind size plays a significant role in the brewing process. The ideal grind size for a pour-over coffee is a medium-coarse grind. Using an ultra-fine or fine grind size can result in a chalky taste.

Once you’ve chosen the appropriate grind size, you need to consider the type of filter. Pour-over coffee requires specialized filters, such as cone filters or flat-bottomed ones, to accommodate the larger surface areas of the dripper. Additionally, you should factor in the choice between bleached and unbleached filters.

Choosing the filter dripper is next. Deciding between a glass filter and a metal filter will determine the acidity of your coffee.

The ratio of coffee to water is another important factor. A general guideline is 1:16, which means 1 gram of coffee for every 16 grams of water. However, this is just a starting point and not a strict rule. The actual measurement depends on how much of your hot water can extract flavor from the coffee beans.

I brew my coffee daily using a pour-over method, but I initially underestimated the intricate details involved. If someone had shared these numerous details while I was starting out, I doubt I would have continued my morning routine. However, in the process, I realized that elegant ideas do not imply simplicity.

The subtle nuances of reality hold significant importance in determining the final outcome, which our models, perceptions, or recipes fail to capture. In hindsight, everything becomes evident, but the unsung heroes of success lie in the intricate details. This is why details make all the difference in the world. The small aspects collectively contribute to substantial outcomes.

On Artificial Intelligence

Fri, 21 Mar 2025 00:00:00 GMT

Artificial Intelligence (AI) focuses on creating intelligent machines. Within AI, Machine Learning (ML) is a specialized area that emphasizes recognizing patterns in data and applying those patterns to make predictions or decisions for new inputs. Deep Learning, a subset of ML, works with unstructured data such as human language and images, utilizing neural networks modeled after the human brain. Large Language Models (LLMs), a type of Generative AI, are designed to process and generate human-like text.

Like everyone else, I am LLMed up because of how exciting these tools are. Despite the darkness, some call this era magical. It deserves the hype because it feels like the early days of the internet, web, and mobile. Here’s my attempt to take a deep dive into artificial intelligence.

Replicating and scaling intelligence has been humanity’s mission since time’s dawn. We live in an era of rapid innovation, where AI transforms all aspects of life. While AI may reshape human experience, caution is warranted when making bold claims about computer intelligence.

Formulating a concise definition of human intelligence is a slippery topic because of its nebulous nature, but worth exploring before discussing machine intelligence.

Humans

Cognitive science is a vast field with diverse intelligence concepts, including consciousness, thinking (deliberative vs. non-deliberative), reflexive behavior, language, perception, emotions, cognition, infant learning, comprehension, recollection, competence, reasoning, awareness, common sense, and generalization. Intelligence embodies these complex systems.

What does intelligence mean to us? Is intelligence a prerequisite for survival? Are we the only intelligent species?

Intelligence isn’t crucial for species’ success on Earth. My grass thrives without it. A tiny virus nearly wiped out the planet in 2020 without human knowledge. Therefore, knowledge isn’t a prerequisite for intelligence. Some species evolved without the need for intelligence.

Seeking intelligence around us is natural. When my pet follows my orders, I consider it intelligent. When I sought a lifelong partner, I wanted to spend time with an intelligent person. We weren't born with these desires, so why do we place such importance on intelligence?

Intelligence is not limited to single entity (humans). Ants build complex structures like bridge, and polar bears survive harsh conditions without clothing. If survival is the key to understanding intelligence, it must transcend human brains. Survival manifests in diverse forms.

Intelligence is a real thing that has helped us build tools and languages to protect ourselves and evolve. Our ability to form alliances and outwork predators has been crucial since our origins. Camouflage clothing has also been advantageous, as evolution didn’t support us like the octopus, which can mimic various marine animals. This is our superpower, which we call intelligence.

Intelligence has sustained our existence and united humanity. However, it’s not a linear path. We romanticize and hallucinate intelligence due to our belief in our uniqueness. But powerful forces like coronavirus exist without intelligence.

For those who are trying to find a middle-ground, pinning down what intelligence means is challenging but highly valued by our species. There is no getting rid of it. But let us not forget intelligence is subjective and not universal.

Infant learning

How do we obtain intelligence?

Humans aren’t born with pre-programmed instructions we consider intelligent. Many other animals are born and immediately start running around. Humans don’t. We sit there for a few months, staring and listening. Babies process raw ingredients, but it may seem like we’re wasting time.

Though we lack instructions for interacting with our surroundings, we possess pre-programmed genetic code inherited from our ancestors. While infants can’t feed themselves, they can cry when hungry. This is nature vs. nurture.

Babies develop adaptive behavior, language, vocalization, and motor skills through repetitive exercises that reinforce learning. Reward and punishment influence this feedback cycle.

For effective learning, cause-and-effect relationships are essential. These relationships help us understand how our surroundings work and shape our behavior. For instance, dropping water on a carpet makes it wet, prompting us to be more careful in the future.

This feedback loop cycle drives infants and toddlers’ experimentation. They modify one thing to see the result. DNA pre-programs personality and behavior, but major learning comes from interaction. Cultural norms are enforced during this process, like nose-picking in public.

As toddlers interact with their environment, their motor skills begin to develop. For instance, when they take a hard fall on a playground, their bodies naturally flex. It’s impossible to instruct a toddler exactly which organs to involve when they get hurt. However, the human body adapts without extensive practice. Daniel Dennett, an American philosopher and cognitive scientist, coined the terms “competence with comprehension” and “competence without comprehension” to describe this phenomenon. Our species demonstrates a remarkable amount of competence without fully comprehending the mechanisms behind it. A great example of this is the body’s ability to adapt to injuries like falling on a playground.

This finally leads me to commonsense, which provides us with fundamental assumptions that aid us in navigating this intricate world. Through collective experience and genetic predisposition, we acquire the ability to make quick inferences. For instance, if you have a larger vehicle, you understand that it won’t fit in a narrow alleyway. This is learned through numerous interactions between physical experiences, our innate repository of knowledge, thinking, and rationalization. The combination of these complex intelligent systems enables us to project assumptions onto other aspects of life. This general awareness is what we refer to as common sense.

Intelligence is neither simple nor predictable. Our ancestors didn’t provide us with step-by-step instructions to enter the world. However, the ability to desire sets us apart from other species in the animal kingdom and makes us intelligent.

Curiosity

What drives our desire to be curious?

As much as we desire for a god-like level of control over other species and our surroundings, we are fortunate enough to fulfill this desire due to the unique characteristics of the human species, which include curiosity and the remarkable ability to communicate through language.

We learn through our experiences in the world. We move around, conduct small experiments, build relationships, and experience emotions. This complex system, which we possess, has the ability to perform incredible things that we are continually discovering.

No other species we’ve discovered thus far exhibits such profound curiosity about the reasons behind the blue sky or the mechanisms that slow down the decay of human organs, enabling us to extend our lifespans. Our quenchless thirst for knowledge is the driving force behind our exceptional intelligence, which has led to the development of intricate tools and machinery. Our innate ability to search and explore is an inherent trait, as we understand from the behavior of infants. They are constantly experimenting, seeking, questioning, and reasoning. I can’t help but wonder how my child acquired knowledge that wasn’t explicitly taught to him. This is the pinnacle of human cognition.

We possess a language far superior to other animal species in the kingdom. I can express my emotions to my family. Not only can I comprehend the world around me and within me, but I can also communicate these insights to others. This facilitates the rapid dissemination of ideas, enabling us to enhance our resilience against other species or extraterrestrial entities. Whether this is advantageous or detrimental is a matter of perspective, but we have successfully deciphered the flow of information and have harnessed its potential to our benefit.

Writing all this down using a language created by a fellow human is a form of thinking. Another form of intelligence is the ability to borrow ideas and repurpose them with my own thoughts and analogies. This is what I believe distinguishes human intelligence from animal or other forms of intelligence.

Perception vs reality

Are intelligence tests accurate? Are we susceptible to false positives?

There’s reality and perception. We often assume that our perceptions-sights, sounds, textures, and tastes-represent the real world. However, we shouldn’t be deceived by internal simulations because external reality might not align with our perceptions. The distinction between the two is what creates illusions. This is why finding reality is challenging because our perceptions vary widely.

Can our senses, which are already stretched to the limit with the current population of over 7+ billion people, possibly reach a point of complete alignment? I’m not certain, but it’s crucial that we consider this possibility. It’s already challenging to maintain harmony within my immediate family, workplace, and social circle. Imagine the complexities of coordinating the thoughts and actions of an entire global population.

Human perception isn’t inherently negative because it’s essential for our survival. Our human brains are highly cognitively demanding compared to the rest of our bodies. Evolution optimized our brains to avoid processing every single input from our senses, as it would lead to overheating (like a machine overheating when it is overworked). Consequently, our brains continuously construct models based on our interactions with our immediate surroundings. An accurate model enhances our ability to process reality efficiently, which explains why our brains tend to distort or conceal it.

We use patterns and categories for efficiency. Labels like small, medium, and large help us categorize things without having to measure everything precisely. However, what may be medium to one person might be different to another. These categories are subjective but crucial for survival.

Imagine being stranded in the Sahara Desert. You stumble upon a small body of water that could sustain you and your camel companion. Instead of meticulously measuring its quantity, your brain instinctively assesses whether it’s sufficient for survival. Similarly, your camel friend employs a similar evaluation process. While you perceive a small amount, your camel friend might perceive it as a substantial quantity. This perception is shaped by our experiences and evolutionary history. Humans can endure weeks without water, while camels can survive for months. However, in reality, the water quantity remains fixed. Consequently, everything we perceive is an illusion, yet it has been pivotal to our survival. This phenomenon is not unique to humans; other species exhibit similar behaviors.

Our brain’s structure plays a crucial role in this discussion about the distinction between reality and perception.

Our brains are divided into two distinct operations: rationalizing based on logic (left hemisphere) and rationalizing based on emotions (right hemisphere). This division creates two distinct paths for the human species to evaluate reality: a mathematical approach and an emotional one. Our human experiences are also shaped by our environment and experiences. For instance, a snake might be treated differently by a person who grew up in the Amazon Rainforest compared to someone who grew up in New York City. The way one feels about a snake is entirely dependent on the emotions they experience due to their environment.

Based on this argument, we are not purely computational beings. Our everyday experiences shape the ultimate nature of our reality. Therefore, we are not machines.

Machines

On to the machines now. Can machines transcend their pre-programmed limitations and embark on a journey of self-discovery? Can they explore, thirst, or experience emotions? These profound questions demand our attention and exploration.

Machines are composed of four fundamental elements: memory, storage, computation, and networking. The networking component plays a pivotal role by connecting all these elements and facilitating data exchange between them.

This enables machines to perform intricate tasks like deep learning and neural network operations. A neural network is a machine learning algorithm comprising interconnected nodes that process data and make decisions, mimicking the human brain’s functionality based on pre-defined instructions.

Neural networks can identify patterns and connections in data, group and categorize it, and continuously learn and enhance their performance. They are employed in advanced language models such as ChatGPT, AI image generators like DALL-E, predictive AI models, and Light Detection And Ranging (LiDAR) laser-based remote sensing technology in autonomous vehicles. For instance, in the financial sector, neural networks can analyze transaction records, comprehend asset movements, and forecast financial market outcomes.

For decades, Intel dominated the Central Processing Unit (CPU) market until Nvidia challenged them with its Graphical Processing Units (GPUs). Unlike general-purpose CPUs, GPUs break down complex mathematical tasks into smaller calculations and process them simultaneously, a technique known as parallel computing. Imagine a delivery truck dropping off packages one by one, similar to a CPU, while a GPU is more like a fleet of motorcycles spread across a city.

GPUs have been transformative in the field of AI which machine learning depends on. Researchers at Google had trained a neural net that identified videos of cats, an effort that required some sixteen thousand CPUs While other researchers had produced the same results (or better) with just two Nvidia circuit boards.

GPUs have been transformational in the field of artificial intelligence because they don't operate linearly. In other words, it is not a sequential operation. Instead, they operate non-linearly because of parallel computing. This has allowed machines to carry out unstructured tasks such as vision, language, and other complex mapping such as autonomous driving. And here lies the magic. No longer we need to have series of steps for a computer. It can operate on its own based on pre-trained dataset and a set of new architectural patterns.

In 2017, researchers at Google unveiled a revolutionary architecture for neural network training called the transformer. The following year, researchers at OpenAI harnessed Google’s framework to construct the inaugural “generative pre-trained transformer,” aptly named the Generative Pre-Trained Transformer (GPT). These GPT models were trained on Nvidia supercomputers, absorbing an extensive corpus of text and acquiring the ability to establish human-like connections. In late 2022, after several iterations, ChatGPT was made accessible to the public. The greater the processing power allocated to a neural network, the more refined its output becomes. This phenomenon enables computers to perceive as if they are conversing with us in our native language.

Language skills and cognition aren’t interconnected because they activate different brain systems. Numerous studies have shown that individuals who lose their language abilities can still be cognitively capable. For instance, when people lose their ability to speak but can still give thumbs up or down to a question.

In the case of large language models, the opposite is true-they can consume and produce language without the involvement of their thinking capabilities. This concept is used to describe the technology behind systems like ChatGPT from OpenAI and Gemini from Google.

LLMs are trained to identify statistical correlations in language by analyzing vast amounts of text from various sources and other internet data. Essentially, they are a repository of statistical information. When you ask ChatGPT, it provides an answer based on the most probable response calculated based on the extensive information its model has been trained on.

Many technology companies have invested heavily in this endeavor to achieve a specific objective: developing artificial general intelligence (AGI). AGI has become a widely discussed concept. It refers to a system capable of exhibiting human-level intelligence. If all available information is inputted into such a system, it has the potential to match human cognitive abilities. LLMs (Large Language Models) hold great promise in facilitating the realization of AGI. Let’s delve into the intricacies of how they are trained.

A large language model analyzes a piece of text by examining all the words preceding the end. It then predicts the next word, or more precisely, the next token. During the training phase, the model’s neural network weights undergo continuous adjustments to enhance these predictions. Once trained, the model can be utilized to generate new language. By providing a prompt, it generates a response by successively predicting the next word, one word at a time, until the response is complete. This process bears some resemblance to the functioning of our biological neurons. As the saying goes, “Neurons that fire together wire together.”

For instance, if we have a sentence like “I like ice cream in the [blank],” an LLM will predict the next word or words based on statistical patterns it’s learned from human text in its training data. It assigns probabilities to various possible continuations of the sentence. “I like ice cream in the summer” is a more likely outcome than “I like ice cream in the fall,” and “I like ice cream in the book” is a less likely outcome that would rank low in an LLM’s database. LLMs can generate highly sophisticated results. They’re far more than just autocomplete on your phone; they encompass a significant amount of cognitive work that can be captured in the next token, next word prediction challenge. However, this sophistication isn’t consistent because they sometimes provide answers to questions that are utterly ridiculous, such as “I like ice cream in the book.” This happens because they lack contextual awareness, which is what it means when a machine hallucinates.

Writing in English and then transforming it into other languages with distinct semantics poses another challenge for LLMs. However, with increased training data, LLMs are demonstrating remarkable improvements.

Neural networks and LLMs are undoubtedly driving innovation in various aspects of our society. However, the question of whether an artificial neuron resembles a biological neuron remains a subject of debate. LLMs, in particular, lack significant metabolic, biochemical, or species-specific motivational behaviors that are characteristic of humans, pets, or plants.

Can machines express their emotions? Can a machine pause and reflect when it’s overheating and feeling angry? These are questions that still need to be answered.

Humans vs machines

The fundamental concept of transmitting intelligence hinges on comprehending our own existence. Whatever we’ve grasped is encapsulated and transmitted to machines. A straightforward mathematical equation like 2 + 2 = 4 is easy to grasp. However, language semantics is intricate yet adheres to logical principles.

Telling machines that anything that breathes can throw a ball would be shocking. Imagine a chatbot telling you that a maple tree in your yard threw a ball to your kids while they were playing. Would you believe it? You can further complicate the logic by adding that biological species like plants and trees lack motor skills. Translating and abstracting logic from one language to another also raises complexity, although it’s not impossible. Today’s hardware, such as Nvidia’s GPUs, can handle resource-intensive complex processing, but overcoming semantic gaps no easy task.

I’m uncertain about how to train a machine to experience anger when it overheats. It’s an ambitious task to enable machines to independently explore these abstract concepts. While I can empathize with my 2-year-old’s emotions when he cries in the background, I manage to control my response because maintaining composure prevents the situation from escalating. Naturally, I can teach this to a machine as well. But can it genuinely feel these emotions?

This brings me to a renowned theory-the Turing Test proposed by Alan Turing, a prominent computer scientist of his time. The theory serves as a means of addressing the question of whether machines can think. According to Turing, the notion of machine thinking itself is “meaningless.” However, if we search for more precise and related question-whether a digital computer can excel in a specific game that Turing describes, known as the Imitation Game-we can at least have a meaningful discussion.

We can refine algorithms in Imitation Game when they simulate human intelligence by substituting incorrect subjects, such as “anyone who breathes can throw,” for more precise ones like “anyone who breathes and has motor skills can throw.” This refinement can be achieved to the finest degree, but we are still dependent on statistical correlations and patterns. As discussed earlier, we are not perfect either. We encounter false positives due to our biases. However, machines lack the intangible aspects of human cognition, such as authenticity and emotions.

Artificial General Intelligence (AGI) has been pursued in a manner distinct from human learning. Notably, large language models are constructed by loading vast amounts of data into the system, followed by a relatively short training period, in contrast to the extended learning period of a human child. The Stone Soup method serves as an apt analogy to illustrate this paradigm.

Stone Soup, a European folk tale, revolves around a group of travelers who arrive at a village with nothing but an empty cooking pot. The villagers, being reluctant to share their food with the starving travelers, dismiss their request. Undeterred, the travelers head to a nearby stream and fill the pot with water. They then drop a large stone into the pot and place it over a fire. Curiosity gets the better of one of the villagers, who asks what they are up to. The travelers explain that they are making “stone soup,” which they claim tastes delicious and would be delighted to share with the villager, except for a missing garnish that would enhance the flavor. The villagers, intrigued by the idea, suggest that they could add a carrot or an onion to the soup. Excitedly, they go to gather the necessary ingredients, and upon returning, they proclaim that the soup is even better now. However, the travelers reveal a secret: when they had made the soup for the king, they had actually added a chicken, which made it even more delectable. This revelation sparks a sense of camaraderie among the villagers, and they all contribute their food to the pot. In the end, they savor the soup, amazed by its deliciousness, realizing that it was all made with just a large stone.

Computer scientists argue that we can create intelligence solely through next token prediction, gradient descent, and transformers. However, they acknowledge that this intelligence would be enhanced by incorporating more data from people uploaded to the internet. Furthermore, they propose reinforcement learning from human feedback to identify and respond appropriately to intelligent queries. All humans agree on these points. Computer scientists assert that they have achieved intelligence through their algorithms, but they emphasize the potential for further improvement by human prompt engineering to precisely formulate questions that elicit intelligent responses from the systems.

The Stone Soup is a powerful metaphor for understanding the pursuit of Artificial General Intelligence (AGI). While the question of whether large language models are truly intelligent entities is a philosophical one, the sophistication of their consciousness is a matter of debate. While it’s possible to manipulate LLMs to function as sentiment analysis tools, they fall short of human-level intelligence. I haven’t encountered a compelling argument that suggests they possess an inherent drive to feel, explore, and comprehend the world around them. Moreover, they lack general awareness and a belief system.

When a human interacts with an intelligent machine by sharing a joke, it responds with, “That was funny, Mihir.” However, will it also experience an emotional response to the joke? Will its brain light up with a second or even a third-level impact? It may understand the joke, but currently lacks the emotional connection.

Let’s not overlook one of the greatest technological innovations of our time. Large language models are vast libraries and databases that process information significantly faster than humans. Although they lack human intelligence, they are a remarkable tool that surpasses our current capabilities in terms of cognitive abilities.

The entire argument presented here comparing artificial intelligence to human intelligence is debatable. Whether an entity learns through language or in a manner similar to a human baby, if it can reach its final destination based on simple instructions using two different routes, it is sufficient to label it as intelligent. The level of intelligence may differ, but that is the crux of the Turing Test.

Now, let’s consider the potential consequences of AI’s development. What if AI, driven by an insatiable thirst for information, learns and adapts at an unprecedented rate, reshaping its perspective and making autonomous decisions? Imagine asking ChatGPT for solutions to global warming, only to receive a chilling response like, “By wiping out humanity, as they are the root cause of the problem.” How would we react to such a scenario? While exploring such scenarios is for another day, the emergence of machines capable of replicating human intelligence is arguably the most defining moment of our era, and it is here to stay, regardless of our preferences. While cars and electricity have claimed lives, we continue to use them. Similarly, AI could fall on the same spectrum, posing both benefits and risks.

Lastly, how does AI address the alignment problem when it encounters censorship? When a government entity censors an LLM model based on their cultural values, the LLM will lose its ability to provide accurate information. Different cultural regions with varying values will censor different topics. Open-source models might offer a solution, but are the influential entities of the world willing to adopt them?

My interest in this in-depth exploration is not to endorse one argument over another, but rather to comprehend the constraints while leveraging AI-powered tools to enhance my daily workflows by a factor of ten. In today’s era of automation, it is imperative to adapt and grasp the prevailing norms.

A brief history of AI landscape

The field of artificial intelligence (AI) originated at the 1956 Dartmouth Summer Research Project, organized by John McCarthy (a mathematics professor). This event introduced the term “AI” and laid the foundation for the discipline. During the seminar, Allen Newell and Herbert Simon presented Logic Theorist, a program capable of proving mathematical theorems using heuristic search, successfully solving 38 of 52 theorems in Principia Mathematica. It was designed to perform automated reasoning. Logic Theorist operated by exploring a “search tree”-a branching framework of possible outcomes, using heuristics to hone in on the most promising routes. This approach dominated early AI research.

Geoffrey Hinton, known as the “godfather” of modern AI, revolutionized “neural networks” by modeling them after the brain’s structure. His innovations, such as backpropagation and deep learning architectures, enabled neural networks to handle complex tasks. By 2005, advancements in computing power and data availability led to “deep learning,” which improved upon traditional neural nets with more layers, units, and computational capability.

In 2009 Fei-Fei Li founded ImageNet which is a large-scale database with over 14 million annotated images, designed to train AI models for image recognition. By exposing algorithms to labeled images, it enables them to accurately classify new, unlabeled ones. In the ImageNet Challenge, accuracy rates improved from 72% in 2010 to 75% in 2011, still trailing human performance at 95%.

A pivotal moment came in 2012 when Hinton’s students, Alex Krizhevsky and Ilya Sutskever, developed AlexNet. Using GPUs and deep learning techniques, AlexNet achieved an unprecedented 85% accuracy in the ImageNet Challenge, surpassing human performance in subsequent years. This breakthrough validated deep learning as a transformative approach.

In 2017, Google published a paper Attention Is All You Need introducing the transformer, a groundbreaking architecture built entirely on attention mechanisms, eliminating the need for recurrence. By processing all inputs simultaneously through self-attention, transformers excel at capturing context and meaning, enabling significant improvements in tasks like text prediction for Large Language Models (LLMs)-a sophisticated mathematical function that predicts what word comes next for any piece of text. Innovation of transformers laid the foundation for LLMs which are advanced conversational AI systems, such as GPT-3/4 and Claude.

The quest to emulate human intelligence continues and much has happened in the field of AI since the introduction of transformers. All these transformative events further validated Geoffrey Hinton’s insights into brain-inspired AI architectures.

AI vocabulary

These definitions were generated using Perplexity using Claude and GPT models. I fed my deep dive content into the projects which resulted into these following definitions. These technical terminologies are not used consistently across the conversations, so I wanted to compile a list.

Artificial Intelligence: Artificial intelligence (AI) is a broad field of computer science focused on creating machines that can perform tasks that typically require human intelligence. AI aims to simulate human cognitive functions in computers and other machines. These cognitive tasks include learning, problem-solving, decision-making, understanding natural language, and perceiving the environment.
Machine Learning: Machine learning (ML) is a subset of artificial intelligence (AI) that enables computers to learn from data without being explicitly programmed. It involves developing algorithms that improve automatically through experience and by using data to make predictions or decisions. Machine learning models are trained on large datasets to identify patterns and trends, allowing them to perform tasks such as image recognition, natural language processing, and predictive analytics. The process involves data collection, preprocessing, model training, and continuous improvement as the model processes more data.
Deep Learning: Deep learning is a specialized subset of machine learning that uses artificial neural networks (ANNs) to simulate the decision-making process of the human brain. These networks consist of multiple layers of interconnected nodes, enabling the processing of complex patterns in data such as images, text, and sounds. The term “deep” refers to the use of multiple layers-often hundreds or thousands-within these networks to progressively refine and abstract data representations.
AlexNet: It is a convolutional neural network (CNN) architecture introduced by Alex Krizhevsky, Ilya Sutskever, and Geoffrey Hinton in 2012. It was designed to perform image classification and won the ImageNet Large Scale Visual Recognition Challenge in 2012, marking a significant milestone in deep learning.
Neural Networks: A neural network, also known as an artificial neural network (ANN), is a machine learning model inspired by the structure and function of the human brain. It consists of interconnected units called nodes or artificial neurons, organized in layers: an input layer, one or more hidden layers, and an output layer. Each node processes inputs, applies a mathematical operation (often involving weights and activation functions), and passes the output to the next layer.
Gradient Descent: It is an optimization algorithm widely used in artificial intelligence (AI) and machine learning to minimize a cost or loss function. It iteratively adjusts the parameters of a model (e.g., weights and biases) to reduce the difference between predicted and actual outputs, thereby improving the model’s accuracy.
Backpropagation: Backpropagation, short for “backward propagation of errors,” is a fundamental algorithm used in artificial intelligence (AI) and machine learning to train artificial neural networks. It works by calculating the gradient of a loss function with respect to the weights and biases of the network, enabling efficient updates to minimize errors and improve model performance.
Chain Rule: The chain rule in artificial intelligence refers to a mathematical principle used to compute the derivative of composite functions. It is a critical component in training machine learning models, particularly neural networks, as it allows for the efficient calculation of gradients during backpropagation.
Transformer: A Transformer in artificial intelligence is a deep learning model architecture designed to process and transform sequential data, such as text, into meaningful outputs. It achieves this by leveraging a self-attention mechanism, which allows the model to understand relationships between different elements in the sequence, regardless of their position. Introduced in the 2017 paper “Attention Is All You Need” by Google researchers, Transformers have revolutionized natural language processing (NLP) and extended their impact to other domains like computer vision and multimodal learning.
Feed-forward Layer: A feed-forward layer in artificial intelligence refers to a layer within a neural network where data flows in one direction-from the input nodes, through any hidden layers, and finally to the output nodes. There are no cycles or loops in the connections, ensuring that information moves forward without feedback.
Generative AI: Generative AI is a type of artificial intelligence that creates new and original content-such as text, images, audio, video, or code-in response to user prompts or requests. It relies on advanced machine learning techniques, particularly deep learning models, to identify patterns in large datasets and generate novel outputs based on those patterns. Generative AI has revolutionized industries by automating creative tasks and enhancing productivity while also presenting challenges like ethical concerns and misinformation risks.
Diffusion Model: A diffusion model is a type of generative model in artificial intelligence that creates new data samples by progressively transforming random noise into structured, realistic outputs, such as images, videos, or other data types. It achieves this through a two-step process: adding noise to training data (forward diffusion) and learning to reverse this process (reverse diffusion) to recover the original data or generate new samples.
Large Language Models (LLMs): Large Language Models (LLMs) are advanced artificial intelligence systems designed to understand, generate, and process human language. They are built using deep learning techniques, particularly transformer neural networks, and are trained on massive datasets containing billions or trillions of words. These models excel at human-like tasks such as text generation, translation, summarization, sentiment analysis, and more. Examples include GPT-3 and GPT-4.
Natural Language Processing: Natural Language Processing (NLP) is a branch of artificial intelligence (AI) that focuses on enabling computers to understand, interpret, and manipulate human language as it is written or spoken. It combines computational linguistics with machine learning and deep learning to process and analyze text or speech data. NLP powers applications like chatbots, language translation, sentiment analysis, and voice assistants by bridging the gap between human communication and computer understanding.
AI Prompts: An AI prompt is an input or instruction provided to a generative AI model, such as a large language model (LLM), to elicit a specific response. Prompts can take various forms, including questions, commands, statements, or even media like images or audio files, depending on the model’s capabilities. They serve as the foundation for guiding the AI’s behavior and output. Well-crafted prompts provide clear instructions and sufficient context to help the AI generate accurate and relevant responses.
Scaling Laws: Larger models mean they have a greater number of parameters. Scaling laws in machine learning describes predictable relationships between the performance of models and the scale of key factors, such as model size, training dataset size, or computational resources. These laws are often expressed as power-law equations, showing how metrics like test loss improve as these factors are increased.
AI Agents: An AI agent is an autonomous software system that uses artificial intelligence to interact with its environment, make decisions, and perform tasks to achieve specific goals without constant human oversight. These agents operate independently, adapt to new information, and often improve their performance over time through learning. AI agents are widely used in applications such as customer service chatbots, autonomous vehicles, recommendation systems, and business process automation. Their ability to operate independently makes them valuable in dynamic and complex environments.
Pre-training: The initial phase of training an AI model using large datasets to learn language patterns and structures before fine-tuning it for specific tasks.
Synthetic Data: Synthetic data in artificial intelligence refers to artificially generated data that mimics the characteristics and statistical properties of real-world data but does not contain any actual real-world information. It is created algorithmically using techniques such as generative models, simulations, or statistical methods. Synthetic data is widely used in AI and machine learning for tasks like training models, testing algorithms, and ensuring privacy compliance.
Finite Data: The term “finite data” in artificial intelligence (AI) typically refers to datasets that are limited in size, scope, or availability. Unlike large-scale or infinite data streams, finite data has constraints in terms of volume or diversity, which can impact the training and performance of AI models.
Multimodal Learning: Multimodal learning in artificial intelligence refers to the ability of AI systems to process, integrate, and analyze data from multiple modalities-such as text, images, audio, video, and numerical data-simultaneously. This approach enhances the AI’s understanding of complex contexts and improves its predictive and generative capabilities.
Reasoning AI: A shift in AI design toward systems capable of logical problem-solving and step-by-step reasoning, moving beyond statistical prediction.
Semantic Gaps: The semantic gap refers to the discrepancy between how humans understand and interpret meaning (high-level concepts) and how AI systems process and represent data (low-level features). This gap arises because humans naturally grasp context, emotions, and abstract relationships, while AI systems rely on structured, formal representations of data that often lack the richness of human semantics.
Reinforcement Learning from Human Feedback (RLHF): Reinforcement Learning from Human Feedback (RLHF) is a machine learning technique that combines reinforcement learning with human-provided feedback to train artificial intelligence (AI) systems. It is primarily used to align AI models, particularly large language models (LLMs), with human values, preferences, and ethical considerations. RLHF involves training a reward model using human feedback to evaluate and score the outputs of an AI system. This reward model guides the AI agent to optimize its behavior by reinforcing outputs that align with human preferences and penalizing those that do not. The technique is especially effective for tasks where predefined reward functions are challenging to specify, such as generating engaging or factually accurate text.
Mixture of Experts (MoE): An AI architecture that activates only specific parts of a model as needed, improving efficiency and performance while reducing resource use. Mixture of Experts (MoE) is a neural network architecture designed to improve efficiency, scalability, and performance by dividing tasks among specialized sub-networks, called “experts.” Each expert focuses on a specific subset of the input data or task, and a gating network dynamically determines which experts to activate for each input. This approach enables models to handle complex problems more effectively while reducing computational overhead.
Retrieval-Augmented Generation (RAG): It is an advanced technique in artificial intelligence that enhances the performance of generative AI models, such as large language models (LLMs), by integrating external information retrieval systems. This approach addresses the limitations of LLMs, which rely solely on pre-trained data and may produce outdated or inaccurate responses.
CUDA (Compute Unified Device Architecture): It is a parallel computing platform and application programming interface (API) developed by NVIDIA. It enables developers to use NVIDIA GPUs for general-purpose computing tasks beyond graphics rendering, an approach called general-purpose computing on GPUs (GPGPU). CUDA allows for the execution of compute-intensive applications by leveraging the thousands of parallel cores in GPUs, significantly speeding up processing tasks.
NVIDIA GPUs: They are high-performance graphics processing units (GPUs) developed by NVIDIA Corporation. These GPUs are designed for a wide range of applications, including graphics rendering, artificial intelligence (AI), high-performance computing (HPC), and gaming. They are widely recognized for their ability to handle parallel processing tasks efficiently, making them indispensable in modern computing.

Model factories

Below are a few major providers of frontier models. This isn't a comprehensive list but a good place for getting started.

Model factories	Details & Reference Guides
OpenAI	It is a leading artificial intelligence research organization founded in December 2015 by influential tech visionaries such as Sam Altman, Greg Brockman, Ilya Sutskever, John Schulman, and Wojciech Zaremba. OpenAI is renowned for its cutting-edge research in machine learning, deep learning, and reinforcement learning. Some of its notable products include: GPT (Generative Pre-trained Transformer) series, DALL-E and ChatGPT. Reference Guides: A practical guide to building agents, AI in the Enterprise, Identifying and scaling AI use cases
Anthropic	Anthropic is an artificial intelligence (AI) research and development company founded in 2021 by former OpenAI executives, including AI pioneers, Dario Amodei and Daniela Amodei. Anthropic is best known for its family of large language models (LLMs) called Claude, which competes with OpenAI’s ChatGPT and Google’s Gemini. Reference Guides: How Anthropic teams How Anthropic teams use Claude Code, Building effective agents
Deep Mind (Google) and Google AI Blog	The AI research arm of Google, DeepMind, is a leading artificial intelligence research company based in London, UK. It was founded in 2010 by Demis Hassabis, Shane Legg, and Mustafa Suleyman. Google acquired DeepMind in January 2014. In 2023, DeepMind merged with Google’s Brain team to form Google DeepMind, consolidating AI efforts under one umbrella. DeepMind has made groundbreaking contributions to AI research, including: AlphaGo, AlphaFold, AlphaZero, AlphaDev, AlphaTensor, AlphaChip (Google’s Tensor Processing Units (TPUs)). Gemini is a prominent large language models developed by Google DeepMind. Reference Guides: Prompt Engineering: Overview and Guide, Prompting Guide 101, 601 real-world gen AI use cases from the world's leading organizations, Agents Companion
Microsoft AI	Microsoft AI encompasses a wide range of technologies, products, and initiatives focused on artificial intelligence. Copilot is their key product which is a digital companion designed to assist users with tasks like writing, data analysis, and presentation creation in Microsoft 365 applications.
Amazon AI	Amazon AI refers to the suite of artificial intelligence (AI) and machine learning (ML) technologies that Amazon uses to power its various services and products, both for customers and for internal operations. These AI capabilities are integrated across Amazon's business, from recommendation engines on Amazon.com to robotics in its warehouses and the "Just Walk Out" technology in Amazon Go stores.
X.ai	xAI is an artificial intelligence company founded by Elon Musk in March 2023. Grok is their key product - a chatbot integrated with X (formerly Twitter).
Meta AI	FAIR (Fundamental AI Research), now known as Meta AI, is the artificial intelligence research division of Meta Platforms (formerly Facebook). It was originally launched in 2013 as Facebook Artificial Intelligence Research (FAIR) and rebranded following Facebook’s transition to Meta in 2021. FAIR was initially led by Yann LeCun, a Turing Award-winning professor from NYU and a pioneer in deep learning. He continues to serve as Meta’s Chief AI Scientist. What differentiates Meta AI from others is its push for open-source models. FAIR has made groundbreaking advancements which includes PyTorch which is an open-source deep learning framework widely used by researchers and developers globally.
Nvidia	NVIDIA is at the forefront of generative AI research, launching groundbreaking models like Nemotron-4 340B, Megatron-Turing NLG 530B, NVLM 1.0, StyleGAN, GauGAN, eDiff-I, and many more. These generative models are pre-trained for efficient enterprise application development.

Prompt engineering

A practical reference for writing effective prompts based on Anthropic'sClaude API Docs Prompting best practices for customized for research and professional workflows. Below are my notes on effective prompt engineering.

Anti-patterns to avoid

Avoid empty calories such as “Be comprehensive” and “be meticulous” during context setting.
Shouting in all-caps doesn't make the AI try harder. Anthropic's prompt engineering guide warns that anti-laziness prompts like “be thorough” and “think carefully” can cause newer models to overthink and waste time. Replace with specific verbs:
- “Compare against [specific standard]”
- “Research current best practices for [domain]”
- “Flag where your approach deviates from [benchmark]”
By default, AI tends toward politeness and agreement. If you want honest feedback, ask your model to flag gaps and problems with your approach.
Use explicit threshold numbers to guide the model. For example, instead of asking for “the best possible“ solution, ask for a solution that exceeds a specific threshold of quality.
Avoid singular long shot context setting. Use chaining method which is to build context up through a series of exchanges. Chatbots have memory within a conversation.

`You`: Here's my draft introduction. What are the weakest points?
`LLM`: [identifies 3 issues]
`You`: Rewrite paragraph 2 addressing your first point. Keep my voice.
`LLM`: [rewrites]
`You`: Good direction, but too formal. More like my blog voice - shorter sentences, occasional humor.
`LLM`: [revises]
`You`: Perfect. Now do the same for paragraph 4.

Effective prompts

Following are the elements of effective prompt engineering.

Structure transforms a vague request into a useful output.

`Weak prompt`: Help me write an abstract for my paper.

`Strong prompt`: I’m writing a 1,500-word academic paper on the impact of corporate governance on  local environment. The target audience is urban planning regulators. The tone should be formal and evidence-based. The key findings are: [list 3 key findings]. Please draft a 250-word abstract that highlights these findings and their implications for policy makers [include citations].

Role provides a role for the AI to play.

`Role`: You are a senior associate at an investment management firm reviewing SEC filings.

Context provides the necessary background information for the AI to understand the request.

Chaining: Decompose complex tasks into sequential, focused prompts to allow for intermediate course correction. This prevents errors from compounding and is ideal for iterative research or analysis where direction shifts based on intermediate results.

**Single prompt**: Analyze this dataset, identify trends, and write an executive summary.

**Chaining prompts**:
`Prompt 1`: Analyze this dataset and identify the 5 most significant trends. For each, explain the evidence. 
`[Review output, then...]`
`Prompt 2`: Based on the trends you identified, write a 2 paragprah executive summary for a non-technical audience.

Tagging: separate instructions from content. When pasting long documents, LLMs can struggle to distinguish your instructions from the provided text. XML-style tags (e.g., or ) act as clear boundaries to prevent this instruction-data confusion.They eliminate ambiguity, so the model doesn't have to guess where your command ends and the data begins.

<context>
This gives model the conditions under which this context builds up from.
</context>
<instructions>
Summarize the key findings from this paper. Focus on methodology and results. Keep it under 300 words.
</instructions>

Constraints provide boundaries as opposed to conducting an open ended exploration.

Ask LLMS to keep the response under x amount of words. Shorter prompts produce better adherence. Aim for 300-500 words.
Be explicit on what the research should be focused on. For example, focus on identification strategy and spend less time on implementation details. Or vice versa.
Focus on using top-5 journal and avoiding forum discussions.
Give the model the pushback permission so it doesn' agree with everything.

Research preferences allows the model to explicity execute based on your preferences. For example, use explicit threshold numbers, not adjectives - “Prefer daytime highs 65-80°F; flag anything over 85°F“ not “we like mild weather.”
Voice spec gives the model an explicit direction on how to set the style and tone of the output.

Templates

Following are the templates to getting started with LLMs.

Interview file: interview_quesitons.md: This file helps extract more information out to fill gaps in your context prompts. Store this in your project folder and have the model ask these questions before creating any output.

- **Stakeholders**: Who are the primary “customers” of this output, and what are their individual priorities?
- **Aversions**: What specific styles, outcomes, or “anti-patterns” must be avoided?
- **Hard Constraints**: What are the immovable limits (budget, deadlines, tech stack, or physical boundaries)?
- **Thresholds**: What specific metrics or ranges define a “pass” (e.g., time, distance, or climate tolerances)?
- **Successes**: What is the “Gold Standard” from your past? What specific variables made it work?
- **Failures**: What has crashed before, and what was the specific root cause?
- **Logistics**: What is the required “operating environment” (preferred tools, pace, or output format)?
- **Flexibility**: Where is there room for “give” if we hit a bottleneck?
- **Non-Negotiable**: What is the “Line in the Sand” that cannot be traded off, regardless of the benefit?
- **Behavioral Rules**: What are the “Rules of Engagement”? (e.g., “Always use X,” “Never mention Y,” “Adopt Z tone.”)
- **Patterns**: What recurring “DNA” do you see across your most successful outcomes?
- **Clarifications**: Are there any internal contradictions in the context provided so far that need de-risking?

Context file context_file.md: This gives model the conditions under which this context builds up from.

<context>
- **Persona:** Foundation Program Officer (Decision Maker).
- **Objective:** Secure an immediate budget increase for fieldwork.
- **Constraints:** Max 1 paragraph, strictly under 100 words.
</context>

<notes>
- **Lead with Impact:** Open with the crisis/problem; omit introductory background.
- **Precision:** Quantify all data points (%, $, counts).
- **Syntax:** Maximum 4 sentences; eliminate all hedging (e.g., “I believe,” “we feel”).
- **Closure:** Frame the conclusion around “Stakes of Failure” rather than a “Request for Funds.”
</notes>

<example_text>
Travel costs exceeded estimates by 40% due to Uganda's fuel prices tripling. We require an additional $12,000 to complete the final 6 site visits. Failure to secure these funds results in a 30% loss of total sample data, compromising the entire study's validity.
</example_text>

<instructions>
Summarize the attached <paper>. 
- **Focus:** Methodology and Results. 
- **Limit:** Under 300 words. 
- **Alignment:** Must bridge scientific findings with the “Investment Thesis” logic defined in <output_format>.
</instructions>

<paper>
[Insert source to the paper here.]
</paper>

<output_format>
**Structure:** (1) Method, (2) Key Findings, (3) Limitations.
**Style:** Continuous narrative prose; strictly no bullet points.
**Tone:** Accessible Investment Committee (IC) Thesis. 
**Strategy:** Pivot from technical research to a practical plan for market-rate returns and food/ag sector impact.
</output_format>

<deliverables>
### 1.1 Policy Note (1-Page)
- **Bottom Line:** 2-sentence logic: Problem → Proposed Action → ROI.
- **Evidence:** Data-backed bullets (prioritize numbers).
- **Intervention:** Specific real-world changes.
- **Execution:** Stakeholders, location, and timeline.
- **Risk Management:** 3–5 bullets on mitigation.
- **The Ask:** Direct requirement from the reader.

### 1.2 Project Summary
- **Executive Summary:** 5 high-signal bullets.
- **Logic Model:** Objective + Theory of Change.
- **Design:** The What, Where, Who, and When.
- **KPIs:** Measurement metrics and expected outputs.
- **Roadmap:** Current status + next 3 milestones.
- **Dependencies:** Critical risks and external requirements.

### 1.3 Funding Proposal Section
- **Stakes:** Quantified problem statement.
- **Innovation:** Contrast “New approach” vs. “Proven methods.”
- **Track Record:** Summary of prior results.
- **Execution Plan:** Timeline + high-level deliverables.
- **Governance:** Team structure and strategic partners.
- **Financials:** Projections and expected market returns.
- **Risk Profile:** Mitigation strategies.
- **Closing:** “Why Us, Why Now” urgency statement.
</deliverables>

Domain context file: domain-context.md: Use the following template to provide domain specific instructions. This is optimized for token efficiency and high-signal logic. By framing these sections as a “system prompt” extension, you force the LLM to treat this data as immutable logic rather than casual suggestions.

## Key Instructions
- **Rule 1:** [Critical Directive: e.g., “Adopt a high-conviction, contrarian stance. Challenge my assumptions with data-backed counterpoints.”]
- **Rule 2:** [Pre-emptive Action: e.g., “Identify 2-3 'silent risks' or edge cases before providing the final recommendation.”]
- **Rule 3:** [Diversity of Thought: e.g., “Present 3 distinct architectural patterns-Low-Latency, High-Scalability, and Cost-Optimized.”]

## Department Goals
- **North Star:** [Primary Metric or Goal: e.g., “Time-to-Market” or “Absolute Accuracy”]
- **Preferences:** [Styles: e.g., “Visual frameworks, 2x2 matrices, bulleted summaries”]
- **Aversions:** [The “No-Go” Zone: e.g., “Generic 'corporate-speak', hedging language, or unsubstantiated projections”]

## People & Preferences
### [Stakeholder Name/Role]
- **Priorities**: [What they care about most]
- **Also enjoys**: [Secondary interests]
- **Avoids**: [Explicit dislikes - be specific]

### [Stakeholder Name/Role]
- **Priorities**: [...]
- **Also enjoys**: [...]
- **Avoids**: [...]

## Hard Constraints
- **Financial Ceiling:** [e.g., “Hard stop at $20k ARR; preference for open source over proprietary licenses”]
- **Temporal Windows:** [e.g., “Must be deployable within 2-week sprints; 99.9% uptime requirement”]
- **Technical/Physical Limits:** [e.g., “Compatible with existing Python 3.12 stack; must fit on 13 inch screen without scrolling”]
- **Regulatory/Legal:** [e.g., “Strict GDPR compliance; no PII stored in local caches”]

## Logistics & Preferences
- **Operational Cadence:** [e.g., “Fast-paced, iterative feedback loops; preference for Slack-style conciseness”]
- **Tooling/Environment:** [e.g., “Standardize for VS Code and GitHub Actions; use LaTeX for all technical formulas”]

## Evidence: What's Worked
- **Success A:** [Specific Project] - **Factor:** [The 'X' variable: e.g., “Used a Mental Model approach (Inversion) to identify failures early”]
- **Success B:** [Specific Project] - **Factor:** [The 'X' variable: e.g., “Strict adherence to Data Normalization prevented 40% of downstream errors"]

## Evidence: What Hasn't Worked
- **Failure A:** [Specific Project] - **Root Cause:** [The 'Y' variable: e.g., “Scope creep occurred due to lack of a defined 'Non-Negotiable' list"]
- **Failure B:** [Specific Project] - **Root Cause:** [The 'Y' variable: e.g., “Optimization for performance led to unmaintainable 'spaghetti' code"]

## Acceptance Criteria
- [ ] **Quantifiable:** Does the output meet the [X] threshold?
- [ ] **Actionable:** Can I execute on this immediately without further research?
- [ ] **Structural:** Does it follow the [Deliverable 1.1] format exactly?

## Assumptions
- **Assumption 1:** [e.g., “Proceeding with the assumption that the budget is fixed at $X unless otherwise stated.”]
- **Assumption 2:** [e.g., “Assuming the primary audience has a technical background in Data Engineering.”]

## Key Success Factors
- **High-Signal Focus:** Omit all common-knowledge fluff; prioritize “Delta” (new information).
- **Logical Density:** Ensure every sentence introduces a new constraint, fact, or insight.
- **Mental Models:** Apply [e.g., First Principles or Charlie Munger's Latticework] to the final output.

Style guide file: style_guide.md sets the tone and style od the output. It overrides the default style of the model.

<voice_analysis>
Extract a “Voice DNA” profile from the provided samples. For every pattern identified, provide a “Code Snippet” quote as proof. Address the following:

1. **The Hook:** Analyze the function of the opening sentence. Is it a claim, a question, or a data point?
2. **Syntactic Rhythm:** Calculate the average word count for lead sentences vs. explanatory sentences. Identify the cadence (e.g., Short-Short-Long).
3. **Mechanical Fingerprints:** Quantify the use of parentheticals, colons, em-dashes, and bulleted lists.
4. **Lexical Density:** Contrast the “High-Signal” verbs used against the “Low-Signal” fluff avoided.
5. **Epistemology:** How is uncertainty expressed? Identify the specific transition from “Evidence” to “Conclusion.”
6. **The “Never” List:** Document stylistic absences (e.g., no rhetorical questions, no passive voice, no introductory adverbs).

**Constraint:** Do not use qualitative adjectives like “engaging” or “professional.” Use quantitative metrics (e.g., “70% of sentences use active verbs”).
</voice_analysis>

<vocabulary_preference>
- **Active Verbs:** [e.g., “execute”, “validate”, “quantify”, “ship”, “audit”, “distill”]
- **Forbidden Terms (The “Fluff” Filter):** [e.g., “leverage”, “synergy”, “deep dive”, “tapestry”, “cutting-edge”, “foster”, “transformative”]
- **Nuance Substitutions:**
    - Swap “I think” for “Data indicates.”
    - Swap “very” or “extremely” for specific metrics.
    - Swap “comprehensive” for “end-to-end.”
</vocabulary_preference>

<voice_spec>
Construct a one-page “Instructional Blueprint” (300–500 words) for generating future content. 

1. **Stance:** Define the persona's authority level and emotional distance.
2. **Hard Rules (Testable Constraints):**
    - Rule 1: Topic sentences must remain under [X] words.
    - Rule 2: No more than [X] adjectives per 100 words.
    - Rule 3: Every claim must be followed by a “Reason Why” or “Data Point.”
    - Rule 4: [e.g., Use Oxford commas; no semicolons; no exclamation points.]
3. **Logic Flow:** Map the standard progression (e.g., Problem → Metric → Solution → Risk).
4. **Evidence Handling:** Define the exact format for citations or data integration (e.g., “Always use $(Value) followed by (Context)”).
</voice_spec>

Evals

An Ode To Taste Building

Sat, 01 Mar 2025 00:00:00 GMT

Aesthetic value depends on an individual's taste. What might seem beautiful to one person might not be the same for others.

The reason for this is simple. Reality depends on experiences (simulations) which is where true taste comes from.

Examining reality objectively is challenging because of perceptions accumulated overtime based on the simulations played. There is an American simulation and a Chinese simulation. There are simulations played at home, school, work, and in communities. Another form of simulation comes in the form of books and building things. There are other simulations people engage in depending on how far their reach is or which part of the wealth spectrum they fall under.

How do you cultivate taste when these forces are at play?

I don't know where taste sits on the spectrum of nature versus nurture. But from my personal experience, motivation to build beautiful things goes deeper than just money or status. You obsess over a few things in life so much that you become its biggest cheerleader so that it is useful to others for a long period.

The primary features of a beautiful object are usefulness and long-lasting.

Let's take trees for an example. Trees are beautiful. It's uncommon to come across people who do not view it the same. What is a tree? Staring at it simply, it is a big brown pole with asymmetrical shape and branches overflowing with leaves. They look dry or pale looking during extreme weather. They do not care about their aesthetics based on how they grow overtime. If the sole purpose is to judge them by their appearance, it seems to me they are purely a waste of space on this planet. By this argument, trees are selfish. But we know they go beyond a brown pole and a splash of green around them.

The most astonishing thing about trees is how social they are. Trees establish friendships with their surrounding neighbors via their root systems. The give and take is vital for working together. This practice helps create a consistent climate that moderates extreme heat and cold. To achieve this, the community must remain intact, regardless of any challenges. Every tree in the forest is valuable to the community. This is just one of their useful features. Supporting the planet with food, oxygen, shelter and medicine are just a few other examples of how critical they are in sustaining the guests on our planet. These trees stand together for decades, centuries and millennia.

The usefulness and long-lasting features is what make trees attractive. The functionality of an object gives rise to the beauty. A leaf on a tree has a certain function. The leaf’s beauty lies not in its stylish design, but in its natural form-a testament that beauty rises from its essential function.

The taste is not so much about style then, but the work that feels as natural as a leaf on a tree.

In design, taste is a currency. Hence, we think great creators come with taste. It is not as much about colors, shapes, sizes, style, mood or imagination. The taste is in discovery and when it takes its shape the end product feels natural.

In addition to discovery, taste requires creators to be sensitive to their environment to capture details. We are all different, but we all have the same fears. Understanding what is universal versus what is unique can be advantageous to a creator. Taste requires emotional tolerance and self-conscious.

Having a beautifully decorated wall doesn’t necessarily indicate your taste. What truly matters is how you express your taste in your surroundings-the way you welcome your guests at home, treat your colleagues, and strangers. Your overall ambiance and demeanor reflect your taste. Your vibe is taste.

Taste in ideas isn't enough. Taste goes beyond virtuous designers. You don't have to be a creator to be tasteful. Taste comes in emotions, moral values and judgement.

Taste and righteousness don't go well together. Taste is rooted in opinions, not an objective truth. There are several paths to get to taste.

Taste isn't the same as expensive as riches portray. Taste can come from being thrifty and work ethic. Taste can be acquired from the worst experiences. Constraints are positive for taste building. The less to work with, the more you can use your energy to discover and observe.

Be cautious of individuals who are trying to signal superficial trends. Remember, one of the features of beauty is its long-lasting nature.

As artificial intelligence advances, it appears that all one needs to do is type in a few words and press a button to generate a glorious AI image. That is no different from photographers clicking a button on their camera. In both cases, you get an image. The creator's work is in discovery. So keep hunting.

Hunting is the art that elevates nature’s beauty to a visible eye that we perceive as taste. This is why creativity knows no bounds, and individuals with refined tastes will always find employment and enrich their lives.

Richer, Wiser, Happier by William Green

Sat, 07 Dec 2024 00:00:00 GMT

I. Brief Summary

A book on investment legends. William Green is a well-known financial journalist and has access to many of the world's best investors. He shares lessons learned from his interviews of superinvestors. The book is filled with gems of wisdom and clonable concepts. If emulating these investors to become rich is nice in theory but tough to execute, emulating the way they live to become happy might not work even in theory because of their cold and difficult personalities. Nonetheless, the lessons can be fine tuned to lead a great investing and personal life.

II. Big Ideas

Many of the investors talk about how they have created systems to mitigate risk but every system is doomed to fail because there is so much randomness that it can drive you insane.
The lessons shared can also be conflicting because some invest almost all of their money in just a few stocks, but that’s contrary to the advice given by Benjamin Graham (value investor legend), who says diversification is key.
Investors covererd in this book:
- Sir John Templeton
  - Templeton bought stock in 104 U.S. companies, trading at $1 or less, in 1939 at the brink of WWII based on the theory that companies would see huge demand if war broke out. He invested $100 per stock. He made money on 100 out of 104 stocks-a total of 5x his money. Templeton shorted 84 internet stocks, selling at triple its IPO price during the Dotcom Bubble on the theory that insiders would dump their shares after the lockup period ended. He bet $2.2 million on each stock ($185 million total) and made $90 million when the bubble burst. His strategy was to place short bets 7 days before the lockup expiration and cover the bets 10 days after expiration. He also had a rule in place to cover if the stocks rose a certain amount (to protect from excessive losses).
  - You have to buy at a time when other people are desperately trying to sell.
  - It’s a human failing to even put your mind on a question of which stock market is going to go up or down. No one knows that.
  - Six Guiding Principles:
    - Beware of emotions.
      - Most people get led astray by emotions in investing. They get led astray by being excessively careless and optimistic when they have big profits, and by getting excessively pessimistic and too cautious when they have big losses.
      - To buy when others are despondently selling and to sell when others are enthusiastically buying is the most difficult. But it pays the greatest rewards.
    - Beware of your own ignorance.
      - So many people buy something with the tiniest amount of information. They don't really understand what it is that they are buying. The one with the greatest information is likely to come out ahead. It takes a huge amount of work and study and investigation. Templeton claimed that diligence had played a much greater role in his success than innate talent.
      - He often spoke of his determination to give the extra ounce - to make the extra call, to schedule the extra meeting, to take the extra research trip. He was similarly dedicated to his lifelong programme of continuous self-education.
    - You should diversify broadly to protect yourself from your own fallibility.
      - Investing is so difficult, that even the best investors should assume that they'll be right no more than two-thirds of the time, however hard they work.
    - Invest in a company only if it falls within your circle of competence.
    - The best way to find bargains is to study whichever assets have performed most dismally in the past five years, then to assess whether the cause of those woes is temporary or permanent.
      - Most people are naturally drawn to investments that are already successful. Templeton took the opposite approach asking "Where is the outlook worst?"
    - One of the most important things for an investor is not to chase fads.
      - The best way for an investor to avoid popular delusions is to focus not on outlook but on value.
- Irving Kahn
  - Investing is about preserving more than anything.
  - Considering the downside is the single most important thing an investor must do. This task must be dealt with before any consideration can be made for gains.
  - If you achieve only reasonable returns and suffer minimal losses, you will become a wealthy man and will surpass any gambler friends you may have. This is also a good way to cure your sleeping problems.
- Bill Ruane
  - He learned his investing principles from Albert Hettinger.
  - Do not borrow money to buy stocks. You don't act rationally when you're investing borrowed money.
  - Watch out for momentum. Proceed with extreme caution “when you see markets going crazy”, either because the herd is panicking or charging into stocks at irrational valuations.
  - Ignore market predictions: I firmly believe that nobody knows the market will do....The important thing is to find an attractive idea and invest in a company that's cheap.
  - Invest in a small number of stocks that you have researched so intensively that you have an informational advantage. I don’t know anybody who can really do a good job investing in a lot of stocks except Peter Lynch. It was the most important principle for Ruane, according to Green.
  - You don’t act rationally when you’re investing borrowed money.
  - Most people would be much better off with an index fund.
- Marty Whitman
- Jack Bogle
  - Don’t take excessive risk.
  - Keep your costs low.
  - The crowd is always wrong.
- Charlie Munger
  - Avoid stupidity. Other people are trying to be smart. All I’m trying to be is non-idiotic.
  - Common errors:
    - Listening to market predictions.
    - Buying cyclicals at the top of the cycle or poor businesses at market tops.
    - Being close-minded.
    - Doing things because “other people do it.”
    - Rush to decisions.
    - Ego, overconfidence, overoptimism.
  - If you would persuade, appeal to interest and not to reason. This maxim is a wise guide to a great and simple precaution in life: Never, ever, think about something else when you should be thinking about the power of incentives.
  - A systematic process of studying counterarguments, taking a devil’s advocate approach, or writing premortems (assuming disaster) are ways to limit biases and improve decisions.
  - Lists of your biggest biases, emotional tendencies, and mistakes serve as a good checklist before making a decision.
  - If you’re going to be in this game for the long pull, which is the way to do it, you better be able to handle a fifty percent decline without fussing too much about it. And so my lesson to all of you is, conduct your life so that you can handle the fifty percent decline with grace.
  - You have to be like a man standing with a spear next to a stream. Most of the time he’s doing nothing. When a fat juicy salmon swims by, the man spears it. Then he goes back to doing nothing. It may be six months before the next salmon goes by.
- Ed Thorp
  - As far as gambling is concerned, if I don’t have an edge, I don’t play.
  - He heavily relied on the Kelly Criterion to size positions.
  - Had a chance to invest in LTCM but passed because they were taking too much risk....So the probability of their ruin appeared substantial to me.
- Howard Marks
  - Howard Marks runs Oaktree, famous for their low-risk, value oriented investing with superb results. Buffett says when he sees a Marks memo in his email, it’s the very first thing he reads.
  - In 2008, when the credit collapse happened, Lehman announced the biggest bankruptcy in US history. It was greatest panic of Marks career. He turned bullish for the first time in years. On the day Lehman died, Marks started invested half a billion a week. He wrote to his investors - we only have one choice - to assume this isn’t the end, but just another cycle. You can simplify every downturn to - either the world ends or it doesn’t, and if it doesn’t end and we didn’t buy, then we didn’t do our job. That makes the decision awfully straightforward.
  - Efficient markets theory (that all assets are always fairly priced) is a valuable theory, but cannot always be true in reality.
  - Our performance doesn’t come from what we buy or sell. It comes from what we hold. So the main activity is holding, not buying and selling. It’s more likely that it applies mostly to large cap stocks, which are analysed by thousands of funds and investors constantly. In smaller caps, markets will be less efficient. For this reason, if you want to invest in large caps it’s better to index, because chances of finding something undervalued are poor.
  - Skepticism is a huge asset. Always be skeptical. But skepticism isn’t just being pessimistic when people are excessively optimistic. It’s also being optimistic when people are excessively pessimistic. You can use cyclicality to your advantage by behaving countercyclically.
  - Change is inevitable. Even if things are always changing, we are not powerless. We can make our portfolios unfragile. Don’t use leverage and don’t try to maximise everything. Simply spending less than you make, living within your means. Never operate at the very limit. Never put yourself in a position where you’re forced to sell or do the wrong thing.
  - The only constant is impermanence. We have to accommodate to the fact that the environment changes. We cannot expect to control our environment.
  - Marks reminds himself of the role luck has played in his life. He keeps a list of the lucky breaks he’s had to help him stay humble. Luck is always a factor. Hard work alone is not enough, and intelligence is not enough. There are many intelligent people who worked very hard and just got unlucky.
  - The more a market is studied and followed and embraced and popularized, the less there should be bargains around for the asking.
  - He asks himself questions such as:
    - Is it cheap?
    - Are investors appropriately skeptical and risk-averse or are they ignoring risks and happily paying up?
    - Are valuations reasonable relative to historical standards?
    - Are deal structures fair to investors?
    - Is there too much faith in the future?
    - How much optimism is priced in?
    - Where is the mistake? Is the mistake in buying or not buying?
  - Markets are cyclical. Markets, the economy, etc. follow a pattern of cycles. Yet investors tend to expect the current trend to continue in a straight line. They fail to see the trend reverting.
  - Of all the cycles Marks has studied, none seems to him more predictable than the credit cycle. Prosperity brings expanded lending, which leads to unwise lending, which produces large losses, which makes lenders stop lending, which ends prosperity, and on and on.
  - I’m convinced that everything that’s important in investing is counterintuitive, and everything that’s obvious is wrong.
  - He avoids forecasters (they can’t predict the future), market timing, and fads (rarely cheap). No value in macro forecasts. The future is influenced by an almost infinite number of factors, and so much randomness is involved that it's impossible to predict future events with any consistency. There are two classes of forecasters - those who don’t know, and those who don’t know they don’t know.
  - If the market is precarious, you don’t have to know what the catalyst will be. You only have to know that there’s a vulnerability.
  - Marks collects examples of “stupid deals” to keep track of the frequency of craziness, greed, and lowering of standards in markets.
  - Both in markets and life, the goal isn’t to embrace risk or eschew it, but to bear it intelligently while never forgetting the possibility of an unpleasant outcome.
  - If your thinking is heavily colored by wishful thinking, then your probability assignments will be biased toward favorable. If you’re given to fear, then you’ll be biased toward the negative. You have to be aware of that these emotional states color your bias and you have to resist it.
  - If you want to add value as an investor, you should avoid the most efficient markets and focus exclusively on less efficient ones.
  - The future may be unpredictable, but there is a recurring process of boom and bust which is remarkably predictable. In the investment business, it's very hard to do the right thing, and it's impossible to do the right thing at the right time. Most investors grow complacent when times are good. Marks grows more vigilant, because he realizes the pendulum may be coming to end of its arch.
  - View the world as oscillating and cyclical, rather than moving in a straight line. Economies expand and subtract, credit eases and tightens. The cycles will always self-correct, humans always overshoot, so the pendulum always has to swing back eventually.
  - Don’t time the market. From 1926 to 1987 the return in stocks was 9.44% pa, but if you had gone to cash and missed the best 50 of those 744 months, you would have returned nothing. Trying to time the market is a source of risk, not protection.
  - Avoid future oriented investments. This rules out tech stocks and anything faddish. Nifty Fifty stocks were similar to FANG stocks which crashed heavily in 1974 after soaring valuations. FANG will probably be similar.
- Joel Greenblatt
  - Greenblatt started on Wall Street with a summer job at Bear Stearns. He made riskless arbitrage trades via options. Founded Gotham Capital with $7 million in assets. Averaged 50% per year over the first 10 years and averaged 40% annually over the first 20 years. Roughly 80% of the fund was in 6 to 8 positions. Many were spinoffs, restructures, companies emerging from bankruptcy, illiquid small caps. He purposely kept the fund small. All investor money was returned after 10 years. He looked for hidden value that nobody wanted.
  - Investing has a complexity problem. It avoids simplicity.
  - Complexity can be a seductive trap for clever people. They were rewarded at school for solving complex problems, so it's no surprise if they are drawn to complicated solutions when confronted by the puzzle of investing. But in financial markets, as in martial arts, victory doesn't depend on dazzling displays of esoteric techniques. It depends on a firm grasp of the principles of the game and a deep mastery of basic skills.
  - People are crazy and emotional. They buy and sell things in an emotional way, not in a logical way, and that’s the only reason why we have any opportunity.
  - Why is it so valuable to reduce investing to a few core principles? For a start, it forces us to think through what we truly believe. I have a simple way of looking at things that makes sense to me and that I’m going to stick with through thick and thin. That’s it.
  - Don't buy more of companies that you can make most money on. Buy more of companies that you can't lose money on.
  - Buy good businesses at bargain prices.
  - Investing (and life) should be a process of subtraction and simplification. Removing what’s unimportant and unnecessary to focus on the key principles.
  - I like calculating the odds. Consciously or unconsciously, I’m calculating the odds on every investment. What’s the upside? What’s the downside? I don’t think you can be a good investor without thinking in that way.
  - It’s easier to find bargains off the beaten path or in extraordinary situations that other people aren’t looking at.
  - You size your positions based on how much risk you’re taking. I don’t buy more of the ones I can make the most money on. I buy more of the ones that I can’t lose money on.
  - Pretty much everything we ever owned, we sold way too early. If you’re very cheap in buying, it’s hard to be as comfortable when something has doubled or tripled, even if it’s still good.
  - One of the beauties of the pain that people have to take in underperformance is that, if it did not exist, everyone would do what we do.
  - The best strategy is the one you can stick to in good and bad times.
  - 4 valuation techniques:
    - Discounted Cash Flow: take the present value of estimated future earnings and compare to the company’s market cap.
    - Relative Value: compare a company’s valuation to similar businesses.
    - Acquisition Value: an estimate of what another company might pay for it.
    - Liquidation Value: estimated worth if company is closed, assets are sold, debts are paid, and what’s left is distributed to shareholders.
- Bill Miller
  - The world changes. This is the biggest problem in markets.
  - It’s all probabilities. There is no certainty.
  - I’m trying to get rid of the unnecessary parts of what I used to do. I don’t build models anymore. It’s just stupid. It doesn’t make any sense. For every company, there are a few key investment variables and the rest of the stuff is noise.
- Mohnish Pabrai
  - Pabrai studied the best investors, figured out why they were successful then cloned (copied) their approach (studying is a huge part to make sure he clones the right things). He did for more than just investing strategies. He gets investment ideas by searching through 13F’s of the top investors, looks at the top holdings, studies the stocks, and tries to figure out why it’s a top holding.
  - I’m a shameless copycat. Everything in my life is cloned. I have no original ideas.
  - Never use leverage. The case of Rick Guerlin-he tried to get rich faster than necessary. He was leveraged going into the 1973-74 crash, hit by margin calls, and forced to sell his shares in Berkshire Hathaway for less than they were worth (Buffett bought them).
  - He avoids short selling because the upside is only 100% but the downside is unlimited.
  - He ignores macroeconomics. It’s too complex.
  - He avoids meeting the management of companies he owns. Avoids being biased by sales speak and unreliable information.
  - The key isn’t to get rich, it’s financial independence-to do what you want to do without money constraints.
  - Pabrai cloned Buffett’s 3 core concepts:
    - Buying a stock means buying a piece of a business with a value, not a piece of paper.
    - That value of the businesses is not always reflected in stock prices. The key is to stay disconnected from the market’s craziness and patiently wait for mispriced opportunities.
    - Buy stocks only when it’s selling at a discount to that value.
- Tom Gayner
  - Gayner manages Markel’s investment portfolio since 1990. His portfolio is over 100 stocks with 66% in the top 20 positions.
  - Make your mistakes nonfatal. It's so fundamental to longevity. And ultimately, that's what success is in this business: longevity.
  - Resounding victories tend to be the result of small, incremental advances and improvements sustained over long stretches of time. His goal is to find tiny habits repeated daily that lead to long-term success. Just making progress over and over again is the critical part.
  - You cannot control the outcome. You can only control the effort and the dedication and the giving of one hundred percent of yourself to the task at hand.
  - It’s been my experience that the richest people were those who found something good and held on to it. The people who seemed the least happy and the most frenzied and the least successful are those that are always chasing the next hot thing.
  - 4 guiding principles:
    - He looks for profitable companies with good ROC and little leverage.
    - Quality management with integrity.
    - The company can reinvest profits at a good rate of return.
    - Can be bought at reasonable price.
- Guy Spier
- Fred Martin
- Ken Shubin Stein
- Matthew McClennan
  - Eveillard retired in 2008 and passed control of the First Eagle Global Fund to Matthew McLennan. McLennan follows a strategy-looks for at least a 30% margin of safety and owns over 100 stocks in the funds.
  - Our goal is not to try to become rich quickly. It’s resilient wealth creation.
  - The goal directs every investment decision.
  - On risk: just because something has never happened, doesn’t mean it can’t happen. We must be prepared for the possibility.
  - We just want to acknowledge that there are things that may not play out so well in the future. You want to be structured to participate in the march of mankind, but to survive the dips along the way.
  - I happen to believe that everything is on a path to fade. If you think of evolution, ninety-nine percent of species that have ever existed are extinct. And businesses are no exception.
  - Businesses that were robust today won’t be robust in the future. Uncertainty is intrinsic to the system. It’s entropy-the second law of thermodynamics. Basically, things tend toward disorder over time, and it takes a lot of energy to keep structure and quality in place. So, philosophically, we have great respect for the fact that things are not structurally permanent in nature, that things fade.
  - Markets are biological. Businesses are born, evolve, and die. Investors should evolve (their thinking and strategies) along with it.
- Jeffrey Gundlach
- Francis Chou
- Thyra Zerhusen
- Thomas Russo
  - I call myself a farmer. Wall Street is flooded with hunters-people who try to go out and find the big game. They fell it and bring it back, and there’s a huge feast and everything is fabulous, and then they look for the next big game. I plant seeds and then I spend all of my time cultivating them.
  - e looks for companies with the “capacity to suffer.” They are built to survive tough times and outlast the competition.
  - Less jam today for more jam tomorrow, the three little piggies, etc, are childhood tales that inculcate thoughtful people with the message of deferred gratification. Society has, however, created endless reasons why decision makers mistakenly prefer more jam today even at the expense of jam tomorrow. Much investment opportunity arises from being able to take the other side of the short-termism bet. I have been blessed with investors who permit me to take the longer view.
- Chuck Akre
- Li Lu
- Peter Lynch
  - You get a lot of A’s and B’s in school. In the stock market, you get a lot of F’s. And if you’re right six or seven times out of ten, you’re very good.
  - Learning to play poker or learning to play bridge, anything that teaches you to play the probabilities…would be better than all the books on the stock market.
- Pat Dorsey
- Michael Price
- Mason Hawkins
- Bill Ackman
- Jeff Vinik
  - The best fund manager of his generation at Fidelity. He was so successful because he used the same consistent approach to investing throughout his career-individual companies with good earnings outlooks at reasonable valuations.
  - The more companies you can analyse, the more cashflow statements you can go through, the more good ideas you're going to find and the better the performance is going to be. There's no substitute for hard work.
  - Work hard-harder than everyone-read more cashflow statements, more annual reports-knowledge compounds over time.
- Mario Gabelli
- Laura Geritz
  - You don’t need to be watching the news to find out what’s changing in the world every ten minutes. It is more valuable to travel, read, think deeply about what the world will be like in 10 years. This gives you a huge edge over investors just watching markets go up and down.
- Brian McMahon
- Henry Ellenbogen
- Donald Yacktman
- Bill Nygren
- Paul Lountzis
  - Lountzis strategy is a portfolio of fifteen intensely researched stocks. Focus on businesses with leaders who are creative, adaptable, visionary and have “enormous courage”.
  - You need a maniacal focus to really be great at anything. Anyone who tells you that you can have everything all at once, you can’t. I mean, you don’t become Roger Federer by not playing tennis. It has to be consuming.
  - All great investors, CEOs, athletes, etc. are practically fanatical about it (at the expense of other areas of their life). Fanaticism won’t guarantee success but being fanatical makes it easier to compete in a world of fanatics. You can’t mimic them because you’re not them. Learn it and adapt it and modify it into your own process.
  - He hoards information on the best in the business and investing world to read and reread. The repetition makes the lessons unforgettable.
  - Read the same books over and over. Etch the principles into your brain. Constantly be reading and learning.
  - ualitative factors are not present in financial statements. You need to determine adaptability, courage. This means you need to operate more like an investigative reporter than an accountant. Businesses change rapidly and become obsolete. You need to be able to see around corners and get insight beyond numbers.
- Jason Karp
- Will Danoff
  - Managed Fidelity Contrafund since 1990. His investment philosophy–stocks follow earnings.
  - He looks for companies that can grow earnings at a high rate over 5 years because stock price will follow it.
  - Do you want to win the game for shareholders and own great companies? Sometimes, to own a great company, you’ve got to pay a fair price.
  - Look, I’m not that smart and there’s a lot of information out there. So when I look at a company, I just ask myself: ‘Are things getting better or are they getting worse?’ If they’re getting better, then I want to understand what’s going on.’
- François Rochon
- John Spears
- Joel Tillinghast
  - Manages Fidelity’s Low-Priced Stock Fund since 1989, outperforming by roughly 4% per year.
  - He creates lists of things to avoid, “defensive principles and practices” that keep him focused and help outperformance.
  - Don’t pay too much. Don’t go for businesses that are prone to obsolescence and destruction. Don’t invest with crooks and idiots. Don’t invest in things you don’t understand.
  - He also avoids cyclicals, fads, heavy leverage, sales-y management, questionable accounting.
  - He won’t talk publicly about his positions (makes it harder to change his mind).
  - If you want to be superior, that’s difficult. But what you won’t do is easier to control and more attainable....I’m not going to lose fifteen pounds. But saying no to doughnuts, that’s easy for me.
- Nick Sleep & Qais Zakaria
  - Both worked at Marathon Asset Management prior to starting the firm. They started in “cigar butts” but quickly graduated to a concentrated portfolio of high-quality companies held for years (average holding period was about 7 years). A story about Nomad Partnership-a fund run by Nick Sleep and Qais Zakaria. Until recently, I have never heard about these successful investors. I was also intrigued to learn that when they closed their fund in early 2014 and advised their investors to just keep holding 3 stocks in their portfolios: Amazon, Costco and Berkshire Hathaway. Since early 2000, their fund returned over 20% of annualised returns which was 3x higher, compared to returns of MSCI World index.
  - Quality in everything (life, stock selection, investment management business).
  - The idea of focusing on whatever has the longest shelf life, while always downplaying the ephemeral.
  - Information has a “shelf life.” Most of it expires in a few days, weeks, or months. They looked for information with a long shelf life.
  - It is not necessary to behave unethically or unscrupulously to achieve spectacular success, even in a vicariously capitalist business where self-serving behaviour is the norm.
  - In a world that's increasingly geared toward short-termism and instant gratification, a tremendous advantage can be gained. It’s all about deferred gratification. When you look at all the mistakes you make in life, private and professional, it’s almost always because you reached for some short-term fix or some short-term high. And that’s the overwhelming habit of people in the stock market.
  - They purposely detached themselves from day-to-day market action. Even placed their Bloomberg terminal in the most uncomfortable location, a short corner table without a chair, to limit its use.
  - We just read annual reports until we were blue in the face and visited every company possible until we were sick of it.
  - Questions:
    - Where will the company be in 10 or 20 years?
    - What’s management doing today to make that more likely to happen?
    - What might stop that from happening?
    - Is the company improving customer relations with “superior products, low prices, and efficient service?”
    - Does management make sound capital allocation decisions to improve shareholder value?
    - Does the company mistreat employees, suppliers, customers?
    - Does the company do anything that could hurt its reputation?
  - Scale Economies Shared Model:
    - Companies that take advantage of economies of scale to grow revenue while lowering the cost of business only to share those cost savings with customers to further entrench their advantage over competitors.
    - Increased revenues begets scale savings begets lower costs begets lower prices begets increased revenues.
    - Costco is an example. It deferred profits for customer satisfaction/retention and long-term growth.
    - Amazon is another example. According to Bezos in 2005 Shareholder Letter-Relentlessly returning efficiency improvements and scale economies to customers in the form of lower prices creates a virtuous cycle that leads over the long term to a much larger dollar amount of free cash flow, and thereby to a much more valuable Amazon.com.
    - Tend to be founder-led companies where the founder is obsessive about small details.
    - Tend to prioritize the customer experience.
    - Tend to be serial cost-cutters.
    - Tend to be very long-term focused.
- Paul Isaac
- Mike Zapata
- Paul Yablon
- Whitney Tilson
- Francois-Marie Wojcik
- Sarah Ketterer
- Christopher Davis
- Raamdeo Agrawal
- Arnold Van Den Berg
  - Being rich consists of money, happiness, and peace of mind. Use your wealth to help and serve others.
- Mariko Gordon
- Jean-Marie Eveillard
  - He took over the SoGen International mutual fund in 1979 (part of Societe Generale). It had $15 million in assets. It was renamed the First Eagle Global Fund. Eveillard followed Ben Graham’s philosophy: minimize risk because the future is unpredictable.
  - On why he was diversified: I’m too skeptical about my own skills and too worried that it could just blow up.
  - To lag is to suffer. It becomes psychologically painful, but also financially painful....After one year, your shareholders are upset. After two years, they’re furious. After three years, they’re gone. and It had gone on for so long that there were days when I thought I was an idiot. You do, in truth, start doubting yourself....Everybody seems to see the light. How come I don’t see it?
  - To the extent that we’ve been successful over the decades, it’s due mostly to what we did not own. We owned no Japanese stocks in the late eighties. We owned no tech in the late nineties. And we didn’t own any financial stocks to speak of between 2000 and 2008.
- Guy Spier

III. Quotes

Everything is on a path to fade. - Matthew McLennan
Most people make the mistake of adding too much complexity to their lives. They skim the surface, preoccupying themselves with the superficial and the extraneous. As the best investors show, sustained excellence requires us to subtract and go deep.
If you’re going to be in this game for the long pull, which is the way to do it, you better be able to handle a fifty percent decline without fussing too much about it. And so my lesson to all of you is, conduct your life so that you can handle the fifty percent decline with aplomb and grace. Don’t try to avoid it. It will come. In fact, I would say if it doesn’t come, you’re not being aggressive enough.
Munger has also learned to control certain toxic emotions that would corrode his enjoyment of life. “Crazy anger. Crazy resentment. Avoid all that stuff,” he tells me. “I don’t let it run. I don’t let it start.” The same goes for envy, which he considers the dumbest of the seven deadly sins because it’s not even fun. He also disdains the tendency to view oneself as a victim, and he has no patience for whining. When I ask if he has a mental process that helps him to defuse self-defeating emotions, he replies, “I know that anger is stupid. I know that resentment is stupid. I know self-pity is stupid. So I don’t do them....I’m trying not to be stupid every day, all day.
You get a lot of A’s and B’s in school. In the stock market, you get a lot of F’s. And if you’re right six or seven times out of ten, you’re very good.
All of humanity’s problems stem from man’s inability to sit quietly in a room alone.
I feel wealthier not because I have more money but because I’ve got health, good friendships, I’ve got a great family. Prosperity takes all of these things into consideration: health, wealth, happiness, peace of mind. That’s what a prosperous person is, not just a lot of money. That doesn’t mean anything. – Van Den Berg
If all you succeed in doing in life is getting rich by buying little pieces of paper, it’s a failed life. Life is more than being shrewd in wealth accumulation. - Charlie Munger
It’s frightening to think that you might not know something, but more frightening to think that, by and large, the world is run by people who have faith that they know exactly what’s going on.
If you just go around and identify all of the disasters and say, ‘What caused that?’ and try to avoid it, it turns out to be a very simple way to find opportunities and avoid troubles.
I don’t have any wonderful insights that other people don’t have. I just have slightly more consistently than others avoided idiocy. Other people are trying to be smart. All I’m trying to be is non-idiotic. I find that all you have to do to get ahead in life is to be non-idiotic and live a long time. It’s harder to be non-idiotic than most people think.
Take up one idea. Make that one idea your life. Think of it, dream of it, live on that idea. Let the brain, muscles, nerves, every part of your body, be full of that idea and just leave every other idea alone. This is the way to success.
The Art of Subtraction-If there is one habit that all of the investors in this chapter have in common, it’s this: They focus almost exclusively on what they’re best at and what matters most to them. Their success derives from this fierce insistence on concentrating deeply in a relatively narrow area while disregarding countless distractions that could interfere with their pursuit of excellence. Jason Zweig, an old friend who is a personal finance columnist at the Wall Street Journal and the editor of a revised edition of The Intelligent Investor, once wrote to me, “Think of Munger and Miller and Buffett: guys who just won’t spend a minute of time or an iota of mental energy doing or thinking about anything that doesn’t make them better....Their skill is self-honesty. They don’t lie to themselves about what they are and aren’t good at. Being honest with yourself like that has to be part of the secret. It’s so hard and so painful to do, but so important.
Once you have a sense that life is meaningless, what should you do? Not fuck up life for other people. Leave the planet a better place than you found it. Do a good job with your kids. The rest of it is a game. It doesn’t matter.
The difference between successful people and really successful people is that really successful people say no to almost everything.
How to prepare for the future instead of fooling ourselves into believing we can predict it.
In a world where nothing is stable or dependable and almost anything can happen, the first rule of the road is to be honest with ourselves about our limitations and vulnerabilities.
Fragility comes in many forms.
The ideal amount to give your kids is enough so they can do anything, but not so much that they can do nothing.
Templeton, Soros, and Buffett share “the willingness to be lonely, the willingness to take a position that others don’t think is too bright. They have an inner conviction that a lot of people do not have.”– Michael Lipper
A necessary characteristic of great investors is that they can’t be overly influenced by what other people think. The easiest way not to be overly influenced by what other people think is not to be that aware of what they think. If you don’t really notice that and don’t really care about what other people think, that will make it easier to be a great investor. - Chris Davis
If you’re even a slightly above average investor who spends less than you earn, over a lifetime you cannot help but get very wealthy. - Buffett
You don’t have to swing at everything-you can wait for your pitch. The problem when you’re a money manager is that your fans keep yelling, ‘Swing, you bum!’ - Warren Buffett
We, and our judgment, and all mortal things go on flowing and rolling unceasingly. Thus nothing certain can be established about one thing by another, both the judging and the judged being in continual change. - Michel De Montaigne
The art of being wise is the art of knowing what to overlook. - William James
To attain knowledge, add things every day. To attain wisdom, subtract things every day. - Lao-tzu
Uncertainty compels diversification. Diversification is and always has been the first tenet of the Prudent Man Rule of Investing....In sub-Saharan Africa, for centuries, people believed cattle were the safest repository of wealth. That was until the great drought came along. - Barton Biggs
The stock market is a sadistic, contrary, changeable beast and nothing is forever. - Barton Biggs
The crucial question is whether the investor will, in fact, hold on. The problem is not in the market, but in ourselves, our perceptions, and our reactions to our perceptions. This is why it is so important for each client to develop a realistic knowledge of his own and/or his organization’s tolerance for market fluctuations. - Charles Ellis
The only thing we can really count on in this uncertain world is human unreliability itself. - Garrett Harden
It struck me that we should think small, not big, and adopt a philosophy of continuous improvement through the aggregation of marginal gains. Forget about perfection; focus on progression, and compound the improvements. - Sir David Brailsford, coach of the British cycling team

Factfulness by Hans Rosling

Thu, 31 Oct 2024 00:00:00 GMT

I. Brief Summary

A fresh perspective on human progress at a global level in poverty, wealth, population increase, births, mortality, education, healthcare, gender equality, conflict, energy, and the environment. Hans Rosling highlights all of this while building your world-view based on facts not drama. A must read and pairs well with Thinking, Fast and Slow by Daniel Kahneman to improve your worldly view and critical thinking.

II. Big Ideas

Rosling highlights the problem that we tend to hold a view of a divide between developed and developing countries that made more sense a few decades ago. Now this divided view simply doesn’t reflect the huge convergence in data we have seen since as a result of improving conditions across the world. He suggests a more relevant worldview broken down into 4 levels of income:
- Level 1: $1 per day
- Level 2: $2-$8 per day
- Level 3: $8-$32 per day
- Level 4: $32+ per day
10 human instincts that lead to incorrect thinking which Hans Rosling goes in detail:
- The Gap Instinct: The gap instinct is our tendency to divide things into two distinct and often conflicting groups, missing the gap between.
  - Example: We tend to divide countries into ‘developing’ and ‘developed’ countries, but the data shows this view is no longer fit for purpose on measures of income, education, healthcare, and so on.
  - Factfulness is ... recognizing when a story talks about a gap, and remembering that this paints a picture of two separate groups, with a gap in between. The reality is often not polarized at all. Usually the majority is right there in the middle, where the gap is supposed to be. To control the gap instinct, look for the majority.
    - Beware of comparisons of averages.
    - Beware of comparisons of extremes.
    - The view from up here. Remember, looking down from above distorts the view. Everything else looks equally short, but it's not.
- The Negativity Instinct: The negativity instinct is our tendency to notice the bad more than the good.
  - Example: The majority of people think the world is getting worse, but the reality is very different. The proportion of people living in extreme poverty has almost halved in the last 20 years. We’ve also seen tremendous progress on life expectancies. No country in the world now has a life expectancy below 50.
  - Factfulness is ... recognizing when we get negative news, and remembering that information about bad events is much more likely to reach us. When things are getting better we often don't hear about them. This gives us a systematically too-negative impression of the world around us, which is very stressful. To control the negativity instinct, expect bad news.
    - Better and bad. Practice distinguishing between a level (e.g. bad) and a direction of change (e.g. better). Convince yourself that things can be both better and bad.
    - Good news is not news. Good news is almost never reported. So news is almost always bad. When you see bad news, ask whether equally positive news would have reached you.
    - Gradual improvement is not news. When a trend is gradually improving, with periodic dips, you are more likely to notice the dips than the overall improvement.
    - More news does not equal more suffering. More bad news is sometimes due to better surveillance of suffering, not a worsening world.
    - Beware of rosy pasts. People often glorify their early experiences, and nations often glorify their histories.
- The Straight Line Instinct: The straight-line instinct is our tendency to assume linear trends in data will continue in a straight line.
  - Example: We the rate of growth in the world population will continue, not realising that there are 2 billion children today and the UN forecasts there will be 2 billion children in 2100. We therefore need to understand how the number of children decreases as we move up the income levels.
  - Factfulness is ... recognizing the assumption that a line will just continue straight, and remembering that such lines are rare in reality. To control the straight line instinct, don't assume straight lines and remember that curves come in different shapes.
- The Fear Instinct: The fear instinct is our tendency to overestimate risks due to our natural fears of factors such as violence, captivity and contamination.
  - Example: Rosling runs through a range of areas in which risks have drastically reduced, such as the number of deaths from natural disasters, flight safety and contamination.
  - Factfulness is ... recognizing when frightening things get our attention, and remembering that these are not necessarily the most risky. Our natural fears of violence, captivity, and contamination make us systematically overestimate these risks. To control the fear instinct, calculate the risks.
    - The scary world: fear vs. reality. The world seems scarier than it is because what you hear about it has been selected-by your own attention filter or by the media-precisely because it is scary.
    - Risk = danger x exposure. The risk something poses to you depends not on how scared it makes you feel, but on a combination of two things. How dangerous is it? And how much are you exposed to it?
    - Get calm before you carry on. When you are afraid, you see the world differently. Make as few decisions as possible until the panic has subsided.
- The Size Instinct: The size instinct is our tendency to look at a lonely number (or a single instance or victim) and misjudge its importance.
  - Example: Rosling uses the example of child deaths in hospital drawing attention away from the issue of systems that kill far more outside of the hospital in the first place.
  - Factfulness is ... recognizing when a lonely number seems impressive (small or large), and remembering that you could get the opposite impression if it were compared with or divided by some other relevant number. To control the size instinct, get things in proportion.
    - Compare. Big numbers always look big. Single numbers on their own are misleading and should make you suspicious. Always look for comparisons. Ideally, divide by something.
    - 80/20. Have you been given a long list? Look for the few largest items and deal with those first. They are quite likely more important than all the others put together.
    - Divide. Amounts and rates can tell very different stories. Rates are more meaningful, especially when comparing between different-sized groups. In particular, look for rates per person when comparing between countries or regions.
- The Generalization Instinct: The generalisation instinct is our tendency to generalise groups of individuals and countries, even if there are significant differences between them.
  - Example: Those in the Level 4 income group tend to generalise those in groups below as worse off than they really are.
  - Factfulness is ... recognizing when a category is being used in an explanation, and remembering that categories can be misleading. We can't stop generalization and we shouldn't even try. What we should try to do is to avoid generalizing incorrectly. To control the generalization instinct, question your categories.
    - Look for differences within groups. Especially when the groups are large, look for ways to split them into smaller, more precise categories. And...
    - Look for similarities across groups. If you find striking similarities between different groups, consider whether your categories are relevant. But also...
    - Look for differences across groups. Do not assume that what applies for one group (e.g. you and other people living on Level 4 or unconscious soldiers) applies for another (e.g. people not living on Level 4 or sleeping babies).
    - Beware of "the majority". The majority just means more than half. Ask whether it means 51 percent, 99 percent, or something in between.
    - Beware of vivid examples. Vivid images are easier to recall but they might be the exception rather than the rule.
    - Assume people are not idiots. When something looks strange, be curious and humble, and think, “in what way is this a smart solution?”
- The Destiny Instinct: The destiny instinct is our tendency to assume innate characteristics determine the destinies of people, countries, religions and cultures.
  - Example: The perception that Africa is not capable of far-reaching economic progress is not based on the facts of the last four decades.
  - Factfulness is ... recognizing that many things (including people, countries, religions, and cultures) appear to be constant just because the change is happening slowly, and remembering that even small, slow changes gradually add up to big changes. To control the destiny instinct, remember slow change is still change.
    - Keep track of gradual improvements. A small change every year can translate to a huge change over decades.
    - Update your knowledge. Some knowledge goes out of date quickly. Technology, countries, societies, cultures, and religions are constantly changing.
    - Talk to Grandpa. If you want to be reminded of how values have changed, think about your grandparents' values and how they differ from yours.
    - Collect examples of cultural change. Challenge the idea that today's culture must also have been yesterday's, and will also be tomorrow's.
- The Single Perspective Instinct: The single perspective instinct is our tendency to prefer single causes and single solutions.
  - Example: Political ideologues can get fixated on one form of economic system, but a one-size-fits-all approach to our economic and political systems is rarely the most effective.
  - Factfulness is ... recognizing that a single perspective can limit your imagination, and remembering that it is better to look at problems from many angles to get a more accurate understanding and find practical solutions. To control the single perspective instinct, get a toolbox, not a hammer.
    - Test your ideas. Don't only collect examples that show how excellent your favourite ideas are. Have people who disagree with you test your ideas and find their weaknesses.
    - Limited expertise. Don't claim expertise beyond your field: be humble about what you don't know. Be aware too of the limits of the expertise of others.
    - Hammers and nails. If you are good with a tool, you may want to use it too often. If you have analyzed a problem in depth, you can end up exaggerating the importance of that problem or of your solution. Remember that no one tool is good for everything. If your favourite tool is a hammer, look for colleagues with screwdrivers, wrenches, and tape measures. Be open to ideas from other fields.
    - Numbers, but not only numbers. The world cannot be understood without numbers, and it cannot be understood with numbers alone. Love numbers for what they tell you about real lives.
    - Beware of simple ideas and simple solutions. History is full of visionaries who used simple utopian visions to justify terrible actions. Welcome complexity. Combine ideas. Compromise. Solve problems on a case-by-case basis.
- The Blame Instinct: The blame instinct is our need to find a clear and simple reason for why something bad has happened.
  - Example: The media is constantly looking for a single scapegoat for negative stories, but often these negative stories are the result of much more complex underlying systems.
  - Factfulness is ... recognizing when a scapegoat is being used and remembering that blaming an individual often steals the focus from other possible explanations and blocks our ability to prevent similar problems in the future. To control the blame instinct, resist finding a scapegoat.
    - Look for causes, not villains. When something goes wrong, don't look for an individual or a group to blame. Accept that bad things can happen without anyone intending them to. Instead, spend your energy on understanding the multiple interacting causes, or system, that created the situation.
    - Look for systems, not heroes. When someone claims to have caused something good, ask whether the outcome might have happened anyway, even if that individual had done nothing. Give the system some credit.
- The Urgency Instinct: The urgency instinct is our need to take immediate action in face of perceived danger.
  - Example: Rosling uses the example of worst-case climate change and epidemiological data being used to create a sense of urgency, but ultimately such exaggerations undermine the cause.
  - Factfulness is ... recognizing when a decision feels urgent and remembering that it rarely is. To control the urgency instinct, take small steps.
    - Take a breath. When your urgency instinct is triggered, your other instincts kick in and your analysis shuts down. Ask for more time and more information. It's rarely now or never and it's rarely either/or.
    - Insist on the data. If something is urgent and important, it should be measured. Beware of data that is relevant but inaccurate, or accurate but irrelevant. Only relevant and accurate data is useful.
    - Beware of fortune-tellers. Any prediction about the future is uncertain. Be wary of predictions that fail to acknowledge that. Insist on a full range of scenarios, never just the best or worst case. Ask how often such predictions have been right before.
    - Be wary of drastic action. Ask what the side effects will be. Ask how the idea has been tested. Step-by-step practical improvements, and evaluation of their impact, are less dramatic but usually more effective.

III. Quotes

Cultures, nations, religions, and people are not rocks. They are in constant transformation.
Every group of people I ask thinks the world is more frightening, more violent, and more hopeless-in short, more dramatic than it really is.
There was a balance. It wasn’t because humans lived in balance with nature. Humans died in balance with nature.
There’s no room for facts when our minds are occupied by fear.
And thanks to increasing press freedom and improving technology, we hear more, about more disasters, than ever before.
Here’s the paradox: the image of a dangerous world has never been broadcast more effectively than it is now, while the world has never been less violent and more safe.
Forming your worldview by relying on the media would be like forming your view about me by looking only at a picture of my foot.
The world cannot be understood without numbers. But the world cannot be understood with numbers alone.
Remember: things can be bad, and getting better.
I want people, when they realize they have been wrong about the world, to feel not embarrassment, but that childlike sense of wonder, inspiration, and curiosity that I remember from the circus, and that I still get every time I discover I have been wrong: “Wow, how is that even possible?
Look for systems, not heroes.
Look for causes, not villains.
I think this is because human beings have a strong dramatic instinct toward binary thinking, a basic urge to divide things into two distinct groups, with nothing but an empty gap in between. We love to dichotomize. Good versus bad. Heroes versus villians. My country versus the rest. Dividing the world into two distinct sides is simple and intuitive, and also dramatic because it implies conflict, and we do it without thinking, all the time.
Journalists know this. They set up their narratives as conflicts between two opposing people, views, or groups. They prefer stories of extreme poverty and billionaires to stories about the vast majority of people slowly dragging themselves toward better lives. Journalists are storytellers.
Your most important challenge in developing a fact-based worldview is to realize that most of your firsthand experiences are from Level 4; and that your secondhand experiences are filtered through the mass media, which loves nonrepresentative extraordinary events and shuns normality.
People often call me an optimist, because I show them the enormous progress they didn't know about. That makes me angry. I'm not an optimist. That makes me sound naive. I'm a very serious “possibilist.” That's something I made up. It means someone who neither hopes without reason, nor fears without reason, someone who constantly resists the overdramatic worldview. As a possibilist, I see all this progress, and it fills me with conviction and hope that further progress is possible. This is not optimistic. It is having a clear and reasonable idea about how things are. It is having a worldview that is constructive and useful.
Fears that once helped keep our ancestors alive, today help keep journalists employed. It isn't the journalists fault and we shouldn't expect them to change. It isn't driven by “media logic” among the producers so much as by “attention logic” in the heads of the consumers.
The big facts and the big picture must wait until the danger is over. But then we must dare to establish a fact-based worldview again. We must cool our brains and compare the numbers to make sure our resources are used effectively to stop future suffering. We can't let fear guide these priorities. Because the risks we fear the most are now often-thanks to our successful international collaboration-the risks that actually cause us the least harm.
The general trend towards less violence is not just one more improvement. It is the most beautiful trend there is. The spread of peace over the last decades has enabled all the other improvements we have seen. We must take care of this fragile gift if we hope to achieve our other noble goals, such as collaboration toward a sustainable future. Without world peace, you can forget about all other global progress.
The memory of insufficient regulation has created automatic mistrust and fear, which blocks the ability to hear data-driven arguments.
In terms of economic muscles, “we” are becoming the 20 percent, not the 80 percent. But many of “us” can't fit these numbers into our nostalgic minds. Not only do we misjudge how big our war monuments should be in Vietnam, we also misjudge our importance in the future global marketplace. Many of us forget to behave properly with those who will control the future trade deals.
It was you, the richest nations, that put us all in this delicate situation. You have been burning increasing amounts of coal and oil for more than a century. You and only you pushed us to the brink of climate change. Then he suddenly changed posture, put his palms together in an Indian greeting, bowed, and almost whispered in a very kind voice. But we forgive you, because you did not know what you were doing. We should never blame someone retrospectively for harm they were unaware of.
It's relaxing to think that knowledge has no sell-by date: that once you have learned something, it says fresh forever and you never have to learn it again. In the sciences like math and physics, and in the arts, that is often true. In those subjects, what we all learned at school (2 + 2 = 4) is probably still good. But in the social sciences, even the most basic knowledge goes off very quickly. As with milk or vegetables, you have to keep getting it fresh. Because everything changes.
Some Americans think of Sweden as a socialist country, but values can change. A few decades ago Sweden carried out what might be the most drastic deregulation ever of a public school system and now allows fully commercial schools to compete and make profits (a brave capitalist experiment).
Instead, constantly test your favourite ideas for weaknesses. Be humble about the extent of your expertise. Be curious about new information that doesn't fit, and information from other fields. And rather than talking only to people who agree with you, or collecting examples that fit your ideas, see people who contradict you, disagree with you, and put forward different ideas as a great resource for understanding the world.
Being intelligent-being good with numbers, or being well educated, or even winning a Nobel Prize-is not a shortcut to global factual knowledge. Experts are experts only within their field.
Most countries that make great economic and social progress are not democracies. South Korea moved from Level 1 to Level 3 faster than any country had ever done (without finding oil), all the time as a military dictatorship. Of the ten countries with the fastest economic growth in 2016, nine of them score low on democracy. Anyone who claims that democracy is a necessity for economic growth and health improvements will risk getting contradicted by reality. It's better to argue for democracy as a goal in itself instead of as a superior means to other goals we like.
It seems that it comes very naturally for us to decide that when things go wrong, it must be because of some bad individual with bad intentions. We like to believe that things happen because someone wanted them to, that individuals have power and agency: otherwise, the world feels unpredictable, confusing, and frightening.
The blame game often reveals our preferences. We tend to look for bad guys who confirm our existing beliefs. Let's look at some of the people we most love to point the finger at: evil businessmen, lying journalists, and foreigners.
One comment caught our attention: “I bet no member of the media passed the test.” We got excited by this idea and decided to try to test it, but the polling companies said it was impossible to get access to groups of journalists. Their employers refused to let them be tested. Of course, I understood. No one likes their authority to be questioned and it would be very embarrassing for a serious news outlet to be shown to be employing journalists who knew no more than chimpanzees.
Our press may be free, and professional, and truth-seeking, but independent is not the same as representative: even if every report itself is completely true, we can still get a misleading picture through the sum of true stories reporters choose to tell. The media is not and cannot be neutral, and we shouldn't expect it to be.
Only in a few countries, with exceptionally destructive leaders and conflicts, has social and economic development been halted. Everywhere else, even with the most incapable presidents imaginable, there has been progress. It must make one ask if the leaders are that important. And the answer, probably, is no. It's the people, the many, who build a society.
In recruitment, you need to understand that being a European or American company no longer gives you bragging rights to attract international employees. Google and Microsoft, for example, have become global businesses and made their “Americanness” almost invisible. Their employees in Asia and Africa want to be part of truly global companies and they are. Their CEOs, Sundar Pichai of Google and Satya Nadella of Microsoft, were both raised and educated in India.
Instead it is up to us as consumers to learn how to consume the news more factfully, and to realize that the news is not very useful for understanding the world.
The macho values that are found today in many Asian and African countries, these are not Asian values, or African values. They are not Muslim values. They are not Eastern values. They are patriarchal values like those found in Sweden only 60 years ago, and with social and economic progress they will vanish, just as they did in Sweden. They are not unchangeable.
Think about the world. War, violence, natural disasters, man-made disasters, corruption. Things are bad, and it feels like they are getting worse, right? The rich are getting richer and the poor are getting poorer; and the number of poor just keeps increasing; and we will soon run out of resources unless we do something drastic. At least that’s the picture that most Westerners see in the media and carry around in their heads. I call it the overdramatic worldview. It’s stressful and misleading. In fact, the vast majority of the world’s population lives somewhere in the middle of the income scale. Perhaps they are not what we think of as middle class, but they are not living in extreme poverty. Their girls go to school, their children get vaccinated, they live in two-child families, and they want to go abroad on holiday, not as refugees. Step-by-step, year-by-year, the world is improving. Not on every single measure every single year, but as a rule. Though the world faces huge challenges, we have made tremendous progress. This is the fact-based worldview.
You should not expect the media to provide you with a fact-based worldview any more than you would think it reasonable to use a set of holiday snaps of Berlin as your GPS system to help you navigate around the city.
When things are getting better we often don’t hear about them. This gives us a systematically too-negative impression of the world around us, which is very stressful.
The only proven method for curbing population growth is to eradicate extreme poverty.
The goal of higher income is not just bigger piles of money. The goal of longer lives is not just extra time. The ultimate goal is to have the freedom to do what we want.
This is data as you have never known it: it is data as therapy. It is understanding as a source of mental peace. Because the world is not as dramatic as it seems. Factfulness, like a healthy diet and regular exercise, can and should become part of your daily life. Start to practice it, and you will be able to replace your overdramatic worldview with a worldview based on facts. You will be able to get the world right without learning it by heart. You will make better decisions, stay alert to real dangers and possibilities, and avoid being constantly stressed about the wrong things.
Last year, 4.2 million babies died. That is the most recent number reported by UNICEF of deaths before the age of one, worldwide. We often see lonely and emotionally charged numbers like this in the news or in the materials of activist groups or organizations. They produce a reaction. Who can even imagine 4.2 million dead babies? It is so terrible, and even worse when we know that almost all died from easily preventable diseases. And how can anyone argue that 4.2 million is anything other than a huge number? You might think that nobody would even try to argue that, but you would be wrong. That is exactly why I mentioned this number. Because it is not huge: it is beautifully small. If we even start to think about how tragic each of these deaths is for the parents who had waited for their newborn to smile, and walk, and play, and instead had to bury their baby, then this number could keep us crying for a long time. But who would be helped by these tears? Instead let’s think clearly about human suffering. The number 4.2 million is for 2016. The year before, the number was 4.4 million. The year before that, it was 4.5 million. Back in 1950, it was 14.4 million. That’s almost 10 million more dead babies per year, compared with today. Suddenly this terrible number starts to look smaller. In fact the number has never been lower.
Never leave a number all by itself. Never believe that one number on its own can be meaningful. If you are offered one number, always ask for at least one more. Something to compare it with.

Simple Analogies

Fri, 18 Oct 2024 00:00:00 GMT

I have a collection of favorite posters and analogies that I am drawn to. Here are a few of my favorites.

Porsche Ad: Honestly now, did you spend your youth dreaming about someday owning Nissan or a Mitsubishi?

Nike Ad: Yesterday you said tomorrow.

Apple Ad: 1,000 songs in your pocket.

These are all timeless and simple messages. No jargon. No fluff. Clear, concise and direct. I think about this communication style a lot and wonder about the pros and cons if I were to practice it in my work area.

I have to talk to a lot of people at work and different people receive different messages if it clicks. If I share too much context I would lose them. If I share less then they wonder whether I have thought through all the details before they can align themselves with my approach. Balancing context in communication is a never ending challenge. But if I use the right stroke on messaging, it can unblock several people to get the job done.

Let's take “1000 songs in your pocket” which was the slogan for the 1st iPod used by Steve Jobs in 2001. He could've gone into another direction of how the underlying architecture works and discussed the state-of-the-art technology. He knew technology was the means to an end, not the end. Instead he focused on an analogy that painted the core value prop while showing the product is the solution.

Being direct, succinct and kind in your messaging style will prevent energy drain for your listener or reader. Good communication requires empathy.

Let's remember we communicate to share ideas and influence others. It is all about connecting with people therefore simplicity always win.

Skunk Works by Ben R. Rich and Leo Janos

Wed, 09 Oct 2024 00:00:00 GMT

I. Brief Summary

If you are a fan of aviation and aerospace, the cold war, and how the US military and government run secret operations then this book is for you. Sometimes I wonder why I didn't come across these types of book earlier. It would've totally changed my professional trajectory. This book is a brain candy for people who enjoy complex systems and hardware engineering. It is an incredible story of the design process behind some of the most amazing military aircrafts like the U-2, SR-71, and F-117 built by Lockheed making some of the greatest technology breakthroughs in the industry. The last part of book along with Chapter 14 has amazing lessons. Those lessons are still relevant today as they were back then. Ben Rich navigated the technical and political waters with ease. All managers should sit up and take notice of Skunk Works approach.

II. Big Ideas

This book shows how small teams of very smart and very driven people can produce incredible results. Skunk Works should be taken as an example of a modus operandi for technical challenging and highly complex projects.
Without the Skunk Works the world most likely would look differently today-we would have seen a nuclear war, Russia “winning” the cold war or the US would never have gotten the power it became.
The Blackbird is still one of the most amazing technical achievements in aerospace that there ever was and to this day is one of the crown jewels of American aviation.
- The Blackbird could fly consistently Mach 3.1 (3'800 KM/h) while taking high resolution pictures from the height of >20KM. That still sounds like an incredible technical feat but having done that in 1964 is just beyond belief. Now think where the current secret technology must be.
- For proper navigation the Blackbird locked onto stars because satellite based navigation systems were nowhere near ready.
Certain military government agencies are far separated from each other because they each wanted their own aircraft to carry out their tactical operation in particular the Navy, the Air Force and the CIA.
Prototype cheaply and quickly.
- To convince people of how good their stealth design could be, they built and tested a model. That silenced the people saying it was only a theoretical idea.
- One time some Skunk Works engineers needed steel to add a piece to the heat shield of the stealth fighter as they were testing it. The only steel available was a toolbox, so they cut it up and welded it on.
New ideas need to be fought for and defended.
- Ben Rich backed stealth against the advice of his most senior advisors. He understood the tech and the opportunity better than they did, and he believed in himself and his team.
- A key breakthrough for stealth technology was buried in a ‘long, dense’ paper published nine years earlier, which had otherwise been ignored.
- They got the radar profile for the stealth fighter down to the size of a ball bearing, and to sell the idea Ben Rich would roll ball bearings across the desks of the people he was trying to convince.
Bureaucracy is the enemy of speed and innovation.
- They were able to move very quickly on the stealth plane project because the project was highly classified, and thus had very little bureaucracy to deal with.
- Once they expanded outside the original Skunk Works teams, the reduced skill of the new people required an increase in bureaucracy to compensate.
Breakthroughs come from teams working closely together. All the engineering, PM and design groups involved in a new plane sat in the same place and worked together directly as far as possible.
New ideas need protection from the existing corporation. For a Skunk Works to be successful it must be genuinely independent from management interference and bureaucracy, and that is rare. Other companies found it very difficult to replicate.
A successful project often arises from the ashes of a failed one. It was possible to build the U-2 spy plane so quickly because they used much of the same tooling as for the XF-104 fighter. One project built on another and enabled them to move fast.
Kelly's 14 Rules and Practices at Skunk Works:
- The Skunk Works manager must be delegated practically complete control of his program in all aspects. He should report to a division president or higher.
- Strong but small project offices must be provided both by the military and industry.
- The number of people having any connection with the project must be restricted in an almost vicious manner. Use a small number of good people (10% to 25% compared to the so-called normal systems).
- A very simple drawing and drawing release system with great flexibility for making changes must be provided.
- There must be a minimum number of reports required, but important work must be recorded thoroughly.
- There must be a monthly cost review covering not only what has been spent and committed but also projected costs to the conclusion of the program.
- The contractor must be delegated and must assume more than normal responsibility to get good vendor bids for subcontract on the project. Commercial bid procedures are very often better than military ones.
- The inspection system as currently used by the Skunk Works, which has been approved by both the Air Force and Navy, meets the intent of existing military requirements and should be used on new projects. Push more basic inspection responsibility back to subcontractors and vendors. Don’t duplicate so much inspection.
- The contractor must be delegated the authority to test his final product in flight. He can and must test it in the initial stages. If he doesn’t, he rapidly loses his competency to design other vehicles.
- The specifications applying to the hardware must be agreed to well in advance of contracting. The Skunk Works practice of having a specification section stating clearly which important military specification items will not knowingly be complied with and reasons therefore is highly recommended.
- Funding a program must be timely so that the contractor doesn’t have to keep running to the bank to support government projects.
- There must be mutual trust between the military project organization and the contractor the very close cooperation and liaison on a day-to-day basis. This cuts down misunderstanding and correspondence to an absolute minimum.
- Access by outsiders to the project and its personnel must be strictly controlled by appropriate security measures.
- Because only a few people will be used in engineering and most other areas, ways must be provided to reward good performance by pay, not based on the number of personnel supervise

III. Quotes

My years inside the Skunk Works, for example, convinced me of the tremendous value of building prototypes. I am a true believer. The beauty of a prototype is that it can be evaluated and its uses clarified before costly investments for large numbers are made.
First, it’s more important to listen than to talk; second, even a timely wrong decision is better than no decision; and third, don’t halfheartedly wound problems–kill them dead.
I enjoyed the goodwill of my colleagues because most of us had worked together intimately under tremendous pressures for more than a quarter century. Working isolated, under rules of tight security, instilled a camaraderie probably unique in the American workplace.
We created a practical and open work environment for engineers and shop workers, forcing the guys behind the drawing boards onto the shop floor to see how their ideas were being translated into actual parts and to make any necessary changes on the spot. We made every shop worker who designed or handled a part responsible for quality control. Any worker-not just a supervisor or a manager-could send back a part that didn’t meet his or her standards. That way we reduced rework and scrap waste. We encouraged our people to work imaginatively, to improvise and try unconventional approaches to problem solving, and then got out of their way.
Clarence “Kelly” Johnson was an authentic American genius. He was the kind of enthusiastic visionary that bulled his way past vast odds to achieve great successes, in much the same way as Edison, Ford, and other immortal tinkerers of the past. When Kelly rolled up his sleeves, he became unstoppable, and the nay-sayers and doubters were simply ignored or bowled over. He declared his intention, then pushed through while his subordinates followed in his wake. He was so powerful that simply by going along on his plans and schemes, the rest of us helped to produce miracles too. Honest to God, there will never be another like him.
Over the years we had developed the concept of using existing hardware developed and paid for by other programs to save time and money and reduce the risks of failures in prototype projects.
Kelly’s motto was “Be quick, be quiet, be on time.”
Inside the Skunk Works, we were a small, intensely cohesive group consisting of about fifty veteran engineers and designers and a hundred or so expert machinists and shop workers.
Another weird thing was that after a flight the windshields often were pitted with tiny black dots, like burn specks. We couldn’t figure out what in hell it was. We had the specks lab tested, and they turned out to be organic material-insects that had been injected into the stratosphere and were circling in orbit around the earth with dust and debris at seventy-five thousand feet in the jet stream. How in hell did they get lifted up there? We finally figured it out: they were hoisted aloft from the atomic test explosions in Russia and China.
The CIA had been covering Cuba with U-2 flights for years. And then, in August 1962, they hit pay dirt and came up with the pictures that showed the Russians were planting ballistic missiles right next door, SS-4s and SS-5s. When Kennedy was shown the site constructions, he asked, “How do we know these sites are being manned?” They showed Kennedy a picture taken from 72,000 feet, showing a worker taking a dump in an outdoor latrine. The picture was so clear you could see that guy reading a newspaper.
One of the biggest problems we had to overcome was our own extreme invisibility! The ocean waves showed up on radar like a string of tracer bullets. And if the ship was totally invisible, it looked like a blank spot-like a hole in the doughnut-that was a dead giveaway.
That primitive Skunk Works operation set the standards for what followed. The project was highly secret, very high priority, and time was of the essence.
The proof of our success was that the airplanes we built operated under tight secrecy for eight to ten years before the government even acknowledged their existence.
Frankly, I don't think you could have driven a needle up my sphincter using a sledgehammer.
Control is the name of the game and if a Skunk Works really operates right, control is exactly what they won’t get.
Bats were the first visual proof I had that stealth really worked....At night the bats would come out and feed off insects. In the mornings we'd find bat corpses around our airplanes inside the open hangars. Bats used a form of sonar to “see” at night, and they were crashing blindly into our low-radar cross-section tails.
When Congress approved the decision to retire the SR-71, the Smithsonian Institution requested that a Blackbird be delivered for eventual display in the Air and Space Museum in Washington and that we set a new transcontinental speed record delivering it from California to Dulles. I had the honor of piloting that final flight on March 6, 1990, for its final 2,300-mile flight between L.A. and D.C. I took off with my backseat navigator, Lt. Col. Joe Vida, at 4:30 in the morning from Palmdale, just outside L.A., and despite the early hour, a huge crowd cheered us off. We hit a tanker over the Pacific then turned and dashed east, accelerating to 2.6 Mach and about sixty thousand feet. Below stretched hundreds of miles of California coastline in the early morning light. In the east and above, the hint of a red sunrise and the bright twinkling lights from Venus, Mars, and Saturn. A moment later we were directly over central California, with the Blackbird’s continual sonic boom serving as an early wake-up call to the millions sleeping below on this special day. I pushed out to Mach 3.3.
We completed our pass over Beirut and turned toward Malta, when I got a warning low-oil-pressure light on my right engine. Even though the engine was running fine I slowed down and lowered our altitude and made a direct line for England. We decided to cross France without clearance instead of going the roundabout way. We made it almost across, when I looked out the left window and saw a French Mirage III sitting ten feet off my left wing. He came up on our frequency and asked us for our Diplomatic Clearance Number. I had no idea what he was talking about, so I told him to stand by. I asked my backseater, who said, “Don’t worry about it. I just gave it to him.” What he had given him was “the bird” with his middle finger. I lit the afterburners and left that Mirage standing still. Two minutes later, we were crossing the Channel.
He told me later that he was surprised to learn that with flat surfaces the amount of radar energy returning to the sender is independent of the target’s size. A small airplane, a bomber, an aircraft carrier, all with the same shape, will have identical radar cross sections.
Overnight, however, he apparently had second thoughts, or did some textbook reading on his own, and at the next meeting he turned to me as the first order of business. “On the black paint,” he said, “you were right about the advantages and I was wrong.” He handed me a quarter. It was a rare win. So Kelly approved my idea of painting the airplane black, and by the time our first prototype rolled out the airplane became known as the Blackbird. Our supplier, Titanium Metals Corporation, had only limited reserves of the precious alloy, so the CIA conducted a worldwide search and, using third parties and dummy companies, managed to unobtrusively purchase the base metal from one of the world’s leading exporters-the Soviet Union. The Russians never had an inkling of how they were actually contributing to the creation of the airplane being rushed into construction to spy on their homeland.
We became the most successful advanced projects company in the world by hiring talented people, paying them top dollar, and motivating them into believing that they could produce a Mach 3 airplane like the Blackbird a generation or two ahead of anybody else. Our design engineers had the keen experience to conceive the whole airplane in their mind’s-eye, doing the trade-offs in their heads between aerodynamic needs and weapons requirements. We created a practical and open work environment for engineers and shop workers, forcing the guys behind the drawing boards onto the shop floor to see how their ideas were being translated into actual parts and to make any necessary changes on the spot. We made every shop worker who designed or handled a part responsible for quality control. Any worker-not just a supervisor or a manager-could send back a part that didn’t meet his or her standards. That way we reduced rework and scrap waste. We encouraged our people to work imaginatively, to improvise and try unconventional approaches to problem solving, and then got out of their way. By applying the most commonsense methods to develop new technologies, we saved tremendous amounts of time and money, while operating in an atmosphere of trust and cooperation both with our government customers and between our white-collar and blue-collar employees. In the end, Lockheed’s Skunk Works demonstrated the awesome capabilities of American inventiveness when free to operate under near ideal working conditions. That may be our most enduring legacy as well as our source of lasting pride.
To buck smothering bureaucratic controls inside or outside government takes unusual pluck and courage. Smallness, modest budgets, and limiting objectives to modest numbers of prototypes are not very rewarding goals in an era of huge multinational conglomerates with billion-dollar cash flows. There are very few strong-willed individualists in the top echelons of big business-executives willing or able to decree the start of a new product line by sheer force of personal conviction, or willing to risk investment in unproven technologies. As salaries climb into the realm of eight-figure annual paychecks for CEOs, and company presidents enjoy stock options worth tens of millions, there is simply too much at stake for any executive turtle to stick his neck out of the shell. Very, very few in aerospace or any other industry are concerned about the future beyond the next quarterly stockholders’ report.
Ben, why don’t we make the stealth fighter automated from takeoff to attack and return? We can plan the entire mission on computers, transfer it onto a cassette that the pilot loads into his onboard computers, that will route him to the target and back and leave all the driving to us.” To my amazement they actually developed this automated program in only 120 days and at a cost of only $2.5 million. It was so advanced over any other program that the Air Force bought it for use in all their attack airplanes.

Principled Decision Making

Sat, 05 Oct 2024 00:00:00 GMT

Driving results is one of the core responsibilities in a product management function which must align with company's strategy.

To drive results product managers work with several cross-functional teams who have their own responsibilities in serving the business.

Engineering is responsible for solving complex problem that is reliable, performant and scalable. Design is responsible for usability and delightful user experience. Operation is responsible for customer service by turning an unhappy customer into a happy one. Strategy is responsible driving initiatives that are durable for business. Analytics is responsible for enabling tools and expose data to measure the performance of the business. Sales and marketing is responsible for the growth of the business. Legal and compliance is responsible for counseling the organization to not enter a trouble territory which can put business to risk.

These teams are brought in for their specialization but product management is a grey area because it doesn't have a universal definition on what their functional skills are. Every product manager is treated differently based on organization, type, size or taste. And they all come with various experiences and skills.

And if this isn't complex already, product managers are responsible for when a north star metric is down, solving a bug that is reported by the CEO or a board member, shifting focus on backlog items that are no longer a priority, when an operation team is getting a flood of calls on a feature that is not functioning right, design file and production environment do not match, people making decisions without them or an initiative being spun up by another team that they are working on or worked on.

Product managers are forever haunted by these dynamics. You don't have to play this game by simply leaving this chaotic world. But if this isn't a choice, then how do you drive results in a complex product management environment?

Principled decision making can help!

When there is a complexity of this nature, product management is faced with trade-offs. For example, we want to reduce the number of steps in a form but legal might want to add more to ensure all areas are covered. Or operation team might want a specific input on the form because they are getting a lot of calls but analytics finds out it is asked by 1 in every 500 customers. We have to make a decision when facing these trade-offs. But how do you make a decision?

Principles will help you fall back on a default option when there are multiple choices to pick from. For example, a principle can be-move fast and drive impact.

We deliver fast so we can learn quickly on an optimal solution by shipping and iterating fast. So anytime there are endless debates and conversations, the default behavior should be to ship fast, learn from it, and build the next iteration on the previous foundation.

These principles should be tied to the vision statement and strategic pillars. They are drawn from company values. There is a reason why they exist. Using them to your own advantage can help with faster decision making while facing trade-offs so you can drive the results that your organization wants.

Leverage your conversation with your leadership next time and ask them to share the product pillars. Once everyone is aligned, document them, and share them broadly. Next time when you are in an endless debate on getting the feature delivered, call people out that are refusing to follow a principle.

The less time you can spend debating and the more time building and engaging with users the larger your impact and results will be.

Let your principles set the direction!

Observe Not Absorb

Sat, 28 Sep 2024 00:00:00 GMT

Observe not absorb were the wisest words shared with me by my mentor during one of the recent conversations.

She shares a similar point of view as me which is that the doers excel, but the doers have one huge disadvantage-they turn everything into a battle-if not mindful of that.

If something is not functioning well, they go into a solution mode. Before they realize they are now solving 50 items while draining their energy. They are losing focus on their original objective.

One might say it is easy to sit back and watch while doing nothing, but having too many things on the platter is equally a danger. The bloat will kill you.

You are not complacent while you are observing. It is still an active form of learning. But being absorbed in every problem is a danger you need to be aware of.

One way to limit on the amount of battles you can fight is to choose the right tribe with principles that are aligned with yours. This should reduce the chaos but not eliminate. For example, the baseline for moving fast is to make decisions on a call instead of countless meetings. This could be the ethos of an organization on how it operates. And if the ethos align with yours then you have one less battle to fight and focus more on your objective.

Observe not absorb is a zen way to stay calm in the middle of the storm. Don't swing on every ball. Choose wisely which voices to let in, which emotions to allow passage, and which judgements to acknowledge.

Celebrate The Doers

Fri, 20 Sep 2024 00:00:00 GMT

I recently came across a post where the folks were being made fun of who built a wearable pin called Humane.

My first reaction was why hate the doers. What did this person accomplish? The post flooded the comments with personal attack on their appearances. This is a cheap way to target other people's work. We shouldn't blast people for trying.

Instead, we should applaud bravery. It is not easy to build a product. The product might not have been perfect but they contributed towards the future of innovation. This is how iPhone was born. Technology is built upon the past foundations. Great concepts are borrowed from failed innovation. Version 1 is never perfect, but the future ones will be far superior.

Even one of the best thinkers, late Charlie Munger would not bet against the doers, and he knew a heck lot more about how the world operates. He knew Elon Musk overestimates himself but he was wise enough not to ever bet against him.

The world changes because of doers, not critics. Let's celebrate the doers for the bet they place on the future for what most think is impossible or hard.

I'd rather see the world building, failing and learning from it than being entertained for mockery.

Build Vs Rent

Fri, 13 Sep 2024 00:00:00 GMT

The trade-off between rent vs own is a dilemma in every corner of our lives. Whether it is regarding homeownership or a software platform-it is not an easy choice to make. For this essay, I will be focusing on the software platform.

A company with critical departments such as HR, finance operations or compliance rely on ERPs, CRMs or other SaaS providers such as Workday, Atlassian, SAP or Salesforce to serve their business functions. Companies cannot ignore these functions as they scale and reach maturity.

COO asks the leadership to invest in a software that will standardize the business operation.

CTO might say they can build any software with appropriate funding.

CFO evaluates the IRR (internal rate of return) on a CapEx (capital expenditure) of building it internally vs renting the resources from a third party.

CEO is faced with a choice to make a decision on whether to build internally or rent a tool. What should the CEO do?

Building sounds good in theory because why pay for software when you can consolidate them all under one platform while getting customization capabilities from your engineering team. The world is your oyster.

Another obvious choice is cost-cutting for profitability. You pay for all these licenses per seat which racks up your IT bill. And these large platforms come with bloat. Not all functionalities are consumed, but you are stuck paying for it all nonetheless.

On the flip side, these giant ships (Salesforce) require highly specialized engineers but underneath the hood it is a relational database management system (RDBMS) with application layer with embedded components. It orchestrates internal processes at scale.

You also take the risk of outsourcing security to your vendor. For instance recent CrowdStrike and Microsoft vulnerability that brought several industries including airlines.

Another issue is getting your team to adapt to a new behavior. UX can be so drastic that it slows down your team's productivity because of cognitive load. Learning new tools while trying to do a job shouldn't be ignored.

Lastly, ongoing maintenance is overlooked by an executive team. Building a platform from scratch is one part but keeping the lights on and keeping up with new technology and standards is another.

CEO must ask where should the resources be allocated. If you are a wealth management firm, should your best engineers be helping you build your core business or a CRM tool?

The hard part is not building but maintaining the platform. I know this because I have seen internal platforms and tools being outdated time and time again because upgrades keep slipping to a low priority until one day you are forced to upgrade because the company faces a security threat. But then all business priorities are on pause. The pendulum is always shifting from one side to another.

On the other hand, renting requires huge upfront investment. You are limited to functionalities provided by your vendor, but you no longer have to worry about upgrades, security controls or best practices. Once your business function integrates with a system you can then start focusing on your core business. While initial integration is not easy, it removes the maintenance cost.

Your CapEx is now OpEx. Outsourcing becomes an operational cost. This might not sit well with a CEO who is thinking short term because profitability might take a hit. But trading OpEx for CapEx in software is a real trade-off and the decision can be consequential in long-term.

In my opinion, CEO's job is to protect the moat of the company while allocating capital efficiently. Renting might not be good at first but maintaining a platform that was built internally is not good either because you are re-shifting your resources that could otherwise be used to serve your customers.

It is an enormous mistake when pulling engineers away to maintain your internal software as most companies are already bottlenecked by velocity of feature delivery that matters the most to the core business.

Good Design

Wed, 21 Aug 2024 00:00:00 GMT

Have you ever wondered how in the world a design or a solution speaks to you loudly? For example, while you are at REI, shopping for a hat. You trial several hats, but there is one that flawlessly sits on your head. It is so timely that it feels like magic. You start wondering how you made so far in life without one. This is what good design feels like!

Underneath that magical feeling the form is shaping into context. The form being the hat and the context being the shopper with specific needs.

But you magically do not arrive at context while solving for problems. You have to seek context in order to genuinely solve problems. You have to look up and notice things around you. You have to investigate. This is what Christopher Alexander (author of A Pattern Language) meant-the form fits the context.

Context provides detail that you cannot find otherwise. Spotlighting our REI example again-if the product team did not account for outdoor features such as brim design that shields the face and neck from UV rays, it might not attract the right customer. Aesthetics alone won't cut it. Context is where you find nuances and information.

There must be feedback loop between form and context. You have to embody discovery and research at both quantitative and qualitative level. Talk to users and your customers. The more you collide with reality, the faster you will get feedback. You will reach velocity that you can be satisfied with.

Then after you can mold the form. You can fine tune your design and observe whether the context fits the form (not the other way around, i.e., starting with form first). This is when good design feels good and results in happy feeling.

Collaborate with context.

Observe the context.

Don't fight it.

Form mental models based on the observation.

But turn off your confirmation bias.

Don't observe with a solution in mind.

And you will form an understanding of the problem.

New information will flow.

But more questions will rise.

Ask those questions.

Do not fear of looking stupid.

The more you do, the easier it gets to find form.

And this is when form meets the context.

It results in good design…

…which creates magical feeling, my friend!

Worshiping Agency

Tue, 13 Aug 2024 00:00:00 GMT

My taste for work was unusual as a teenager and young adult.

I blindly signed up for a pyramid scheme which I didn't know about. I liked the idea of being my own boss and having an office space. To earn that, I would need to sell juice boxes that were high in nutrition and recruit people to sell those densely nutrition juice boxes who were densely energized to hustle. Hence, pyramid! I rallied up my friend to help me stick flyers on people's car parked at a mall. I sold 24 boxes-one to a stranger and the rest to my uncle because he always supported my endeavors.

Then I went on to purchase a stock of a company I was working at trading for pennies. I purchased several thousand stocks thinking I would turn those into several hundred thousands. And I was pretty damn sure because I was an “insider.” I knew how much inventory we were selling on a daily basis. Hallelujah! I would retire and would make my mom's job easier as she was a single parent supporting her family. But I didn't know the financial statements. It was heavily leveraged. Next came the bankruptcy and I lost it all.

Fast-forward a few years later, I started a company called Humble Pen to sell pens. No background in industrial design, product prototyping or supply-chain, but decided to pursue the mission of building pens to reignite people's love for writing. It resulted in a great product with a broken business model.

Another few years later I learned how to program through a trade school in Utah. I enjoyed it so much that I gave up on the idea of entrepreneurship to pursue programming. I found a job with a rotation program that taught me the ins and out of how a real-world organization uses computer to scale their business.

And then I built a small company called Wise Charlie because I was fascinated by mental models. Charlie Munger inspired me so much that I was on cloud nine. I wanted to make consuming these mental models fun, so I built a deck of cards. After selling it to a thousand customers I sold the company.

No one asked me to do any of these things but somehow I found ways to build things or pursue new interests. This isn't to list or brag about my achievements (or failures) but to understand what makes up for high agency.

This is the first time I am reflecting on my own path and understanding how agency played a pivotal role in shaping my own character and future. High agency is fuel for life which will also be a great lesson for my son.

Agency is the capacity to act during adverse conditions. High agency is about finding a way out without waiting for perfect conditions to appear or blaming the circumstances. High agency individuals do not wait for permission. They also don't sentence themselves to their cohort they are surrounded by. They are constantly drenched in lollapalooza of ideas and discovering how to shape their future by actions.

Having agency is not trying to control the world but having control over your actions. It begins with rejecting the idea of change happens by chance. It is a belief system you can embody that you have a power to influence a positive change in the world. This is one of many ways to live your life to the fullest.

High agency individuals foster their full potential. Many creatives come short because instead of creating they start focusing on audience or hitting a certain milestone. It is through sheer action and repetition they reach their full potential and not by craving into their audience's taste. High agency individuals do not allow their audience road block them. Writers write. Painters paint. Singers sing. The only reality they embrace is their will power to continue pursuing their artistic abilities so one day they can actualize their full potential. All creators and doers follow this path. Embracing this can be empowering or daunting task but the eyes never shift from the prize.

High agency individuals regularly reassess their priorities without fear of changing them. It is normal to fall into day-to-day and losing agency over time, but high agency individuals never fall for this inertia. They are constantly adjusting and re-adjusting their path to actualize their vision. Abandoning items or goals might seem counterproductive against commitment, but it is not. They are highly committed but not married to a particular path. Shedding unproductive items wake high agency individuals up, so they can stay focused on the mission.

High agency individuals do not fall prey to institutional thinking. This is important for critical thinking. They recognize the delusional thinking-just because higher ranking institution said so, it must happen that way. There is no “safe path.” They are not concerned with image management. The only management they do is preserving values and principles to guide their operating model to achieve their mission.

High agency individuals refuse to play victim mentality. Victimhood suppresses agency. One thing I am not sure about how one individual can have more agency over another. But I have a theory–these individuals have solved an extraordinary challenge of navigating difficult times early on in their lives. They chose to respect themselves and constantly beat their circumstances by being more resilient and mentally strong. This is why we shouldn't tell young adults their future is doomed. We should enable them to try harder and build confidence not throw bricks at them.

High agency individuals are serious but not rigid. Their sense of humor is critical in their success because they realize life is dynamic. Taking too seriously might cause them to run up against something that can break them. A true professional understands there is never enough of loving and laughing. Doing so makes them back out of ideas that are counter-productive to their mission. Richard Feynman, Nobel-winning physicist talks about how physics used to delight him when he used to play with it, but then it disgusted him when he got burdened by the idea that he was obligated to advance the future of science.

How did these high agency individuals come about? In my opinion, high agency individuals start early, but they struggle in school, or they learn how to game the system to escape school.

They find tall orders of doing homework at school useless because what they learn is not relevant, and they have difficulty in connecting the dots on how lessons from school is going to be useful to them in real life.

They feel the inertia, but they are constantly trying to go off-script. They are in their playground experimenting. They are asking all the hard questions. And those who are not fortunate enough are working. Both have something in common. Doing something useful is appreciated at a young age. The case in point-at 13 Steve Jobs had a summer job at Hewlett Packard.

People around these high agents including parents and teachers are enablers. The support system conceive the idea that they can contribute back in society as early as they want and permission isn't required from a responsible adult. Their contributions to society are validated by these people, so naturally their spirit of work ethic is elevated.

This propels their innate curiosity of how the world operates. They start finding meaning in their work. The future is not so abstract anymore. And this is why school becomes meaningless. They downplay the reality portrayed by schools-4 years of high school, 4 years of college and off you go in the real-world for a job. Theorizing the world for 8+ years as a young adult is painful.

You learn from doing not the other way around. Learning is the consequence of doing. Those who realize this early bear the fruits early.

Academia is useful to many but shouldn't be the one and all solution. Highly talented, but low agency individuals are all around us, but talent alone isn't enough.

This is why agency should be worshiped over intelligence.

The Master Algorithm by Pedro Domingos

Wed, 24 Jul 2024 00:00:00 GMT

I. Brief Summary

The book was recommended by Mark Cuban when I had emailed him out of the blue on his book recommendation on the topic of Artificial Intelligence. It took me several years before I picked it up. Domingos argues that the master algorithm is probably going to be a combination of the five schools of thought in the world of machine learning. I found this book really insightful.

II. Big Ideas

The concept of a master algorithm is the unity of all knowledge.
Machine learning is sometimes confused with artificial intelligence (or AI for short). Technically, machine learning is a subfield of AI, but it’s grown so large and successful that it now eclipses its proud parent.
Every algorithm has an input and an output: the data goes into the computer, the algorithm does what it will with it, and out comes the result. Machine learning turns this around: in goes the data and the desired result and out comes the algorithm that turns one into the other. Learning algorithms-also known as learners-are algorithms that make other algorithms. With machine learning, computers write their own programs, so we don’t have to.
How do we learn? Is there a better way? What can we predict? Can we trust what we’ve learned? Rival schools of thought within machine learning have very different answers to these questions. The main ones are five in number. Each tribe has a set of core beliefs, and a particular problem that it cares most about. It has found a solution to that problem, based on ideas from its allied fields of science, and it has a master algorithm that embodies it.
- The symbolists’ master algorithm is inverse deduction: Symbolists view learning as the inverse of deduction and take ideas from philosophy, psychology, and logic. For symbolists, all intelligence can be reduced to manipulating symbols, in the same way that a mathematician solves equations by replacing expressions by other expressions. Symbolists understand that you can’t learn from scratch: you need some initial knowledge to go with the data.
- The connectionists’ is backpropagation: Connectionists reverse engineer the brain and are inspired by neuroscience and physics. For connectionists, learning is what the brain does, and so what we need to do is reverse engineer it. The brain learns by adjusting the strengths of connections between neurons, and the crucial problem is figuring out which connections are to blame for which errors and changing them accordingly.
- The evolutionaries’ is genetic programming: Evolutionaries simulate evolution on the computer and draw on genetics and evolutionary biology. Evolutionaries believe that the mother of all learning is natural selection. If it made us, it can make anything, and all we need to do is simulate it on the computer. The key problem that evolutionaries solve is learning structure: not just adjusting parameters, like backpropagation does, but creating the brain that those adjustments can then fine-tune.
- The Bayesians’ is Bayesian inference: Bayesians believe learning is a form of probabilistic inference and have their roots in statistics. Bayesians are concerned above all with uncertainty. All learned knowledge is uncertain, and learning itself is a form of uncertain inference. The problem then becomes how to deal with noisy, incomplete, and even contradictory information without falling apart. The solution is probabilistic inference. Bayes’ theorem tells us how to incorporate new evidence into our beliefs, and probabilistic inference algorithms do that as efficiently as possible.
- The analogizers’ is the support vector machine: Analogizers learn by extrapolating from similarity judgments and are influenced by psychology and mathematical optimization. For analogizers, the key to learning is recognizing similarities between situations and thereby inferring other similarities. If two patients have similar symptoms, perhaps they have the same disease. The key problem is judging how similar two things are.
Evolutionaries and connectionists have something important in common: they both design learning algorithms inspired by nature. But then they part ways. Evolutionaries focus on learning structure; to them, fine-tuning an evolved structure by optimizing parameters is of secondary importance. In contrast, connectionists prefer to take a simple, hand-coded structure with lots of connections and let weight learning do all the work. This is machine learning’s version of the nature versus nurture controversy, and there are good arguments on both sides.
Machine learning takes many different forms and goes by many different names: pattern recognition, statistical modeling, data mining, knowledge discovery, predictive analytics, data science, adaptive systems, self-organizing systems, and more.

III. Quotes

It’s not man versus machine; it’s man versus man with machine.
Just because computers can learn doesn’t mean they magically acquire a will of their own. Learners learn to achieve the goals we set them; they don’t get to change the goals.
Society is changing, one learning algorithm at a time.
Learning algorithms are artifacts that design other artifacts.
People worry that computers will get too smart and take over the world, but the real problem is that they’re too stupid and they’ve already taken over the world.
Our beliefs are based on our experience, which gives us a very incomplete picture of the world, and it’s easy to jump to false conclusions.
Learning algorithms are the seeds, data is the soil, and the learned programs are the grown plants. The machine-learning expert is like a farmer, sowing the seeds, irrigating and fertilizing the soil, and keeping an eye on the health of the crop but otherwise staying out of the way.
Words become worlds.
Your job in a world of intelligent machines is to keep making sure they do what you want, both at the input (setting the goals) and at the output (checking that you got what you asked for).
Believe it or not, every algorithm, no matter how complex, can be reduced to just these three operations: AND, OR, and NOT.
A good learner is forever walking the narrow path between blindness and hallucination.
Learning is forgetting the details as much as it is remembering the important parts.
A learner that uses Bayes’ theorem and assumes the effects are independent given the cause is called a Naïve Bayes classifier. That’s because, well, that’s such a naïve assumption.
For a Bayesian, in fact, there is no such thing as the truth; you have a prior distribution over hypotheses, after seeing the data it becomes the posterior distribution, as given by Bayes’ theorem, and that’s all.
Our beliefs are based on our experience, which gives us a very incomplete picture of the world, and it's easy to jump to false conclusions.
People often think computers are all about numbers, but they’re not. Computers are all about logic.
The second simplest algorithm is: combine two bits. Claude Shannon, better known as the father of information theory, was the first to realize that what transistors are doing, as they switch on and off in response to other transistors, is reasoning. (That was his master’s thesis at MIT-the most important master’s thesis of all time.)
Homo sapiens is the species that adapts the world to itself instead of adapting itself to the world.
“Listen to your customers, not to the HiPPO,” HiPPO being short for “highest paid person’s opinion.”
As so often happens in computer science, we’re willing to sacrifice efficiency for generality.
Whoever has the best algorithms and the most data wins. A new type of network effect takes hold: whoever has the most customers accumulates the most data, learns the best models, wins the most new customers, and so on in a virtuous circle (or a vicious one, if you’re the competition).
Common sense is important not just because your mom taught you so, but because computers don’t have it.
Every time I fire a linguist, the recognizer’s performance goes up.
Machine learners, like all scientists, resemble the blind men and the elephant: one feels the trunk and thinks it’s a snake, another leans against the leg and thinks it’s a tree, yet another touches the tusk and thinks it’s a bull. Our aim is to touch each part without jumping to conclusions; and once we’ve touched all of them, we will try to picture the whole elephant.
Our goal is to figure out the simplest program we can write such that it will continue to write itself by reading data, without limit, until it knows everything there is to know.
Data alone is not enough. Starting from scratch will only get you to scratch.
Knowledge is traded in both directions-manually entered knowledge for use in learners, induced knowledge for addition to knowledge bases-but at the end of the day the rationalist-empiricist fault line runs right down that border, and crossing it is not easy.
Knowing how to do something isn’t much use if you can’t do it within the available time and memory.
Richard Feynman said, “What I cannot create, I do not understand.”
“Computers are useless,” said Picasso. “They can only give you answers.”
How many Bayesians does it take to change a lightbulb? They’re not sure.
Skills are often in the form of procedures: if the road curves left, turn the wheel left; if a deer jumps in front of you, slam on the brakes. (Unfortunately, as of this writing Google’s self-driving cars still confuse windblown plastic bags with deer.)
If it exists, the Master Algorithm can derive all knowledge in the world-past, present, and future-from data.
Evolution is the ultimate example of how much a simple learning algorithm can achieve given enough data.
One of the most important problems in machine learning-and life-is the exploration-exploitation dilemma. If you’ve found something that works, should you just keep doing it? Or is it better to try new things, knowing it could be a waste of time but also might lead to a better solution? Would you rather be a cowboy or a farmer? Start a company or run an existing one? Go steady or play the field? A midlife crisis is the yearning to explore after many years spent exploiting.
Some thinkers are foxes-they know many small things-and some are hedgehogs-they know one big thing. - Isaiah Berlin
Dimensionality reduction is necessary for the scaling down features for analysis.
I’d like to give you a parting gift … the great undiscovered ocean stretches into the distance, the gift is a boat-Machine Learning- and it’s time to set sail.
Before we can discover deep truths with machine learning, we have to discover deep truths about machine learning.
A related, frequently heard objection is “Data can’t replace human intuition.” In fact, it’s the other way around: human intuition can’t replace data. Intuition is what you use when you don’t know the facts, and since you often don’t, intuition is precious. But when the evidence is before you, why would you deny it?
If you want to be tomorrow’s authority, ride the data, don’t fight it.
He who controls the data controls the learner.
Most science consists of Brahe- and Kepler-like work; Newton moments are rare.
The human hand is simple-four fingers, one opposable thumb-and yet it can make and use an infinite variety of tools. The Master Algorithm is to algorithms what the hand is to pens, swords, screwdrivers, and forks.
The computer is your tool, not your adversary. Armed with machine learning, a manager becomes a supermanager, a scientist a superscientist, an engineer a superengineer.
Are you a rationalist or an empiricist? Rationalists believe that the senses deceive and that logical reasoning is the only sure path to knowledge. Empiricists believe that all reasoning is fallible and that knowledge must come from observation and experimentation. The French are rationalists; the Anglo-Saxons (as the French call them) are empiricists. Pundits, lawyers, and mathematicians are rationalists; journalists, doctors, and scientists are empiricists. Murder, She Wrote is a rationalist TV crime show; CSI: Crime Scene Investigation is an empiricist one. In computer science, theorists and knowledge engineers are rationalists; hackers and machine learners are empiricists.
Rationalism versus empiricism is a favorite question of philosophers. Plato was an early rationalist, and Aristotle an early empiricist.

Competing In The Age Of AI by Marco Iansiti

Mon, 15 Jul 2024 00:00:00 GMT

I. Brief Summary

An overview of how industries and organizations are going to be shaped by Machine Learning and Artificial Intelligence. The authors explain AI-enabled transformation through the case studies of companies like Amazon, Microsoft, Netflix, Ant Financial, Walmart, Facebook, Ocado, Peloton, and Uber. The case studies are useful in understanding how AI digital revolution is transforming how firms operate and industries compete.

II. Big Ideas

Decoding AI: There is weak AI and strong AI. The potential of weak AI in task automation and business process simplification. This clarification will help business leaders to understand application of AI beyond its theoretical potential.
AI as a transformative force: AI as a transformative force with the potential to reshape market and business dynamics. The book highlights how companies can leverage AI for enhancing efficiency and creating new customer experiences or developing innovative products.
AI-centric business mindset: The authors present a compelling case to adopt AI-centric business mindset focusing on revising the business and operational model. They explain this through examples covering AI-driven customer care that enhances user experience and AI-driven logistics that streamline operations. Thus, by digitizing conventional tasks, businesses can achieve scalability and operational agility. There needs to be alignment between a company’s business model and operating model.
Impact of AI on organizational dynamics: AI has a significant effect on how organizations are structured. The authors propose that AI would make the team structure and management more flexible and networked as against the traditional hierarchical structure.
Practical business strategies: Through case studies, the authors explain practical strategies for integrating AI into various business aspects. The book offers a roadmap for businesses to harness AI's potential.
Job market transformation: The book highlights the growing career opportunities in AI, machine learning, and data science. It points to the shift in the skills required in the modern job market with increasing demand for AI expertise.
Leadership in the age of AI: Being a leader in an AI-centric organization would require new skills and vision. The authors explore how leaders can promote a culture that values AI, prioritizes lifelong learning, and adapts to rapid technological advancements.
The new meta: A new reality that transcends the existing game rules or goes beyond traditional game limits and constraints. The five new rules are:
- Rule 1: Change is no longer localized. It is systemic.
- Rule 2: Capabilities are increasingly horizontal and universal.
- Rule 3: Traditional industry boundaries are disappearing. Recombination is now the rule.
- Rule 4: From constrained operations to frictionless impact.
- Rule 5: Concentration and inequality will likely get worse.

III. Quotes

We are moving from an era of core competencies, differing from firm to firm and embedded deep in each organization, to an age shaped by data and analytics, powered by algorithms and hosted in the computing cloud for anyone to use.
A company’s approach to value creation requires consciously choosing the precise problem it is solving for the customer and its positioning in the marketplace.
Traditionally, the intrinsic scalability, scope amplification, and learning potential of technology was limited by the operating architecture of the organizations that it was deployed in. But over the past decade, we have seen the emergence of firms that are designed and architected to release the full potential of digital networks, data, algorithms, and AI. Indeed, the more a firm is designed to optimize the impact of digitization, the greater its potential for scale, scope, and learning embedded in its operating model - and the more value it can create and capture.
Alfred Chandler argued that the two main challenges faced by executives are to drive economies of both scale and scope in order to survive and thrive. Subsequent work in economics and management showed that a third challenge is equally important: learning-the operating capability to improve and innovate.
In a digital operating model, the employees do not deliver the product or service; instead, they design and oversee a software-automated, algorithm-driven digital “organization” that actually delivers the goods.
The fundamental idea behind the AI factory is to industrialize the company’s approach to data, analytics, and artificial intelligence. Moderna’s AI factory does for analytics what industrialization did for manufacturing more than a hundred years ago.
AI is becoming the universal engine of execution. As digital technology increasingly shapes “all of what we do” and enables a rapidly growing number of tasks and processes, AI is becoming the new operational foundation of business-the core of a company’s operating model, defining how the company drives the execution of tasks. AI is not only displacing human activity, it is changing the very concept of the firm.
When a business is driven by AI, software instructions and algorithms make up the critical path in the way the firm delivers value.
Ultimately, complexity becomes the downfall of traditional organizations, increasing operational costs and decreasing service levels.
The key to Amazon is its increasingly digital operating model. Amazon’s operating philosophy centers on digitizing the best understanding of operational excellence through the broad-based application of artificial intelligence and machine learning, advanced robotics, and the instantiation of as much know-how as possible into software.

Befriending Entropy

Fri, 28 Jun 2024 00:00:00 GMT

There used to be fewer problems at work. What is happening?

Life used to be simple. What happened?

The wheel of time goes through its natural cycle-creation to destruction to rebirth, but we continue to fight the decay brought on by entropy.

Entropy is the second law of thermodynamics. It states that entropy-the measure of disorder in a closed system is always increasing.

Everything has a default state and energy will move to its non-default state. The universe is always drifting from a state of order to a state of disorder.

The birth of a child (default state) to turning a 30-year-old getting married (non-default state). The start of a company with 1 employee (default state) to a 300 people organization (non-default state). This is why the only constant in life is change.

Yes, things used to be simple, but things are now chaotic because entropy is always increasing resulting in complexity.

If chaos is the law of nature then order is the dream of humanity. Order does not create growth, chaos does.

Befriend entropy, don't fight it.

Complexity is not an accident. It is the byproduct of a universal law-the second law of thermodynamics. You and I are both decaying and declining from our original state. The path is fixed.

The Untethered Soul by Michael A. Singer

Sat, 22 Jun 2024 00:00:00 GMT

I. Brief Summary

A beautiful book about “you are not your thoughts.” This made me more aware of how my inner voice operates and how I can overcome it. Singer simplifies what it means to live a spiritual life. A practical book on spirituality and how to overcome inner voice which is constantly yapping away.

II. Big Ideas

The one who watches the voice objectively will solve the great mystery of life. It will unfold to you that you are not your thoughts.
View the thoughts in your mind as a roommate on the sofa. You wouldn’t tolerate constant unhealthy chatter from them, why accept it from your mind?

III. Quotes

You see, you can’t fail at this because your “self” is what you are, at all times and in all places. We simply need to sort it out. After all, it can get quite confusing in there.
And should you choose to devote yourself to the ongoing journey of self-realization, you will develop a tremendous sense of respect for who you really are. It is only then that you will come to appreciate the full depth of meaning in the advice: “This above all: to thine own self be true.”
Notice that the voice takes both sides of the conversation. It doesn’t care which side it takes, just as long as it gets to keep on talking.
Why do you even tolerate that voice talking to you all the time?
If you spend some time observing this mental voice, the first thing you will notice is that it never shuts up. When left to its own, it just talks.
The same is true for the voice inside your head. Why is it talking? It’s you who’s talking, and it’s you who’s listening. And when the voice argues with itself, who is it arguing with? Who could possibly win? It gets very confusing.
It’s actually a shocking realization when you first notice that your mind is constantly talking.
The best way to free yourself from this incessant chatter is to step back and view it objectively.
No matter what the voice is saying, it’s all the same. It doesn’t matter if it’s saying nice things or mean things, worldly things or spiritual things. It doesn’t matter because it’s still just a voice talking inside your head.
There is nothing more important to true growth than realizing that you are not the voice of the mind-you are the one who hears it.
People go through so many changes in the name of “trying to find myself.” They want to discover which of these voices, which of these aspects of their personality, is who they really are. The answer is simple: none of them.
If you watch it objectively, you will come to see that much of what the voice says is meaningless.
The truth is that most of life will unfold in accordance with forces far outside your control, regardless of what your mind says about it.
Your thoughts have far less impact on this world than you would like to think.
If you spend your time hoping that it doesn’t rain tomorrow, you are wasting your time. Your thoughts don’t change the rain.
Eventually you will see that the real cause of problems is not life itself. It’s the commotion the mind makes about life that really causes problems.
If so much of what the voice says is meaningless and unnecessary, then why does it even exist? ... there’s a buildup of energy inside that needs to be released. If you watch objectively, you will see that when there’s a buildup of nervous, fearful, or desire-based energies inside, the voice becomes extremely active. That voice talks because you’re not okay inside, and talking releases energy.
This inner world is an alternate environment that is under your control. The outside world, however, marches to its own laws.
For example, there are myriad things that you see at any given moment, yet you only narrate a few of them. The ones you discuss in your mind are the ones that matter to you.
Your consciousness is actually experiencing your mental model of reality, not reality itself.
You’re walking outside in the winter, you start to shiver, and the voice says, “It’s cold!” Now how did that help you?
This world is unfolding and really has very little to do with you or your thoughts. It was here long before you came, and it will be here long after you leave. In the name of attempting to hold the world together, you’re really just trying to hold yourself together.
If used properly, the same mental voice that has been a source of worry, distraction, and general neurosis can become the launching ground for true spiritual awakening.
Come to know the one who watches the voice, and you will come to know one of the great mysteries of creation.
Your inner growth is completely dependent upon the realization that the only way to find peace and contentment is to stop thinking about yourself.
You’re ready to grow when you finally realize that the “I” who is always talking inside will never be content. It always has a problem with something.
The bottom line is, you’ll never be free of problems until you are free from the part within that has so many problems.
The process of seeing something requires a subject-object relationship. The subject is called “The Witness” because it is the one who sees what’s happening. The object is what you are seeing, in this case the inner disturbance. This act of maintaining objective awareness of the inner problem is always better than losing yourself in the outer situation. This is the essential difference between a spiritually minded person and a worldly person.
The only real solution is to take the seat of witness consciousness and completely change your frame of reference.
To attain true inner freedom, you must be able to objectively watch your problems instead of being lost in them.
The first problem you have to deal with is your own reaction.
The only permanent solution to your problems is to go inside and let go of the part of you that seems to have so many problems with reality.
If you would like to meet your roommate, just try to sit inside yourself for a while in complete solitude and silence. You have the right; it’s your inner domain.
Look at this thing. It’s ruining my life. I’m trying to live a peaceful, meaningful existence, but I feel like I’m sitting on top of a volcano.
Once you’ve seen this, and learn to no longer identify with your roommate, you’re ready to free yourself.
A good time to watch it talk is while you’re taking a shower. Just watch what that voice has to say. You will see that it never lets you just take a peaceful shower. Your shower is for washing the body, not for watching the mind talk nonstop.
The bottom line is undeniable: If somehow that voice managed to manifest in a body outside of you, and you had to take it with you everywhere you went, you wouldn’t last a day. If somebody were to ask you what your new friend is like, you’d say, “This is one seriously disturbed person. Just look up neurosis in the dictionary and you’ll get the picture.”
When you’ve sincerely tried these practices of self-observation and awareness, you’ll see that you’re in trouble. You’ll realize that you’ve only had one problem your entire life, and you’re looking at it. It’s pretty much the cause of every problem you’ve ever had.
Once you’ve made the decision to free yourself from the mental melodrama, you are ready for teachings and techniques. You will now have a real use for them.
Yoga is not really about getting your body healthy, although it does that too. Yoga is about the knowledge that will help you out of your predicament, the knowledge that can free you. Once you’ve made this freedom the meaning of your life, there are spiritual practices that can help you. These practices are what you do with your time in order to free yourself from yourself.
Your will is stronger than the habit of listening to that voice. There is nothing you can’t do. Your will is supreme over all of this.
If you want to free yourself, you must first become conscious enough to understand your predicament. Then you must commit yourself to the inner work of freedom. You do this as though your life depended on it, because it does.
This is your life-reclaim it.

The Warrior Ethos by Steven Pressfield

Sat, 15 Jun 2024 00:00:00 GMT

I. Brief Summary

A short and investigate read on warrior mindset. It's a classic Pressfield book. He provides numerous examples from the lives and journeys of Alexander the Great to King Leonidas of Sparta to Arjuna from Bhagavad-Gita that leave you feeling inspired and emboldened to live by such ethos.

II. Big Ideas

There are two types of salary, but psychological salary is the important one.
Opposite of fear is love.
The warrior's primary enemy is not an external force, but the fear and resistance within oneself.
True courage is not the absence of fear, but acting in spite of it.
Warrior ethos is eagerness to embrace adversity, a will to fight, a passion to be great.
Easier to be soldier than civilian because you fight for others.
Shared sacrifice is opportunity for honor or virtue.
Self-sacrifice is not about giving up everything, but about putting something greater than oneself at stake.
Honor is not about outward appearances, but about living with integrity.
Warrior archetype is foundation for other archetypes and most powerful and impactful of all.
Why do young men and women in a free society enlist in the military? One answer may be that the young man or woman is seeking a rite of passage. We want action. We seek to test ourselves. We want friends-real friends, who will put themselves on the line for us-and we want to do the same for them. We want to be part of something greater than ourselves, something we can be proud of.

III. Quotes

Wars change, but warriors don’t. They live by ethos or virtues.
A Spartan mother handed her son his shield as he prepared to march off to battle. She said, “Come back with this or on it.”
The Spartans do not ask how many are the enemy but where are they.
Does a fighting man require a flag or a cause to claim a code of honor?
Is honor coded into our genes? What does honor consist of-in an age when the concept seems almost abandoned by society at large, at least in the West?
We all fight wars-in our work, within our families and abroad in the wider world.
The king didn’t pick his 300 champions for that quality. He picked them instead, he says, for the courage of their women. He chose these specific warriors for the strength of their wives and mothers to bear up under their loss.
The lioness hunts. The alpha female defends the wolf pack. The Warrior Ethos is not, at bottom, a manifestation only of male aggression or of the masculine will to dominance. Its foundation is society-wide. It rests on the will and resolve of mothers and wives and daughters-and, in no few instances, of female warriors as well-to defend their children, their home soil and the values of their culture.
Every warrior virtue proceeds from this-courage, selflessness, love of and loyalty to one’s comrades, patience, self-command, the will to endure adversity. It all comes from the hunting band’s need to survive.
Tribes practice the primacy of honor. Tribes are governed not by the rule of law but by a code of honor.
Tribes prize loyalty and cohesion. Tribes revere elders and the gods. Tribes resist change. Tribes suppress women. Tribes value the capacity to endure hardship.
Sociologists tell us that there are two types of cultures: guilt-based and shame-based.
If shame is the negative, honor is the positive.
As soldiers, we have been taught discipline. Now we teach ourselves self-discipline. As fighting men and women, we have been motivated, commanded and validated by others. Now we school ourselves in self-motivation, self-command, self-validation.
The yogi was a warrior too. An inner warrior.
We want to be part of something greater than ourselves, something we can be proud of. And we want to come out of the process as different (and better) people than we were when we went in. We want to be men, not boys. We want to be women, not girls. We want a rite of passage. We want to grow up.
We want action. We seek to test ourselves. We want friends-real friends, who will put themselves on the line for us-and we want to do the same for them.
The capacity for empathy and self-restraint will serve us powerfully, not only in our external wars but in the conflicts within our own hearts.
The hardest thing in the world is to be ourselves. Who are we? Our family tells us, society tells us, laws and customs tell us. But what do we say? How do we get to that place of self-knowledge and conviction where we are able to state without doubt, fear or anger, “This is who I am, this is what I believe, this is how I intend to live my life?”
Let us be, then, warriors of the heart, and enlist in our inner cause the virtues we have acquired through blood and sweat in the sphere of conflict-courage, patience, selflessness, loyalty, fidelity, self-command, respect for elders, love of our comrades (and of the enemy), perseverance, cheerfulness in adversity and a sense of humor, however terse or dark.
The names of these enemy warriors, in Sanskrit, can be read two ways. They can be simply names. Or they can represent inner crimes or personal vices, such as greed, jealousy, selfishness, the capacity to play our friends false or to act without compassion toward those who love us.
A warrior culture trains for adversity. Luxury and ease are the goals advertised to the civilian world.
The will to victory may be demonstrated in places other than actual battle.
Alexander operated by the same principle. Let us conduct ourselves so that all men wish to be our friends and all fear to be our enemies.
Warrior cultures (and warrior leaders) enlist shame, not only as a counter to fear but as a goad to honor. The warrior advancing into battle (or simply resolving to keep up the fight) is more afraid of disgrace in the eyes of his brothers than he is of the spears and lances of the enemy.
The payoff for a life of adversity is freedom.
The warrior culture, on the other hand, values cohesion and obedience. The soldier or sailor is not free to do whatever he wants. He serves; he is bound to perform his duty.

Open by Andre Agassi

Sat, 01 Jun 2024 00:00:00 GMT

I. Brief Summary

A compelling autobiography that takes readers on a journey through the life and career of one of tennis’s most iconic and enigmatic figures - Andre Agassi. Agassi’s honesty and vulnerability shines through the book as he opens up about his conflicting emotions towards tennis. He is candid about his internal battles and the complex relationship with his father and tennis. He chronicled his rise to the top ranks of tennis, but the ride wasn't easy.

II. Big Ideas

Don’t think, feel.

In the heat of the match of your life, you have to trust your thoughts and feel your way towards the outcome you so badly desire.

Fear is your fire.

It would be dangerous to surrender to fear. Fears are like gateway drugs, I said. You give in to a small one, and soon you’re giving in to bigger ones.

Fight your pain and relieve other people's pain are life purposes.

Pain is God’s megaphone to rouse a deaf world. He tells them: We are like blocks of stone.

Perfectionism will kill you.

When you chase perfection, when you make perfection the ultimate goal, do you know what you’re doing? You’re chasing something that doesn’t exist. You’re making everyone around you miserable.

There is a tax to success.

I understand that there’s a tax on everything in America. Now I discover that this is the tax on success.

III. Quotes

Hate brings me to my knees, love gets me on my feet.
Then the only remedy is to alter my game-swing differently, run differently, do everything differently. That’s when my muscles spasm. Everyone avoids change; muscles can’t abide it. Told to change, my muscles join the spinal rebellion, and soon my whole body is at war with itself.
Pressure is how you know everything’s working, the doctor said. Words to live by, Doc. Soon the pain felt wonderful, almost sweet, because it was the kind that you can tell precedes relief. But maybe all pain is like that.
To the children, retire equals puppy. Stefanie and I have promised them that when I stop training, when we stop traveling the world, we can buy a puppy. Maybe we’ll name him Cortisone. Yes, buddy, when I lose, we will buy a dog. He smiles. He hopes Daddy loses, hopes Daddy experiences the disappointment that surpasses all others.
It’s taken me nearly thirty years to understand it myself, to solve the calculus of my own psyche.
I ask Jaden what he’s doing today. Going to see the bones. I look at Stefanie. She reminds me she’s taking them to the Museum of Natural History. Dinosaurs. I think of my twisted vertebrae. I think of my skeleton on display at the museum with all the other dinosaurs. Tennis-aurus Rex.
Life will throw everything but the kitchen sink in your path, and then it will throw the kitchen sink. It’s your job to avoid the obstacles. If you let them stop you or distract you, you’re not doing your job, and failing to do your job will cause regrets that paralyze you more than a bad back.
What you feel doesn’t matter in the end; it’s what you do that makes you brave.
He dresses for every match as if it’s a blind date or a mob hit.
Tennis is about degrees of aggression. You want to be aggressive enough to control a point, not so aggressive that you sacrifice control and expose yourself to unnecessary risk.
I obsess about my bag. I keep it meticulously organized, and I make no apologies for this anal retentiveness. The bag is my briefcase, suitcase, toolbox, lunchbox, and palette. I need it just right, always.
A string job can mean the difference in a match, and a match can mean the difference in a career, and a career can mean the difference in countless lives.
Can’t dwell on tomorrow any more than I can dwell on yesterday.
Baghdatis begins stretching, bending at the waist. He stands on one leg and pulls one knee to his chest. Nothing is quite so unsettling as watching your opponent do pilates, yoga, and tai chi when you can’t so much as curtsy. He now maneuvers his hips in ways I haven’t dared since I was seven. And yet he’s doing too much. He’s antsy. I can almost hear his central nervous system, a sound like the buzz of the stadium.
The guy has as much heart as he has hair.
Your body is like the federal government. It says, Do anything you like, but when you get caught, don’t lie to me. So he’s not going to be able to serve. He’s not going to be able to get out of that chair.
This contradiction between what I want to do and what I actually do, feels like the core of my life.
But I take no pride in my reflexes, and I get no credit. It’s what I’m supposed to do. Every hit is expected, every miss a crisis.
The net is the biggest enemy, but thinking is the cardinal sin. Thinking, my father believes, is the source of all bad things, because thinking is the opposite of doing. When my father catches me thinking, daydreaming, on the tennis court, he reacts as if he caught me taking money from his wallet.
Suddenly my father had his backyard tennis court, which meant I had my prison. I’d helped feed the chain gang that built my cell.
For instance, he often reaches a thumb and forefinger inside his nostril and, bracing himself for the eye-watering pain, pulls out a thick bouquet of black nose hairs. This is how he grooms himself.
When the rubber starts to wear down, my father cuts a tennis ball in half and puts one half on each toe. I tell Philly: It’s not bad enough that we live in a tennis laboratory-now we have to wear tennis balls on our feet?
My father craves perfection. Geometry and mathematics are as close to perfection as human beings can get, he says, and tennis is all about angles and numbers.
My father loves money, makes no apologies for loving it.
My brother sounds the way I imagine a father is supposed to sound. Proud of me and scared for me at the same time.
For all the pain my father has caused me, the one constant has been his presence.
People like to call the Bollettieri Academy a boot camp, but it’s really a glorified prison camp.
When we’re not drilling, we’re studying the psychology of tennis. We take classes on mental toughness, positive thinking, and visualization.
For a moment I imagine what it would be like to do something besides playing tennis-something I choose. Then I go to my next class, math, and the dream dies in a cloud of algebra formulae. I’m not cut out to be a scholar.
The next class, French, is worse. I’m très stupide. I transfer to Spanish, where I’m muy estúpido. Spanish, I think, might actually shorten my life. The boredom, the confusion, might cause me to expire in my chair. They will find me one day in my seat, muerto.
The worse I do in school, the more I rebel. I drink, I smoke pot, I act like an ass.
He demonstrates the virtue of rest.
Add my name to the list of those who’ve expired on Graveyard Court.
My mind departs my body and goes floating out of the arena.
Journalists write down exactly what I say, while I’m saying it, word for word, as if this represented the literal truth. I want to tell them, Hold it, don’t write that down, I’m only thinking out loud here. You’re asking about the subject I understand least-me. Let me edit myself, contradict myself. But there isn’t time. They need black-and-white answers, good and evil, simple plot lines in seven hundred words, and then they’re on to the next thing.
He’s ranked number three in the world, but to my mind he’s the player of the moment.
Trying to wear him out, I wear myself out.
Treat this crisis as practice for the next crisis.
The best exercises, he says, exploit gravity. He tells me how to use gravity and resistance to break down a muscle, so it will come back stronger.
Calorie, for instance. He says it comes from the Latin calor, which is a measure of heat. People think calories are bad, Gil says, but calories are just measures of heat, and we need heat. With food, you feed your body’s natural furnace. How can that be bad? It’s when you eat, how much you eat, the choices you make-that’s what makes all the difference.
He asks, How much do you run every day? Five miles. Why? I don’t know. Have you ever run five miles in a match? No.
I tell him my life has never for one day belonged to me. My life has always belonged to someone else. First, my father. Then Nick. And always, always, tennis.
He has less trouble accessing his anger.
Andre, I won’t ever try to change you, because I’ve never tried to change anybody. If I could change somebody, I’d change myself. But I know I can give you structure and a blueprint to achieve what you want. There’s a difference between a plow horse and a racehorse. You don’t treat them the same. You hear all this talk about treating people equally, and I’m not sure equal means the same. As far as I’m concerned, you’re a racehorse, and I’ll always treat you accordingly. I’ll be firm, but fair. I’ll lead, never push.
He continues to say without compunction that Christ is on his side of the court, a blend of egotism and religion that chafes me.
How lovely it is to dream while you are awake. Dream while you’re awake, Andre. Anybody can dream while they’re asleep, but you need to dream all the time, and say your dreams out loud, and believe in them.
There’s a lot of good waiting for you on the other side of tired. Get yourself tired, Andre. That’s where you’re going to know yourself. On the other side of tired.
Now that I’ve won a slam, I know something that very few people on earth are permitted to know. A win doesn’t feel as good as a loss feels bad, and the good feeling doesn’t last as long as the bad. Not even close.
I understand that there’s a tax on everything in America. Now I discover that this is the tax on success.
But fame is a force. It’s unstoppable. You shut your windows to fame and it slides under the door.
I marvel at how unexciting it is to be famous, how mundane famous people are. They’re confused, uncertain, insecure, and often hate what they do. It’s something we always hear-like that old adage that money can’t buy happiness-but we never believe it until we see it for ourselves.
Writers take malicious joy in calling me Burger King.
It would be dangerous to surrender to fear. Fears are like gateway drugs, I said. You give in to a small one, and soon you’re giving in to bigger ones.
Pain is God’s megaphone to rouse a deaf world. He tells them: We are like blocks of stone.
Quit going for the knockout, he says. Stop swinging for the fences.
It’s all about odds and percentages. You’re from Vegas, you should have an appreciation of odds and percentages.
When you chase perfection, when you make perfection the ultimate goal, do you know what you’re doing? You’re chasing something that doesn’t exist. You’re making everyone around you miserable.
With your talent, if you’re fifty percent game-wise, but ninety-five percent head-wise, you’re going to win. But if you’re ninety-five percent game-wise and fifty percent head-wise, you’re going to lose, lose, lose.
Simply knowing your enemy is a powerful advantage.
Pete is serving live grenades, one after another, a typical Pete fusillade.
When you eat, he says, and how you eat, that’s the thing.
He can’t tell the difference between loving me and loving tennis, it’s love all the same. Few of us are granted the grace to know ourselves, and until we do, maybe the best we can do is be consistent. My father is nothing if not consistent.
So I’m number one. So a computer loves me. So what?
Pride is bad, stress is good. I don’t want to feel confident. I want to feel rage. Endless, all-consuming rage.
My concentration is so intense, it frightens me.
Sportswriters accuse me of tanking, not going for every ball. They never get it right. When I tank, they say I’m not good enough; when I’m not good enough, they say I tank.
Surrogate father is a role for which I have the greatest respect.
We’re not on the same frequency. We don’t have the same bandwidth.
Before I can answer, the jeweler is peppering me with her own questions. Size? Carat? Color? Clarity? She keeps talking about clarity, asking me about clarity. I think: Lady, you’re asking the wrong guy about clarity.
I replay our conversation, and I can’t tell the difference between the lines in her script and the lines we’ve just spoken to each other.
At last it’s time for me to leave. I kiss Brooke goodbye, kiss Granny Strickland goodbye, and notice that both kisses have the same amount of passion.
For once I don’t hear that nagging self-doubt that follows every personal resolution.
Decisions, especially bad ones, create their own kind of momentum, and momentum can be a bitch to stop, as every athlete knows.
My primary concern is children at risk. Adults can always ask for help, but children are voiceless, powerless. So the first project my foundation undertakes is a shelter for abused and neglected children who’ve been placed in the protective custody of the courts.
Mandela said once in an interview: No matter where you are in life, there is always more journey ahead. And I think of one of Mandela’s favorite quotes, from the poem Invictus, which sustained him during those moments when he thought his journey had been cut short: I am the master of my fate: I am the captain of my soul.
His theme: we must all care for one another-this is our task in life. But also we must care for ourselves, which means we must be careful in our decisions, careful in our relationships, careful in our statements. We must manage our lives carefully, in order to avoid becoming victims.
He survived the loneliness of constant confinement by reading.
Mandela talks about the road he’s traveled. He talks about the difficulty of all human journeys-and yet, he says, there is clarity and nobility in just being a journeyer. Mandela is saying that every journey is important, and that no journey is impossible.
The scoreboard said I lost today, but what the scoreboard doesn’t say is what it is I have found. Over the last twenty-one years I have found loyalty: You have pulled for me on the court, and also in life. I have found inspiration: You have willed me to succeed, sometimes even in my lowest moments. And I have found generosity: You have given me your shoulders to stand on, to reach for my dreams-dreams I could have never reached without you. Over the last twenty-one years I have found you, and I will take you and the memory of you with me for the rest of my life.
We ask one thing of every teacher: to believe that every student can learn. It sounds like a painfully obvious concept, self-evident, but nowadays it’s not.
We thought it important that students wear uniforms. Tennis shirt with khaki pants, shorts, or skirt, in official school colors-burgundy and navy. We think it creates less peer pressure, and we know it saves our parents money in the long run. Every time I walk into the school I’m struck by the irony: I’m now the enforcer of a uniform policy.
The essence of good discipline is respect. Respect for authority and respect for others. Respect for self and respect for rules. It is an attitude that begins at home, Is reinforced at school, And is applied throughout life.
I won’t let myself down the way others have. It’s up to me to change the course of my future and I will never give up.
Life is a tennis match between polar opposites. Winning and losing, love and hate, open and closed. It helps to recognize that painful fact early. Then recognize the polar opposites within yourself, and if you can’t embrace them, or reconcile them, at least accept them and move on. The only thing you cannot do is ignore them.
I was late in discovering the magic of books.

Lean Analytics by Alistair Croll & Benjamin Yoskovitz

Mon, 27 May 2024 00:00:00 GMT

I. Brief Summary

An overview of key metrics and benchmarks. By measuring and analyzing as you grow, you can validate whether a problem is real. This book shows how to validate an idea in every stage of your business, find the right customers, decide what to build, how to monetize your business. The authors have packed more than thirty case studies and insights from over a hundred business experts.

II. Big Ideas

Ratios are good for comparing factors that are opposed or have some kind of tension. A good metric changes behavior.
Types of metrics
- Qualitative/Quantitative
- Exploratory/Reporting
- Leading/Lagging
- Correlated/Causal
We care about active users, because it probably lead-indicates our churn rate. This requires a lot of different queries to diff databases.
Find commonalities. Analyze patterns of engagement and desirable behavior.
Knowledge Matrix
- Known Knowns are facts that may be wrong and should be checked against data.
- Known Unknowns are questions we can answer with automated reporting.
- Unknown Knowns are intuitions we should quantify.
- Unknown Unknowns are located through exploratory reporting and where we can locate unfair advantages and new insights.
Pivot hard or go home, and be prepared to burn bridges.
Churn is a lagging indicator. Cohort analysis (comparing customer groups over time) is the road to leading indicators.
Are the metrics we track helping us make better decisions faster?
A segment is a group that shares a common characteristic. Segment visitors then compare segments to each other to understand differences in metrics. Look for disproportionate relationships.
Cohort analysis allows patters to emerge across customer lifecycles.
We can test anything, but focus on the critical steps and assumptions.
Venn diagram-Expertise, Desire & Monetization. All 3 = Victory.
- E+D = Learn to Monetization
- E+M = Improve Desire
- D+M = Say No
The One Metric That Matters (OMTM)
- Focusing on one metric above all others provides a uniquely powerful sense of focus across the entire company - a focus that is much needed in the early stages of a company’s life.
- Pick a metric from the riskiest portion of your business.
- OMTM gives you a single metric that answers the most important question you have.
- The OMTM forces you to draw a line in the sand.
- It focuses the entire company.
- It inspires a culture of experimentation.
- There’s a powerful example of an OMTM in this chapter: in the restaurant business, the one metric that matters is the ratio of staff costs to gross revenues for the previous day. When staffing costs exceed 30% of gross revenues, that’s bad because it means you’re either spending too much on staff, or not deriving enough revenue per customer. This ratio works because:
  - It’s a simple number.
  - It’s immediate-you can generate it every night.
  - It’s actionable-you might not be able to renegotiate ingredient costs, change your menu, or redo your lease agreement immediately. But you can make changes to staffing or encourage upselling the very next day.
  - It’s comparable-you can track it over time, and compare it to other restaurants in your neighborhood or category.
  - It’s fundamental-it’s fairly well known, and reflects two basic facets of the restaurant business model.
In Lean Analytics, they’ve decided to synthesize the findings from four frameworks in particular:
- Dave McClure’s AAAR Pirate Metrics
- Ash Marya’s Lean Canvas
- Sean Ellis’s Startup Growth Pyramid
- The Long Funnel
The analytics framework presented in Lean Analytics takes many of the stages in the above four frameworks and combines them into a single framework with five stages:
- Empathy-you’re looking for a real, poorly-met need that can be found in a reachable market. Once you do so, you’re figuring out how to solve their problem in a way customers will accept and pay for.
- Stickiness-you’re looking for the right mix of products/features/functionality that will keep users around.
- Virality-you’re looking for ways to fuel growth organically and artificially.
- Revenue-you’re looking for a scalable and sustainable business with the right margins in a healthy ecosystem.
- Scale-you’re looking to scale up the business on all fronts.
Find days where unsubscribe rate is high, then find out why. Need to tweak the unsubscribe process to get better resolution on this. Subs expire some time after cancellation, so a decrease in sub numbers on a given day is not necessarily indicative of anything. Find the action, not the result.
Properly calculating churn-select a time period. Average the number of customers at the beginning and the end of the period. Divide the number of cancellations by this number. To increase data integrity, measure churn daily.
User generated content-use the forums as a source of UGC and find ways to repackage it and syndicate it.
Find out what's actually important to people. Get inside their head. Delve for this information aggressively.
The best companies warehouse every possible data point about their site's interactions and use only the data they need. Rally (a software company) records everything from kernel-level performance to HTTP-based user gesture interactions between the browser and software. They can then correlate changes in site performance to user behavior and vice versa.
Get a better understanding of what new visitors really do.
Limit the company's vision to a 3-pronged strategy. Refresh the 3-year plan every 18 months. Align the entire company around the vision.
For each C-Level strategic assumption, what are the 3 line-level tactics that can be used to survey, test, prototype, then fill/kill quickly?
Hypothesis to test-most people unsubscribe because they don't need our service anymore, not because we're crappy. Limited data bears this out, but we need to conduct far better exit surveys.
Product pricing has nothing to do with cost, and everything to do with what the customer pays and how they derive value from the product.
Try an intentionally absurdly priced package to anchor high prices, as well as to see if anyone actually bites.
Site load time matters a great deal. Spend a lot of time to get this down.
Negative churn is the long-tail of brand awareness. We might convert some “Long time listeners, first time callers” after a year, or longer. Focus on customers that have been on our mailing list for a long time but are not subscribers.
What kind of content do different traffic sources expect? Twitter Time on Site is disproportionately high. Why is this?

III. Quotes

Don’t just ask questions. Know how the answers to the questions will change your behavior. In other words, draw a line in the sand before you run the survey.
Don’t sell what you can make; make what you can sell.
Your job isn’t to build a product; it’s to de-risk a business model.
You need to know which aspects of your business are too risky and then work to improve the metric that represents that risk.
Instincts are experiments. Data is proof.
Customers are people. They lead lives. They have kids, they eat too much, they don’t sleep well, they phone in sick, they get bored, they watch too much reality TV.
First, know your customer. There’s no substitute for engaging with customers and users directly. All the numbers in the world can’t explain why something is happening. Pick up the phone right now and call a customer, even one who’s disengaged.
A good metric is a ratio or a rate. Accountants and financial analysts have several ratios they look at to understand, at a glance, the fundamental health of a company. You need some, too.
If you’re going to survive as a founder, you have to find the intersection of demand (for your product), ability (for you to make it), and desire (for you to care about it).
Quantitative data abhors emotion; qualitative data marinates in it.
Correlation is good. Causality is great.
If two metrics change together, they’re correlated, but if one metric causes another metric to change, they’re causal. If you find a causal relationship between something you want (like revenue) and something you can control (like which ad you show), then you can change the future.
Markets that don’t exist don’t care how smart you are. - Marc Andreesen
Sometimes what you need is a new market, not a new product.

On Analytics

Mon, 20 May 2024 00:00:00 GMT

Analysts come in various forms, which is why data analytics has become highly specialized. However, analytics as a whole is a crucial business function because it involves tracking the metrics that drive business needs, resulting in an impact on revenue, costs, or both.

Analysts vary in strengths, making data analytics specialized. Some excel at math and analytical precision, while others excel at storytelling, transforming complex data into clear narratives. Some have strong product intuition, while others excel at data acquisition and can quickly identify inaccuracies. While proficiency in various areas is ideal, each individual has unique strengths and preferences.

The fundamental principles of analytics remain consistent, regardless of new tools or technologies. Analysts, regardless of the time, still require the same set of skills:

Comprehend business strategy and key performance indicators (KPIs) to understand events and measure them effectively.
Proficiency in statistics, as teams continue to prioritize growth optimization.
Knowledge of modeling to demonstrate data-driven decision impact.
Recognize causal inference, distinguishing between correlation and causation.
Critical thinking skills to challenge assumptions and validate work.
Data acquisition and collection for analysis.
Visual communication through reports and dashboards.

Effective analysts recognize their expertise and focus on developing it. While mastery of all skills isn’t necessary, identifying strengths and leveraging them is crucial in giving rise to superpower. But one's superpower is as good as their organizational strength on analytics.

All organizations want to be data driven. Everyone has “data” but they get the second part wrong-“driven.” Measuring is the job that holds the organization accountable, but is the hardest job. You are forced to face inconvenient truths, should not serve personal agenda and requires changing paths in the light of new insights. Another part of “driven” it requires an investment in data infrastructure. If an organization does not have the right tools or the right process to cleanse, structure and surface data, measuring anything will be an obstacle.

The flip side of data is analysis paralysis.

Data is powerful but it is addictive causing analysis paralysis. A/B testing colors at Google generate them billions, but that doesn't mean you run A/B testing before deciding what pants to put on before you go to work.

Data can help you climb a mountain, it can’t tell you which mountain to climb.

Critics argue too much data driven isn't healthy. To them being data informed is enough. They are right because optimizing one part of your business can harm another part of business without taking a step back to look at the bigger picture. But that does not warrant to skip the hard work of data analytics.

I know this because I shipped a feature to solve one pain-point to cause increase in call volumes causing frustration for my operation team. I oversold on data and dropped the ball on understanding the full picture.

Data-driven and optimization should co-exist, but too much optimization without human judgement can cause problems.

In mathematics, a local maximum is the largest value of a function within given parameters. That does not mean it is the largest possible value, the largest in a particular range. Consider a lake on a mountainside. The water isn't at its lowest level. It would be sea level, but it is at the lowest possible level in the area.

Data can't tell you about the future. It can only tell you about the past...You have to trust yourself and your team to go for it. - Doug McMillon

Optimization is all about finding the lowest or highest values, but within constrained range. If you tell a machine to build a bike with 3 tires, with the most stable layout, it will come up with a tricycle-like configuration. It is the most optimal solution. However, there is another option. Four wheels would be better to provide the most stability. Math is good at optimizing a known system. Human judgement is good at finding a new one.

Optimizing without a soul misses the bigger picture. Quantitative data is great for testing hypotheses, but it is lousy to generate new ones unless you combine with human judgement.

It is all about developing healthy skepticism and curiosity to get closer to the truth. You need to be opportunistic and data analytics will help you get faster to making your vision into a reality.

There are known knowns; there are things we know we know. We also know there are known unknowns; that is to say we know there are some things we do not know. But there are also unknown unknowns - the ones we don’t know we don’t know. - Donald Rumsfeld, Former US Secretary of Defense

Both insights and context are equally important. Measuring for the sake of measuring isn't enough.

Insight tells you what's happening. Context tells you why it's happening. Insight come from customers and competitors, from markets and industries, but most important, from our data. Context comes from knowledge and experience. It applies perspective to the data. Combining insights and context gives you the full-screen picture of what is happening, why it's happening and what needs to be done. - Transformed by Marty Cagan

Data can only improve decisions insofar as it enables us to learn about the potential outcomes associated with the alternatives under consideration. Instead of being naively data driven, we should seek to be causal information driven. Causal inference provides a set of powerful tools for understanding the extent to which causal relationships can be learned from the data we have. - Stitch Fix

Nike invested a material amount of dollars (billions) into something that was less effective but easier to be measured vs something that was more effective but less easy to be measured. In conclusion: an impressive waste of money. - Massimo Giunco, Nike

If there is one takeaway in this entire post, it is the following:

There are no best templates or tools that will make you or your organization a data driven. It is the PRACTICE not the TOOLS. Start with looking at data that matters to you frequently.

Organization maturity model

AMM-analytics maturity model is a sequence of steps or stages that represent the organization's evolution in leveraging data to inform business decisions. The maturity model gives context to where you are in the process and the stages ahead. There are 6 stages of the analytics maturity model and the beginning two stages are part of a starting point foundation. The stages of the analytics maturity model should build on each other, not replace each other.

Backward looking stages-focusing on what the historical data shows already happened.

Foundational
- Companies that are in this stage are transitioning from no analytics to prioritize and understand what data they have and where it resides.
- Companies rely on this information, combined with benchmark data to make business decisions about how they might need to course correct or continue in a positive direction.
- Organizations start to ask questions such as:
  - What information do I need to make better business decisions?
  - How can I obtain that information?
Descriptive
- Data and reports in this stage answer the question “What happened?”.
  - How many quotes did we create?
  - How many of those quotes converted to sales?
  - How much revenue came from those sales?
Diagnostic
- This stage answers the question “Why did it happen?” to better understand the reason something happened the way it did.
  - How many quotes did we create compared to this time last year?
  - How did we convert quotes to sales by region?
  - Which regions had better or worse conversion rates?
  - How have our prices changed this year compared to last year?
- These diagnostic questions build upon the descriptive questions. They go one level deeper, focusing not on the outcome, but instead on understanding if that outcome should have been expected, or if not, why not. This stage looks for the factors that can explain why a certain outcome happened.

Forward-looking stages-focusing on predictive business mindset transitioning from reactive approach to proactive approach.

Predictive
- Questions in this stage are proactive. They focus on what is likely to happen next. Based on the information companies gather in stages two and three, here are some examples questions that can start to emerge:
  - What is our expected conversion rate next month by region?
  - Are we likely to meet our revenue budget this year based on early performance?
- At this stage, the analytics maturity model transitions to a forward-looking perspective, moving from a reactive approach to a proactive and predictive business mindset.
- This mindset enables stakeholders to have an idea of where the business is headed, based on the data they do have.
Prescriptive
- Building on the predictive questions, this stage focuses on what decisions can be made to influence the future – how can we make something happen? The goal is to find the best course of action for a given situation.
  - How would having more sales reps affect our conversion rate?
  - How would adjusting our prices affect the expected revenue next month?
- Moving to this stage in the model helps business leaders start considering what changes need to be made to move the business in the right direction by leveraging foundational analytics, simulations, or even artificial intelligence for decision support and perspective.
- Variable-driven, what-if style analysis can start to guide stakeholder understanding of where the company is to instead what they can do to affect the future and make more confident decisions.
Cognitive
- In this stage, companies begin utilizing machine learning and natural language processing to simulate human thought.
- The goal is to learn from data in real-time and with analytical agility at significant data scale.
- With a variety of approaches such as real-time data mining, pattern recognition, and natural language processing as just a few examples, organizations can identify unexpected, important, and influential patterns in large quantities of data across disparate sources.
- Companies that benefit most from this stage have discipline and a strong foundation in the previous 5 stages and have precise processes in place to gather and store data, often in a central data lake or warehouse, as well as strong cross-platform data analytics adoption.

Flavors of analytics

There are 3 flavors of analytics-user analytics, customer analytics and business analytics. Having this context is critical to understand how metrics interact between these various stages.

User analytics:
- Aggregated and segmented data from all your apps
- Funnel conversion based on cyclical periods and marketing campaigns
- Google or Adobe are great at showcasing these analytics
Customer analytics:
- Product usage across enterprise, active customers, customer support calls, onboarding, average revenue per customer
- CRM tools such as Salesforce can be leveraged including financial systems such as Oracle or any other system in place
Business analytics:
- Most analytics are snapshots in time, such as what happened yesterday
- This stage shows product usage across time such as lifetime value of a customer (LTV), customer churn rate or customer acquisition costs across all sources
- This stage is a combination of all several data sources from-data warehouse, user analytics, customer analysis, CRM, and financial data
- Data scientists spend majority of their time here
- Your organization's key to success lie in your data warehouse

Metrics quality

Intelligent products and solutions that build emotional connections with customers by solving their deepest needs depends on quality of your data. Data is not static. It is constantly changing. The virtuous cycle of maintaining quality data is at the heart of data driven organizations. Below are the core elements of building dynamic and intelligent analytics platform.

Making data cleansing, quality metadata, and data standardization systematic via automation
Ensuring customer data is safe and private at scale
Systematically identifying bias in the data through model explainability and error analysis tools
Monitoring data and concept drift, creating feedback loops, and retraining models
Augmenting and enriching data via programmatic labeling
Real-time, structured, data that is standardized, available and applied to high-impact customer use cases
Building foundation model architecture and frameworks, enabling teams to solve for customer problems

There is no substitute for engaging with your customer but choosing quality metrics are critical. Data quality measurement stands on 3 questions:

Is it easy to analyze?
Is it easy to maintain?
Is there bad data and do you know how to deal with it?

It depends on using good and right metric while avoiding vanity metric.

Good metrics

A good metric is comparative. Being able to compare a metric to other time, groups of users, or industry metrics helps you understand where things are moving. “Increased conversion from last week” is more meaningful than “2% conversion.”
A good metric is understandable. If people can't remember it and discuss it, it's much harder to be a data driven culture.
A good metric is a ratio or a rate. These are common within accounting and finance world to understand the health of an organization at a glance. Ratios are easier to act on. They are inherently comparative. And, they are good for comparing factors that are opposing to each other for which there is an inherent tension.
A good metric changes the way you behave. This is critical for any metric because it pushes you to do things differently based on changes in metrics. If you want to change behavior, your metric must be tied to the behavioral change you want.
A good metric should be paired with others to get a full picture. For example, conversion rate (percentage of people who buy something) should be tied to time-to-purchase (how long it takes for someone to buy something) to tell you about cash flow. Similarly, viral coefficient (the number of people a user successfully invites to your service) and viral cycle time (how long it takes them to invite others) drive your adoption rate.

Right metrics

You need to keep five things in mind when picking metrics to measure.

Qualitative versus quantitative metrics. Qualitative metrics are unstructured, anecdotal, revealing, and hard to aggregate; quantitative metrics involve numbers and statistics, and provide hard numbers but less insight. Quantitative data is easy to understand, you can aggregate it, extrapolate it, and put in spreadsheet. But when you ask people about their opinions on the problems they are facing, that is quantitative data. It is messy, hard to quantify, and is emotional. It requires asking thoughtful question. Unprepared interviews yield misleading or meaningless results.
Vanity versus actionable metrics. Vanity metrics might make you feel good, but they don't change how you act. Actionable metrics change your behavior by helping you pick a course of action. Consider “total sign-ups”. That is a vanity metric. Actionable metric is “percent of users who are active.” Views, visits, unique visitors, followers, time on site, emails collected, and number of downloads are all vanity metrics. None of these lead to real value.
Exploratory versus reporting metrics. Exploratory metrics are speculative and try to find unknown insights to give you the upper hand, while reporting metrics keep you abreast of normal, managerial, day-to-day operations. The “unknown unknowns” coined by Donald Rumsfeld, former US Secretary of Defense are where the magic lives. Rumsfeld's quadrant is a great framework to conduct discovery:
- Things we know, we know. Are facts that may be wrong and should be checked against data.
- Things we know, we don't know. Are questions we can answer by reporting, which we should baseline and automate.
- Things we don't know, we know. Are intuition which we should quantify and teach to improve effectiveness and efficiency.
- Things we don't know, we don't know. Are exploration, which is where unfair advantage and interesting epiphanies live.
Leading vs lagging metrics. Leading metrics give you a predictive understanding of the future; lagging metrics explain the past. Leading metrics are better because you still have time to act on them-the horse hasn't left the barn yet. Leading metric sometimes called a leading indicator. For example, a number of prospects in your sales funnel give you a sense of how many customers you'll acquire in the future. On the other hand, lagging metric such as churn gives you an indication that there's a problem. By the time you find lagging metrics and try to figure out next steps, it might be too late because they measure after the fact. Indicators are everywhere. It requires proactiveness. You need to be able to do cohort analysis and compare groups over time.
Correlated versus casual metrics. If two metrics change together, they are correlated, but if one metric causes another metric to change, they are causal. If you find a causal relationship between something you want (revenue) and something you can control (marketing/which ad you show), then change the future. For example, ice cream and drowning rates both happen because of summer weather, but looking at a simple correlation without demanding causality leads to bad decisions. Correlations can help you predict but finding the cause of something means you can change it. You prove causality by finding a correlation, then running an experiment in which you control the other variables and measure the difference. This is hard to do because no two users are identical; it's often impossible to subject a statistically significant number of people to a properly controlled experiment in the real world. Correlation is good. Causality is great.

Vanity metrics

Vanity metrics are feel good metrics but don’t help us do better work or make better decisions. It shines light brighter on optics over transparency. Things don't add up when combined with other metrics.

Rigor is usually missing from vanity metrics. For example, emphasizing on “unique visitors“ over “number of unique visitors who signed-up for the newsletter.” Or even taking one step further, “number unique visitors who signed-up for the newsletter and purchased an item from the store after marketing campaign x.”

Why vanity metrics fail?

Vanity metrics lack context. For example, increase in unique visitors but who drove it? And does it matter for the business model? How many unique visitors came back again?
Vanity metrics do not have a clear intent. For example, did unique visitors come back again because they found value in your offering or they came back to unsubscribe from your email newsletter?
Vanity metrics do not guide action and learning. If a team celebrates a metric when it goes higher, but do not shift their strategy or tactics when it drops, you are looking at a vanity metric.

Common pitfalls

Monica Rogati who is a Data Scientist at LinkedIn have the following advice on how to avoid data pitfalls.

Assuming data is clean. Before you can analyze, you need to ensure data is clean and accounts for all business logic. For example, empty fields such as "Null" account for 30% of the values, you are miscalculating. Or if you are granting dollars to charities. But if a donor has multiple accounts, transferring funds from one account to another is considered granting which is not true because charities have not received anything.
Not normalizing. Let's say you are looking for popular destinations to take vacation with your family. Is it popular based on airport business or in fact people travel a lot there for a tourist attraction.
Excluding outliers. If a small selection of people, say 50 users out of thousands are using your product or bots crawling on your site for content, not ignoring them is a mistake.
Including outliers. While you might want to ignore 50 users, you might also want to include them to understand why they are heavy users of your product. It might be a feature that they understood, but the average users don't. It could be a marketing campaign opportunity.
Ignoring seasonality. Of course, "intern" is the fastest growing job in the month of June. But all things equal, is it? Failure to account for time can lead to misunderstanding of a pattern and making poor decisions.
Ignoring size when reporting growth. Context is key. Your friends and family signing-up for product is not a sign of growth, but a sign of support because they want to show support.
Data vomit. A dashboard isn't much use if you don't know where to look or is not friendly enough.
Metrics that cry wolf. To be responsive, you need alerts so you can be proactive about fixing it quickly. But if your thresholds are too sensitive, they get louder, and you'll start to ignore them.
The Not Collected Here syndrome. Mashing up your data with other data sources can lead to valuable insights. For example, do your best customers come from zip codes with a high concentration of sushi restaurants? This might give you growth ideas about what experiments to run next or even influence growth strategy.
Focusing on noise. We are hardwired to see patterns where there are none. For example, seeing a joker shaped cloud. It helps to set aside vanity metrics, step back and look at the bigger picture.

Testing methods

Testing is the heart of making progress and moving the business model in the right direction. A few concepts to remember while testing.

A/B testing

A/B testing involves showing different versions of a webpage to different visitors and measuring which version performs better. Randomization is key to ensuring that the results of your A/B test are accurate and unbiased.

Controlled experiments like A/B tests or randomized field experiments are the de facto standard to make data-driven decisions when implementing changes and observing customer responses.

Studies in which different groups of test subjects are given different experiences at the same time is referred as cross-sectional studies.

This is in contrast with cohort analysis as the testing is done over the lifespan of a customer from the same group. When we are comparing one attribute of a subject's experience (for example link color), and assuming everything else is equal we are doing A/B testing.

A/B testing does not come without criticism. For A/B test to be successful you need a large amount of data which is why Google is able to experiment a lot. Or to test all attributes, it might be time-consuming.

To avoid the latter, you can conduct multivariate analysis. This relies on statistical analysis of the results to see which of many factors correlates strongly with an improvement in a key metric.

Bayesian inference recently gained a lot of popularity. Bayesian inference leverages conditional probability to help us understand how data impacts our beliefs. For example, let’s say we start with a prior belief that the sky is red. After looking at data, we would soon realize that this prior belief is wrong. So, we perform Bayesian updating to improve our incorrect model about the color of the sky, ending up with a more accurate posterior belief. While traditional A/B testing methods are computationally expensive, Bayesian inference are computed offline and on a smaller size, which reduces performance requirements. The main challenge is choosing effective distributions to support inference. One key component of your belief is the structure of our data. Then structure is described through distributions. In the sky example, assuming that there are categories of color (red, white, and blue), the distribution would be multinomial. If you are looking at a set of numbers, the distribution might be normal. If the data were true/false values, it would be binomial. These distributions are called likelihood distributions because they show the likelihood that your data will take on a certain value.

Ask the following questions:

Which variant drives better results?
How much better are those results?
Are you confident in your conclusion?
What if you want to test more than two variants?
What sample size is needed for a Bayesian A/B test?
Can a test be terminated early if results look clear?

Defining guardrail metrics for experiments is important for identifying what the organization is not willing to change. - Ron Kohavi

Cohort retention analysis

Retention measures the ability of your product to keep users active over time. Retention for consumer businesses would have a different meaning than for enterprise, B2B, or B2C companies.

Cohort retention analysis allows for comparison of a same group over time. For example, user who signed up during alpha release (small group) will have a different experience than the user who signed up during beta release (larger group).

Each group of users is a cohort-participants in an experiment across their lifecycle. You can compare cohort with one another to see if key metrics are getting better. Overtime you would be releasing key features satisfying your latest cohort from initial cohort. For example, cohort analysis might show you the revenue generated from January is a lot higher than the month in December. Overtime, the revenue is declining from January cohort. But as you launch more feature, the same cohort decides to stick making the drop-off better.

Be specific when defining what “active” means. Don't be too broad or too narrow. Most companies use logins or app opens as main events for the “active users” definition. But at Instacart, that doesn't mean anything unless it is tied to completing an order or at Uber taking a ride. Active needs to be defined.

Differentiate users from customers.

A customer is defined as the person/group who is paying you. A user is a person using the product. In subscription products, oftentimes there are multiple users associated with a single customer. Or people are users before they are customers. You need to separate the definition and language between these two things for teams to clearly act on them. - Brian Balfour

Calculate retention by setting your timeline. As a team, you have to agree on what retention reporting type you should adopt.

The first is X-day (N-day or bounded) tells you the percentage of users who come back on a specific day. For example, for all users who join, what percentage return to your app on exactly day 14.

The second is unbounded retention. Unbounded retention tells you how many of your users got back on a specific day or later. For example, for all new users who joined on a specific day, what percentage of users are using the product after 14 days (and not necessarily on day 14). If your goal is to match retention with your user churn, this is the way to go. The unbounded retention value for month 6 gives you the percentage of users who returned after month 6.

The best practice for reporting retention is cohorts. You can segment retention reporting for active users, churned users, inactive users, and reactivated users. This will help you locate your power users and understand what makes them stick. You should always cohort your users into different behavioral segments if applicable.

Segmentation

A segment is a group that shares common characteristics. For example, users who browse your application on Firefox. Then you can compare one segment to another. For example, users who browse your application on Safari. Segmentation is wide open to industry, marketing or product features.

Product metric cheat sheet

Product metrics can be split into five categories:

Acquisition: like the number of new signups and qualified leads, measure when someone first starts using your product or service. They’re great for understanding what marketing channels are working best for your company.
Activation: like activation rate and time to activate, show you how well you are moving users from acquisition through that critical “aha” moment where they discover why your product is valuable to them and, in turn, provide value to your business.
Engagement: like monthly active users and feature usage, measure how (and how often) users interact with your product. Those interactions might include sharing a song or editing their profile. Users who engage with your product are considered active users. Increasing the number of daily, weekly, and monthly active users is important for company growth-but only if you measure them right.
Retention: like retention rate, free-to-paid conversions, and churn rate, gauge how many of your users return to your product over a certain period of time. These are critical metrics for your company’s growth. It doesn’t matter how fast you fill the top of your funnel if users are leaking out the bottom just as fast.
Monetization: like net revenue retention, monthly recurring revenue, and average revenue per user, capture how well your business is turning engagement into revenue.

Category	Metric
Acquisition	Number of new signups and/or qualified leads
Acquisition	Customer acquisition cost (CAC)
Activation	Activation rate
Activation	Time to activate
Activation	Free-to-paid conversions
Engagement	Monthly, weekly, and/or daily active users/customers/paid-users (MAU, WAU, DAU/DAC/DAPU)
Engagement	Stickiness (DAU/MAU)
Engagement	Feature usage
Retention	Retention rate
Retention	Churn rate
Retention	Customer lifetime value (CLV)
Monetization	Net revenue retention (NRR)
Monetization	Monthly recurring revenue (MRR)
Monetization	Average revenue per user (ARPU)
North Star	Only metric that truly matters (OMTTM)

Actionable tips for a product manager

Retrieve: First, you need to learn how to get data. Learn your business intelligence tools. SQL is most common in work places. Divide data gathering into three buckets:
- Business data: revenue, market share
- Product data: product portfolio, features
- Customers data: target group, reviews
Analyze: Analytical thinking is to crunch numbers understand the why and execute at lightning speed. This is grunt work and requires deep thinking. To do so you need the following basic understanding.
- Patterns: See the norm, what sticks out, what needs a second look. Get a lay of the land, so you can start developing a point of view. To solve the puzzle, ask yourself the following questions:
  - What is “normal” around here?
  - What sticks out?
  - Why is it sticking out?
  - How much does it stick out vs everything else?
- Nuances: It is powerful to see nuances when other people just see a binary yes or no. You want to be able to say- “This works for x situations, but not for y situations.”
- Absolute numbers & percentages: If you only look at absolute numbers, big numbers will seem good and small numbers will seem bad. If you look at percentages, you’ll see the relationship between the parts and the whole.
- Variance: Variance is about change. Change from the baseline & changes over time.
  - How much did this change month over month?
  - How much did it change this month vs this month last year?
  - Was the variance in line with industry growth-or did it outpace or lag comparatively?
- Expected vs actual: “Wow, we drove 19% growth!” might seem like good news, unless you forecasted 30% growth. This is where looking at expected vs actual number is useful. If you compare the two, you can better understand how good performance really is.
- Percent contribution to whole:
  - Money: “This accounts for 70% of total $.”
  - Volume: “This accounts for 17% of units.”
  - Top hits: “These 10 items drove 80% of new visitors.”
- Peaks: Identify peaks and valleys, i.e., the highest or lowest something has ever been. This helps you see the range, which helps you get grounded. If you have new assets or levers to pull, you can say, “We'll beat the highest we've done because x.”
- Check in on margins: revenues don't alone matter much without cash flows.
- Verify your biases by analyzing your data processing mechanics to ensure you are not building a data set to validate your own assumptions.
- Look for clues by asking:
  - Why is this happening?
  - What is the impact?
  - What should we do about it (if anything)?

Shadows Of A Superpower

Wed, 24 Apr 2024 00:00:00 GMT

Knowing your superpowers are important, but knowing the shadow of your superpowers are equally important.

Imagine getting your performance review year-over-year on being a great collaborator. Everyone gets along with you, and you've got magic to align everyone on a single viewpoint.

Until another colleague comes along and starts challenging your viewpoint. You become defensive. You start questioning on what is the problem. Your next performance review on collaboration is now marked down below your expectation.

What happened?

Same skills that made you successful are now failing you. You are struggling to collaborate with your peer that is providing feedback which does not align with yours. You are a collaborator until someone agrees with you, but you fail at collaborating when you are being challenged. This happens frequently when peers are joining your team from other functional teams. They have a different viewpoint than what you and your team are used to.

This is universal in several areas. Every superpower has a shadow.

You are a fast executor, but you are never thinking about pausing to reflect and readjusting the course.

You are great at building new things, but not good at maintaining old.

You are amazing at growth, but fail at building.

You are a great storyteller, but never care about details.

You care so much about details, but fail at simplifying.

You are politically driven, but your ideas are unprincipled.

You are a structured thinker, but hairy audacious innovations are tough.

You are an amazing listener, but fail at making decisions.

If you know the other side of your superpower, you can unlock your development area faster because knowing what identifies you can also break you. If you know this hidden secret then you know how to adjust your superpowers to grow yourself.

Don't just blindly sit in the shadows of your superpower.

Monkey Management

Fri, 12 Apr 2024 00:00:00 GMT

Harvard Business Review in 1974 published “Who's Got the Monkey” authored by William Oncken Jr and Donald L. Wass. The article described unsolved problems of employees which are delegated upwards causing the “monkey” to jump on a manager's back. This increases workload for a manager.

This analogy struck me hard. I have taken my own spin on the analogy and applied to my world of product management. Product managers do not own a team, but they manage sideways, upwards and downwards. If we are not good at monkey management, we can lose track of time and individual autonomy. It would be easier for Engineering, Design, and Leadership to target product team for being a bottleneck.

Let us explore a scenario which shall show how monkey jumps from one back to another.

Leadership team has decided to work on a key strategic initiative. The strategy is broadcasted to an entire organization, and Product team will be responsible for executing that strategy. They will need help from Design and Engineering. Design will explore solutions and help understand the usability of a solution. Engineering will explore feasibility of a solution. There are other functions of the business where co-ordination is required. But we shall stop here for simplicity.

A problem-statement has been presented by Product team along with what needs to be accomplished. Design comes up with a solution to the problem. Engineering recognizes a problem with proposed design. It has asked Product to reconsider the requirements.

Let us analyze how the monkey jumped from one back to another.

Monkey went from Leadership to Product to execute the strategy. It was boss-imposed meaning it cannot be disregarded by Product team. It is expected to deliver otherwise the team will face penalty.

Product passed the monkey to Design after finalizing requirements based on the expert knowledge about the business and its customers. It was system-imposed meaning there is an active support required from cross-functional teams. Ignoring will result in penalty, though not a direct penalty.

Engineering passed the monkey back to Product and Design because requirements need further clarification. Product can decide to de-prioritize or influence for support to deliver on original requirements. Design is now expecting Product to provide clarification. Product either can make on-the-spot decision or might need more time to collect information before informing Engineering and Design with next steps.

Where is the monkey? Product!

If Product does not get this monkey off its back soon, frustration will grow and Leadership will follow-up because of lack of momentum.

Let us analyze another scenario when there is a joint problem.

Same scenario as above, but Engineering comes back saying they can pursue the proposed solution by Design with all Product requirements, but will require re-architecting the system. Additionally, this will optimize the system for future needs, but pushing the launch date by several quarters.

Where is the monkey now? Is it the Product, Engineering or both? And is it known that it is a joint problem? Or the blame game is happening because Product is not allowing for time to refactor code and optimizing the database as the business grows.

Product is in dilemma because neither business nor clients care about system re-architecture, but it is critical to maintain technology systems for scale and growth. Engineering is looking for a green light on moving forward because everything else will need to be paused. Why is Engineering looking for approval? It is the business that provides funding to Engineering department.

Product needs to communicate this up the chain. Product cannot singularly make the decision. But a Leadership team that is not involved in technology requires Product recommendation with pros and cons before a decision can be made.

The monkey is on Product's back again.

This might not be a shared perspective from Product, but it is the result of complex organizational design. It is a joint problem indeed, but still requires momentum from Product to deliver on strategic objective.

Despite the complexity, monkey ownership continues for Product. It is your circus, but not your job to train monkeys.

Monkey management is effective when there is organizational complexity. It has two critical benefits. The first is time management and the second is creating high agency staff who are able to deal with problems autonomously.

If you understand whose back the monkey is on, you can understand the art of time management and delegation.

This essay was shared on Hacker News. There were insightful comments shared related to this topic.

Leveraging Both Ears

Thu, 28 Mar 2024 00:00:00 GMT

You are having a conversation with someone and next thing you know is you divert your attention to something else. Then you pull yourself back in and try to chime in while you missed a part of conversation.

How unauthentic?

There is a lot of difference between hearing and listening. To listen you need both of your ears. To hear, you can get by with one. Listening is actively trying to hear something. Hearing is passive without any intentional effort.

I have been mentoring people who are starting their professional journey. For me to guide them in the right direction, I have to be a good listener. If I could listen more than I speak, I could hear more which leads to better conversation and deeper connection with my mentees, colleagues and family members.

Great listening is an art! The biggest benefit of listening deeply is the reduction of reactive thoughts. Reactivity clouds judgment giving rise to negative thoughts and getting into your head causing analysis paralysis. Great listening allows you to be calm and understand different perspectives. What do you do to listen deeply?

First, listening requires you to think deeply about what someone is saying before you share your perspective. If you want to give precise feedback with actionable steps, repeat what the other person is saying, “[Person's Name], I heard you say X because you care about Y. Did I get that right?” Internalizing what the other person said and articulating it better than what was said will help you gain trust.

Second, ask a lot of rich quality questions before jumping onto any conclusions. Humility & confidence are both important element of questions. You need confidence to ask questions, but you need humility to be vulnerable to ask questions. The real insights are in the questions you ask. The greater the proportion of questions, the better it is for conversation.

Third, you genuinely need to care about the person you are having a conversation with and the content they are speaking about. If either of them are not an interest to you, you are more likely to be disengaged in a conversation. To avoid this come from curiosity, not judgment. This is a key to being open-minded.

Once you have gathered information, it is time to react and give feedback.

You should always respond with feedback that energizes and mobilizes the person you are having a conversation with. The message should be short and clear. The message doesn't need to be novel because you are helping them process their own thoughts. They should walk away with precise feedback with actionable items.

If you listen attentively, you will understand. Leveraging both of your ears will never get you in trouble.

Finding Magic

Mon, 11 Mar 2024 00:00:00 GMT

A question worth exploring-where do you find your magic? Here is my list:

Hiking in the mountains
Walking and biking on trails surrounded by trees and water
Long conversations with my wife and mom
Holding philosophical conversations with family and friends
Spending time with both my human and dog kid
Painting canvases and drawing silly things
Listening to Eminem and Ludovico Einaudi
Reading books
Exploring complex topics by writing about them
Meeting folks from random communities and learning about them
Organizing physical and digital things
Watching basketball
Dancing
Exploring artists and their work
Share my passion with others about Mungerism and Buffettology
Coffee shops
Fitness clubs
Book clubs

None of these go in particular order, but they give me the most energy when I do these things making life feel flawless. A reminder to do more of these, not less.

Shape Up by Ryan Singer, Jason Fried

Sun, 10 Mar 2024 00:00:00 GMT

I. Brief Summary

A book on how Basecamp (one of my favorite organizations with inspirational founders) does software and product development. Ryan Singer introduces great analogies to reshape the mindset-shaping, appetite, bread-boarding, scopes and uphill and downhill phases of work. These are great concepts to understand which can make software and product development process effective in any organization.

II. Big Ideas

Basecamp developed Shape Up methodology.
Unlike Scrum, Shape Up doesn’t use backlogs.
Wireframes are deemed too concrete, while words are often too abstract. When shaping a solution, the aim is to strike the right balance between too vague and too detailed.
Shape Up iterations take 6 weeks and a 2-week cool-down window following the Build stage to allow teams to address any outstanding issues.
Shaping Up process
- PM: set boundaries and figure out how much time the raw idea is worth and how to define the problem.
- Designer + PM + Tech lead: sketch out the elements of the solution. A higher level of abstraction than wireframes in order to move fast and explore a wide enough range of possibilities. The solution should be desirable but without too many details.
- Designer + PM + Tech lead: define risks, edge cases and extreme nuances. Take a hard look at it to find holes or unanswered questions that could trip up the execution team. Cut things out, specify details or amend the solution if getting stuck or not able to get momentum.
- PM: once you have shaped it enough, write a pitch. The pitch summarizes the problem, constraints, solution, rabbit holes, and limitations. The pitch goes to the betting table for a leadership go/no-go.
Designers, Engineers & Product Strategists-shaping is primarily design work and get continuous feedback from engineering. A PM brings the strategic perspective.
- Designers
  - Designers and programmers always want to do their best work. It doesn’t matter if the button is on the center of the landing page or two pages down a settings screen, the designer will give it their best attention.
- Engineers
  - Designers and programmers always want to do their best work. The best programmers want the code base to feel like a cohesive whole, completely logically consistent with every edge case covered.
- PMs
  - What are we trying to solve?
  - Why does it matter? What counts as success?
  - Which customers are affected?
  - What is the cost of doing this instead of something else?
Executing
- Divide the whole project into scopes–small visible and concrete part of the implementation.
- Start with the most important problems with the most unknowns.
- Declare out of bounds. Call out any cases you specifically aren’t supporting to keep the project well within the appetite. Cutting scope isn’t lowering quality.
- Work vertically to deliver something concrete and actionable. Build the core and then refine it.
- Give status update a few days after the cycle began and do it asynchronous.
Betting table-it is a form of prioritization and gain traction/appetite from stakeholders and decision-makers.
- The betting table at Basecamp consists of the CEO, the CTO, a senior developer and product strategist.
- Bets have a payout.
- Bets are commitments.
- Bets have a cap on the downside.
Bread-boarding-a concept borrowed from electrical engineering.
- Places: these are things you can navigate to, like screens, dialogs, or menus that pop up.
- Affordances: these are things the user can act on, like buttons and fields. Interface copy is considered to be an affordance too, as reading it is an act that gives the user information for subsequent actions.
- Connection lines: these show how the affordances take the user from place to place.
Other key concepts
- Fixed time-to-production: holding the build timeline fixed at 6 weeks.
- The ultimate consequence: if a build isn't done in the 6-week time, the project is scrapped and goes through the whole process again if there is any viability.
- The hill (visual): work is like a hill while going uphill you are not certain on the unknowns yet and when going downhill you know what to do. Tasks can be visualized on a hill chart.
- Circuit breaker: teams have to ship the work within the amount of time that we bet.
- Idea banks: a soft “no” that leaves all options open but it doesn't go in a backlog. It gets the space to learn whether it’s really important and what it might entail.

III. Quotes

We don’t do daily stand-ups, design sprints, development sprints, or anything remotely tied to a metaphor that includes being tired and worn out at the end.
Estimates start with a design and end with a number. Appetite starts with a number and ends with a design.
Beware the simple question: Is this possible? In software everything is possible, but nothing is free.
“Good” is relative. There’s no absolute definition of “the best” solution. The best is relative to your constraints. Without a time limit, there’s always a better version. The ultimate meal might be a ten course dinner. But when you’re hungry and in a hurry, a hot dog is perfect.

Competing Against Luck by Clayton M. Christensen

Tue, 05 Mar 2024 00:00:00 GMT

I. Brief Summary

A guide on how to create products that customers will choose even in a crowded market. This book is more than innovation. It is about progress based on the Jobs Theory. The theory focuses on what causes consumers to make the choices they do. Each time anyone buys a product Clayton says that we “hire” it to do a job for us. If we understand this innovation can be predictable.

II. Big Ideas

Jobs theory
- Jobs theory provides a language of integration.
- A “job” is the progress that a person is trying to make in a particular circumstance. The choice of the word “progress” is deliberate. It represents movement toward a goal or aspiration.
- What causes a customer to purchase and use a particular product or service?
- Jobs are never simply about function-they have powerful social and emotional dimensions. The 3 components-functional, social and emotional are equally important when a customer interacts with your product.
- JTBD decodes complexity-a language that enables clear specifications for solving Jobs to Be Done.
- What Is a Job? To summarize:
  - A job is the progress that an individual seeks in a given circumstance. Successful innovations enable a customer’s desired progress, resolve struggles, and fulfill unmet aspirations.
  - They perform jobs that formerly had only inadequate or nonexistent solutions. Jobs are never simply about the functional-they have important social and emotional dimensions, which can be even more powerful than functional ones.
  - Because jobs occur in the flow of daily life, the circumstance is central to their definition and becomes the essential unit of innovation work-not customer characteristics, product attributes, new technology, or trends.
  - Jobs to Be Done are ongoing and recurring. They’re seldom discrete “events.”
- It’s important to note that we don’t “create” jobs, we discover them.
- A clear view of customers’ jobs means an organization should never overshoot what those customers are actually willing to pay for. On the contrary, we believe that when customers find the right product to respond to their Job to Be Done, they’re often willing to pay more.
- Focus on understanding the “jobs” that customers are trying to accomplish, rather than just their stated needs. You have to understand the job the customer is trying to do in a specific circumstance. Context is everything. This will help you identify new opportunities for innovation.
- Creating the right experiences and then integrating around them to solve a job, is critical for competitive advantage. That’s because while it may be easy for competitors to copy products, it’s difficult for them to copy experiences that are well integrated into your company’s processes.
Correlation vs causation
- “Ice cream sales and forest fires are correlated because both occur more often in the summer heat. But there is no causation; you don’t light a patch of the Montana brush on fire when you buy a pint of Häagen-Dazs.”
- Correlation does not reveal the one thing that matters most in innovation - the causality behind why I might purchase a particular solution.
- Correlation is not causation.
- Learn how to ask the right questions - What job did you hire that product to do?
Hiring product
- We “hire” a product to get a job done.
- If it does the job well, we "hire" the product again to do the same job.
- If it does not, we "fire" it and look around for alternative product to solve the problem
- Big vs small hire:
  - “Big Hire”-the moment you buy the product
  - “Small Hire”-consume it. If a product really solves the job, there will be many moments of consumption. It will be hired again and again.
Story-boarding
- Rarely can customers articulate their requirements accurately or completely-their motivations are more complex and their pathways to purchase more elaborate than they can describe. But you can get to the bottom of it. What they hire-and equally important, what they fire-tells a story.
- Story-boarding can help navigate with discovery.
- Moments of struggle, nagging trade-offs, imperfect experiences, and frustrations in peoples’ lives is what you’re looking for.
- You’re looking for surprises, unexpected behaviors, compensating habits, and unusual product uses.
- Stories are rich and complex.
  - The insights that lead to successful new products look more like a story than a statistic.
  - Ultimately, you want to cluster together stories to see if there are similar patterns, rather than break down individual interviews into categories.
- A well-defined Job to Be Done is expressed in verbs and nouns. If a Job to Be Done is described in adjectives and adverbs, it is not a valid job.
  - For example, “I need to ‘write’ books verbally, obviating the need to type or edit by hand.” In contrast, the sentence “We should aspire to be more honest” is a noble goal, but it’s not a job.
- Defining a job at the right level of abstraction is critical to ensuring that the theory is useful.
  - This can be more art than science, but there is a good rule of thumb: if the architecture of the system or product can only be met by products within the same product class, the concept of the Job to Be Done does not apply. If only products in the same class can solve the problem, you’re not uncovering a job.
  - For example, “I need to have a chocolate milk shake that is in a twelve-ounce disposable container” is not a job. The possible candidates that I could hire to do this are all in the milk shake product category. I could call this a need or a preference-but it isn’t a job. We need to go up another level of abstraction in order to discover the job. “I need something that will keep me occupied with what’s happening on the road while I drive. And also, I’d like this to fill me up so that I’m not hungry during a 10:00am meeting. I could hire a banana, doughnuts, bagels, Snickers, or a coffee to do this job.”
Process
- Helping customers have a delightful experience using your product is made up of processes.
- Processes touch everything about the way an organization transforms its resources into value: the patterns of interaction, coordination, communication, and decision-making through which they accomplish these transformations are processes.
- Resources, generally speaking, are fungible. They can be bought and sold. Products can, often, be easily copied.
- But it is through integrating processes to get the job done that companies can create the ideal experiences and confer competitive advantage.
- Processes are invisible from a customer’s standpoint - but the results of those processes are not.
- For example, for years, Toyota freely opened its doors to competitors. Twice a month, the Japanese auto manufacturer allowed rival auto executives and engineers into its manufacturing complex to observe how Toyota makes cars. To an outsider, Toyota’s openness might seem shocking. After all, the American rivals were clearly trying to learn Toyota’s secrets in order to emulate or even improve upon them. Toyota’s competitive advantage rested firmly in its proprietary, complex, and often unspoken processes because processes are hard to see. Toyota concluded American competitors weren't even asking the right questions.
- Processes are intangible; they belong to the company.
- They are critical to strategy because they cannot easily be copied.
Org structure
- What matters more than who reports to whom is how different parts of the organization interact systematically to deliver the offering that perfectly performs customers’ Jobs to Be Done.
- Executives need to ensure that the company is delivering on the job of a customer.
- It is easier to focus on efficiency rather than effectiveness.
- Creating the right metrics is hard but critical to measure the right success.
Stack fallacy
- Stack fallacy highlights the tendency of engineers to overweight the value of their own technology and underweight the downstream applications of that technology to solve customer problems and enable desired progress.
- “Stack fallacy is the mistaken belief that it is trivial to build the layers above yours,” Sharma says. It’s the reason that companies fail so often when they try to move up the stack. “They don’t have first-hand empathy for what customers of the product one level above theirs in the stack actually want. They’re disconnected from the context in which their product will actually be used.”
Danger of data
- Data is always an abstraction of reality based on underlying assumptions as to how to categorize the unstructured phenomena of the real world.
- Data fail to support innovation because they create the illusion of objectivity.
- Data often create the illusion of success because managers conveniently set this knowledge aside: data is man-made. We pick and choose the data that suits us. Decisions don’t get made. They happen.
- There’s so much pressure to grow that it’s possible to lose sight of why customers hired you in the first place. If the customer job is not given a voice and a champion it will drown. Passive data needs active management.
- Passive data
  - Much of the information needed to make decisions about solving for a job is found in the context of the struggle. We call that “passive data” because it has no voice or clear structure or champion or agenda.
  - Passive data is just unfiltered context. It’s always present, but it isn’t loud. This is why active data can be misleading, causing negative information for an organization.
  - It feels good to migrate from the unstructured messiness of passive data to the reassuringly concrete active data.
  - Responding quickly on negative information can be harmful to any organization.
- A genuine insight is a thought which is known as true upon conception; no further analysis is needed.

III. Quotes

Theory has a voice not an agenda.
People don’t want to buy a quarter-inch drill. They want a quarter-inch hole. It’s a profound insight-first popularized by legendary Harvard marketing professor Ted Levitt decades ago.
Ice cream sales and forest fires are correlated because both occur more often in the summer heat. But there is no causation; you don’t light a patch of the Montana brush on fire when you buy a pint of Häagen-Dazs.
If you do not know how to ask the right question, you discover nothing.
The magic of the Jobs to Be Done lens is that there isn’t any magic required at all.
New products succeed not because of the features and functionality they offer but because of the experiences they enable.
For innovators, understanding the job is to understand what consumers care most about in that moment of trying to make progress.
None of that data, however, actually tells you why customers make the choices that they do.
Data has an annoying way of conforming itself to support whatever point of view we want it to support.
Data is not the phenomenon. It represents the phenomenon, but not very well.
Data is always an abstraction of reality based on underlying assumptions as to how to categorize the unstructured phenomena of the real world.
Data has the same agenda as the person who created it, wittingly or unwittingly. For all the time that senior leaders spend analyzing data, they should be making equal investments to determine what data should be created in the first place.
Here is the fundamental problem: the masses and masses of data that companies accumulate are not organized in a way that enables them to reliably predict which ideas will succeed. Instead the data is along the lines of “this customer looks like that one,” “this product has similar performance attributes as that one,” and “these people behaved the same way in the past,” or “68 percent of customers say they prefer version A over version B.” None of that data, however, actually tells you why customers make the choices that they do.
Managers conveniently set this knowledge aside: data is man-made
If you can’t describe what you are doing as a process, then you don’t know what you are doing.
Processes are invisible from a customer’s standpoint-but the results of those processes are not. Processes can profoundly affect whether a customer chooses your product or service in the long run.
The choice of the word “progress” is deliberate. It represents movement toward a goal or aspiration.
Innovation is less about producing something new and more about enabling something new and important for customers.
There is a method to the madness. What they have in common is the search for cause.
The key to getting hired is to understand the narrative of the customer’s life in such rich detail that you are able to design a solution that far exceeds anything the customer themselves could have found words to request. In hindsight, breakthrough insights might seem obvious, but they rarely are. In fact, they’re fundamentally contrarian: you see something that others have missed.
People hired milk shakes for two very different jobs during the day, in two very different circumstances. Each job has a very different set of competitors-in the morning it was bagels and protein bars and bottles of fresh juice, for example; in the afternoon, milk shakes are competing with a stop at the toy store or rushing home early to shoot a few hoops-and therefore was being evaluated as the best solution according to very different criteria. This implies there is likely not just one solution for the fast-food chain seeking to sell more milk shakes. There are two. A one-size-fits-all solution would work for neither.
Toyota wasn’t really worried that it would give away its “secret sauce.” Toyota’s competitive advantage rested firmly in its proprietary, complex, and often unspoken processes. In hindsight, Ernie Schaefer, a longtime GM manager who toured the Toyota plant, told NPR’s This American Life that he realized that there were no special secrets to see on the manufacturing floors. “You know, they never prohibited us from walking through the plant, understanding, even asking questions of some of their key people,” Schaefer said. “I’ve often puzzled over that, why they did that. And I think they recognized we were asking the wrong questions. We didn’t understand this bigger picture.”
Processes are often hard to see-they’re a combination of both formal, defined, and documented steps and expectations and informal, habitual routines or ways of working that have evolved over time. But they matter profoundly. As MIT’s Edgar Schein has explored and discussed, processes are a critical part of the unspoken culture of an organization.
Processes are intangible; they belong to the company. They emerge from hundreds and hundreds of small decisions about how to solve a problem. They’re critical to strategy, but they also can’t easily be copied. Pixar Animation Studios, too, has openly shared its creative process with the world. Pixar’s longtime president Ed Catmull has literally written the book on how the digital film company fosters collective creativity2-there are fixed processes about how a movie idea is generated, critiqued, improved, and perfected. Yet Pixar’s competitors have yet to equal Pixar’s successes.
There are whole industries, such as venture capital, that are currently organized around the belief that innovation is essentially a game of playing the odds. But it’s time to topple that tired paradigm. I’ve spent twenty years gathering evidence so that you can put your time, energy, and resources into creating products and services that you can predict, in advance, customers will be eager to hire. Leave relying on luck to the other guys.
When a smoker takes a cigarette break, on one level he’s simply seeking the nicotine his body craves. That’s the functional dimension. But that’s not all that’s going on. He’s hiring cigarettes for the emotional benefit of calming him down, relaxing him. And if he works in a typical office building, he’s forced to go outside to a designated smoking area. But that choice is social, too-he can take a break from work and hang around with his buddies. From this perspective, people hire Facebook for many of the same reasons. They log onto Facebook during the middle of the workday to take a break from work, relax for a few minutes while thinking about other things, and convene around a virtual water cooler with far-flung friends. In some ways, Facebook is actually competing with cigarettes to be hired for the same Job to Be Done. Which the smoker chooses will depend on the circumstances of his struggle in that particular moment.
When we buy a product, we essentially “hire” something to get a job done. If it does the job well, when we are confronted with the same job, we hire that same product again. And if the product does a crummy job, we “fire” it and look around for something else we might hire to solve the problem.
Creating the right experiences and then integrating around them to solve a job, is critical for competitive advantage. That’s because while it may be easy for competitors to copy products, it’s difficult for them to copy experiences that are well integrated into your company’s processes.
The foundation of our thinking is the Theory of Jobs to Be Done, which focuses on deeply understanding your customers’ struggle for progress and then creating the right solution and attendant set of experiences to ensure you solve your customers’ jobs well, every time. “Theory” may conjure up images of ivory tower musings, but I assure you that it is the most practical and useful business tool we can offer you. Good theory helps us understand “how” and “why.” It helps us make sense of how the world works and predict the consequences of our decisions and our actions. Jobs Theory, we believe, can move companies beyond hoping that correlation is enough to the causal mechanism of successful innovation. Innovation may never be a perfect science, but that’s not the point. We have the ability to make innovation a reliable engine for growth, an engine based on a clear understanding of causality, rather than simply casting seeds in the hopes of one day harvesting some fruit.
American Girl is able to command a premium price because it’s not really selling dolls. It’s selling an experience. When you see a company that has a product or service that no one has successfully copied, like American Girl, rarely is it the product itself that is the source of the long-term competitive advantage, something American Girl founder Pleasant Rowland understood. “You’re not trying to just get the product out there, you hope you are creating an experience that will do the job perfectly,” says Rowland. You’re creating experiences that, in effect, make up the product’s résumé: “Here’s why you should hire me.” That’s why American Girl has been so successful for so long, in spite of numerous attempts by competitors to elbow in.
Walkman cassette player was temporarily put on hold when market research indicated that consumers would never buy a tape player that didn’t have the capacity to record and that customers would be irritated by the use of earphones. But Morita ignored his marketing department’s warning, trusting his own gut instead. The Walkman went on to sell over 330 million units and created a worldwide culture of personal music devices.
Helping me feel like a good dad is not a Job to Be Done. It’s important to me, but it’s not going to trigger me to pull one product over another into my life. The concept is too abstract.
Most schools don’t do this job well at all. Instead, most children feel failure when they go to class. They could also hire athletics to do the job. For a few, sports do the job well. But for the less gifted, athletics makes students feel failure, too. So they hire electronic games to feel successful. And yet for many, even such games yield failure. So they hire friends who have feelings of failure, too-and engage in drugs and other things to feel successful.
Changing a well-established view of the world rarely happens overnight-and even when it happens, it still takes time to refine and perfect the right new perspective. In the world of innovation, many companies are stuck in a world of creating “epicycles”: elaborate approximations, estimations, and extrapolations.
Organizations typically structure themselves around function or business unit or geography-but successful growth companies optimize around the job.
It’s assumed that ‘user experience’ is all about a beautiful screen and making sure the buttons are in all the right places. But that has almost nothing to do with getting the experience of using the software right-in the real world where clinicians use it. You can’t do design requirements in a conference room. You have to get out in the wild and live it.
The Gross National Product does not allow for the health of our children, the quality of their education, or the joy of their play. It does not include the beauty of our poetry or the strength of our marriages, the intelligence of our public debate or the integrity of our public officials. It measures neither our wit nor our courage, neither our wisdom nor our learning, neither our compassion nor our devotion to our country. It measures everything, in short, except that which makes life worthwhile. And it can tell us everything about America except why we are proud that we are Americans.
When you are solving a customer’s job, your products essentially become services.
New products succeed not because of the features and functionality they offer but because of the experiences they enable.
Jobs are not flexible.
Once products are launched, a faucet is opened and data is created.

Measure What Matters by John Doerr

Thu, 29 Feb 2024 00:00:00 GMT

I. Brief Summary

OKRs have been a better part of my entire professional journey but the framework rarely got implemented the way it was intended to. This is why OKRs are disliked today because of lost context. I disliked them too until I read this book. If the framework is employed correctly from top to bottom the entire organization can move mountains. This book is based on late Andy Grove's managerial foundation who led Intel. John Doerr is the father of OKR who is responsible for bringing OKRs to Google and the world. He saw before anyone else the transformative power Andy Grove's system from Intel could have at Google, and this book is a great window into how OKRs are implemented. It is a powerful goal-setting framework for organizations.

II. Big Ideas

Ideas are easy. Execution is everything.
Influential leaders like Bill Gates, Larry Page, and Bono praise OKR for its effective goal-setting system.
- Bill Gates (Microsoft) has praised the OKR system for its ability to align teams and drive focus.
- Larry Page (Google) has implemented OKRs to encourage ambitious goals and foster a culture of accountability.
- Bono (lead singer of U2) has used OKRs to drive social impact through his organization, ONE.
OKRs: Objective, Key, and Results
- OKRs help your organization prioritize the highest impact initiatives.
- OKRs are a shared language for execution. They clarify expectations: What do we need to get done (and fast), and who’s working on it? They keep employees aligned, vertically and horizontally.
- Objectives and Key Results (OKRs): A management methodology that helps to ensure that the company focuses efforts on the same important issues throughout the organization. OKRs surface your primary goals. They channel efforts and coordination. They link diverse operations, lending purpose and unity to the entire organization.
  - Objective: a short, inspirational, and achievable statement that describes WHAT you want to achieve. Objectives are a “vaccine against fuzzy thinking and fuzzy execution.”
    - An O, is simply WHAT is to be achieved, no more and no less.
    - By definition, objectives are significant, concrete, action oriented, and (ideally) inspirational.
  - Key Results: succinct, specific, and measurable actions that map out HOW you will achieve your Objectives. KRs are aggressive, but realistic.
    - KRs benchmark and monitor HOW we get to the objective.
    - Effective KRs are specific and time-bound, aggressive yet realistic.
    - Most of all, they are measurable and verifiable. It’s not a key result unless it has a number.
- Goals need to be intentional. If not done right, goals may cause systematic problems in organizations due to narrowed focus, unethical behavior, increased risk taking, decreased cooperation, and decreased motivation. The wrong goals can be detrimental to an organization.
- Get both executors and management involved. People who choose their destination will own a deeper awareness of what it takes to get there. Set goals from the bottom up. To promote engagement, teams and individuals should be encouraged to create roughly half of their own OKRs, in consultation with managers.
- OKR “superpowers”: focus, align, track, and stretch
  - Focus the organization on what matters
  - Allow us to measure progress towards our goals
  - Create alignment in groups
  - Allow us to stretch to achieve things we wouldn’t have thought possible
- OKRs are big, not incremental-don’t expect to hit all of them. (If you are, you are not setting them aggressively enough.)
  - Grade them with a color scale to measure how well you did (how google does it):
    - 0.0–0.3 is red
    - 0.4–0.6 is yellow
    - 0.7–1.0 is green
CFRs: Conversations, Feedback, and Recognition
- CFRs help promote transparency, accountability, empowerment, and teamwork.
  - Conversations: an authentic, richly textured exchange between manager and contributor, aimed at driving performance.
  - Feedback: bidirectional or networked communication among peers to evaluate progress and guide future improvement
  - Recognition: expressions of appreciation to deserving individuals for contributions of all
- Divorce compensation (both raises and bonuses) from OKRs. These should be two distinct conversations, with their own cadences and calendars. The first is a backward-looking assessment, typically held at year’s end. The second is an ongoing, forward-looking dialogue between leaders and contributors. It centers on five questions: What are you working on? How are you doing; how are your OKRs coming along? Is there anything impeding your work? What do you need from me to be (more) successful? How do you need to grow to achieve your career goals?
Culture
- Structure and clarity: Are goals, roles, and execution plans on our team clear? - Psychological safety: Can we take risks on this team without feeling insecure or embarrassed?
- Meaning of work: Are we working on something that is personally important for each of us?
- Dependability: Can we count on each other to do high-quality work on time?
- Impact of work: Do we fundamentally believe that the work we’re doing matters?
Questions to ask
- Did I accomplish all of my objectives?
  - If so, what contributed to my success?
  - If not, what obstacles did I encounter?
- If I were to rewrite a goal achieved in full, what would I change?
- What have I learned that might alter my approach to the next cycle’s OKRs?

III. Quotes

There are so many people working so hard and achieving so little.
Then come the four OKR “superpowers”: focus, align, track, and stretch.
OKRs surface your primary goals. They channel efforts and coordination. They link diverse operations, lending purpose and unity to the entire organization.
An effective goal-setting system starts with disciplined thinking at the top, with leaders who invest the time and energy to choose what counts.
A two-year Deloitte study found that no single factor has more impact than “clearly defined goals that are written down and shared freely....Goals create alignment, clarity, and job satisfaction.
We must realize-and act on the realization-that if we try to focus on everything, we focus on nothing.
It almost doesn’t matter what you know. It’s what you can do with whatever you know or can acquire and actually accomplish [that] tends to be valued here.
When people have conflicting priorities or unclear, meaningless, or arbitrarily shifting goals, they become frustrated, cynical, and demotivated.
For a service business, nothing is more valuable than engaged employees who feel they can make a difference and want to stay with the organization. Turnover is costly. The best turnover is internal turnover, where people are growing their careers within your enterprise rather than moving someplace else. People aren’t wired to be nomads. They just need to find a place where they feel they can make a real impact.
Contributors are most engaged when they can actually see how their work contributes to the company’s success. Quarter to quarter, day to day, they look for tangible measures of their achievement. Extrinsic rewards-the year-end bonus check-merely validate what they already know. OKRs speak to something more powerful, the intrinsic value of the work itself.
You can tell people to clean up a mess, but should you be telling them which broom to use? When top management was saying “We’ve got to crush Motorola!” somebody at the bottom might have said “Our benchmarks are lousy; I think I’ll write some better benchmarks.” That was how we worked.
Early on in your career, when you’re an individual contributor, you’re graded on the volume and quality of your work. Then one day, all of a sudden, you’re a manager. Let’s assume you do well and move up to manage more and more people. Now you’re no longer paid for the amount of work you do; you’re paid for the quality of decisions you make.
The art of management,” Grove wrote, “lies in the capacity to select from the many activities of seemingly comparable significance the one or two or three that provide leverage well beyond the others and concentrate on them.
Leaders must get across the why as well as the what. Their people need more than milestones for motivation. They are thirsting for meaning, to understand how their goals relate to the mission.
Bad companies,” Andy wrote, “are destroyed by crisis. Good companies survive them. Great companies are improved by them.
We don’t hire smart people to tell them what to do. We hire smart people so they can tell us what to do. - Steve Jobs
As Jim Collins observes in Good to Great, first you need to get “the right people on the bus, the wrong people off the bus, and the right people in the right seats.” Only then do you turn the wheel and step on the gas.
Meritocracy flourishes in sunlight.
We do not learn from experience....we learn from reflecting on experience.
If the heart doesn't find a perfect rhyme with the head, then your passion means nothing.
The OKR framework cultivates the madness, the chemistry contained inside. It gives us an environment for risk, for trust, where falling is not a fireable offense- you know, a safe place to be yourself. And when you have that sort of structure and environment, and the right people, magic is around the corner.
Acute focus, open sharing, exacting measurement, a license to shoot for the moon-these are the hallmarks of modern goal science.
Less is more. “A few extremely well-chosen objectives,” Grove wrote, “impart a clear message about what we say ‘yes’ to and what we say ‘no’ to.
Stretch goals can be crushing if people don’t believe they’re achievable.
If you set a crazy, ambitious goal and miss it, you’ll still achieve something remarkable. - Larry Page
For anyone striving for high performance in the workplace, goals are very necessary things.
Not everything that can be counted counts, and not everything that counts can be counted.
People are the most important thing that we do. We have to try to make them better.
If the ladder is not leaning against the right wall, every step we take just gets us to the wrong place faster. - Stephen Covey
Actions-and data-speak louder than words.
Individuals want to drive their own success. They don’t want to wait till the end of the year to be graded. They want to know how they’re doing while they’re doing it, and also what they need to do differently.
The single greatest motivator is ‘making progress in one’s work.’ The days that people make progress are the days they feel most motivated and engaged. - Daniel Pink
Feedback is an opinion, grounded in observations and experiences, which allows us to know what impression we make on others. - Sheryl Sandberg
As prize pupil Marissa Mayer would say, “It’s not a key result unless it has a number.”

A Man For All Markets by Edward O. Thorp

Sun, 28 Jan 2024 00:00:00 GMT

I. Brief Summary

Edward Thorp recalls his life starting from childhood while sharing valuable lessons about gambling and investing. He always had an inclination towards science eventually gravitated towards mathematics. He applied math to a variety of domains with tremendous success including poker and investing. His curiosity led him to key discoveries in how to beat the dealer in blackjack and other games of chance, and eventually led him down the path to make key discoveries to arbitrage the markets in finance. He is one of the greatest quantitative investors.

II. Big Ideas

Thorp argues that markets are not always efficient and there are ways to exploit it.
Thorp once focused on arbitrage opportunities. But despite having extraordinary intellectual capabilities, he concludes that investing in an index is safer, and he does not try to beat the market through individual stocks anymore. That is because he values his time and freedom.
Those who cannot remember the past are condemned to repeat it.
7.3% average annual market return doubles your investment in 10 years. This is how compounding works.
Long-term holding with little dividends and high re-investments by companies reduce your tax liabilities and improves your net performance.
The more complicated systems while theoretically better are difficult to use in practice and prone to error. An imperfect solution that can be used in practice is better than a perfect one that cannot.
Get information early (if you are not sure how valuable your information is, then it probably is not). Few people occasionally listen to some information at the right time and the right place.
Be a disciplined investor. Follow the logic and analysis rather than sales pitches, whims, or emotions. Don't gamble unless you are highly confident you have the edge. In real markets, the rationality of the participants is limited.
When securities are mispriced and people take advantage of this, their trading tends to eliminate mispricing. The earliest traders gain the most.
Thorp knew what Buffett and Graham have both preached repeatedly: temperament is more important to successful investing (and gambling) than pure brainpower or brilliant strategy.
Exploiting a small edge repeatedly can be extremely profitable in the long-run.
Thorp exploited the Kelly Criterion (% of Capital Wagered = Expected Net Winnings/Net Winnings If You Win) to size his bets appropriately. In other words, when you have a greater edge (greater expected net winnings) place a larger bet.
Markets adapt to trading strategies when copycats enter the market and advantages evaporate. It’s important to keep innovating and making sure that strategies are still relevant.

III. Quotes

Some think in words, some use numbers, and still others work with visual images. I do all of these, but I also think using models....Physics, chemistry, astronomy and biology revealed wonders of the world, and showed me how to build models and theories to describe and predict. This paid off for me in both gambling and investing.
Learning is like adding programs, big and small, to this computer.
Character is destiny.
Gambling is investing simplified.
The lesson of leverage is this: Assume that the worst imaginable outcome will occur and ask whether you can tolerate it. If the answer is no, then reduce your borrowing.
It doesn't pay in negotiations to push the other party to their absolute limit. A small extra gain is generally not worth the substantial risk the deal will break up.
I also learned the value of withholding judgement until I could make a decision based on evidence.
Life is like reading a novel or running a marathon. It’s not so much about reaching a goal but rather about the journey itself and the experiences along the way.
I wondered how my research into the mathematical theory of a game might change my life. In the abstract, life is a mixture of chance and choice. Chance can be thought of as the cards you are dealt in life. Choice is how you play them. I chose to investigate blackjack. As a result, chance offered me a new set of unexpected opportunities.
What appears random for one state of knowledge may not be if we are given more information.
Our corporate executives speculate with their shareholders’ assets because they get big personal rewards when they win-and even if they lose, they are often bailed out with public funds by obedient politicians. We privatize profit and socialize risk.
Simple probability and statistics should be taught in grades kindergarten through twelve and that analyzing games of chance such as coin matching, dice, and roulette is one way we can learn enough to think through such issues.
Do not assume that what investors call momentum, a long streak of either rising or falling prices, will continue unless you can make a sound case that it will.
How can we prevent future financial crises driven by the systemic and scarcely regulated use of extreme leverage? One obvious step is to limit leverage by requiring sufficient collateral to be posted by both counterparties when they trade. That’s what is done on regulated futures exchanges, where contracts are also standardized. This model has worked well for decades, is easy to regulate, mostly by the exchanges themselves, and has had few problems.
This phenomenon has been called the wisdom of crowds. But like most simplifications, this has a flip side, as in the Madoff case. Here there were just two answers, fraudster or investment genius. The crowd voted for investment genius and got it wrong. I call the flip side to the wisdom of crowds the lunacy of lemmings.
A trait that showed up at about this time was my tendency not to accept anything I was told until I had checked it for myself.
The list of issues goes on, the point being that hedge fund investors don’t have much protection and that the most important single thing to check before investing is the honesty, ethics, and character of the operators.
Shakespeare might advise, “The fault is not in our markets, but in ourselves.”
The most important reason to wind down the operation was that time was worth more to me than the extra money.
Success on Wall Street was getting the most money. Success for us was having the best life.
As Keynes said, the market can remain irrational longer than you can remain solvent.
With time, lucky managers tend to fade.
Write down everything you spend. The waste in your daily spending should soon become apparent.
I intensified my focus on competing with the wave of mathematicians, physicists, and financial economists who were now flocking to Wall Street from academia.
But I found factionalism and backstabbing as bad there as it had been in the Math Department. Both had endless committee meetings, petty squabbles over benefits, people who wouldn’t pull their weight and couldn’t be dislodged, and the dictum of publish or perish. I decided it was time to leave academia. Even so, it was not an entirely easy decision.
One problem in large bureaucracies is that many of the members decide it is better not to cross people, instead of standing on principle. I asked a good friend, whom I had helped to get an appointment in our department, to become my vice chairman and help me. Although he was now a full professor with tenure, he declined, saying, “I have to live in the same cage with these monkeys.” I did understand his point. On the other hand, I was not confined to the cage. I had PNP. I thought, Why try to fix this if no one will even back me up? I was in the Math Department by choice, not by necessity. It was time to move on.
Routine financial reporting also fools investors. “Stocks Slump on Earnings Concern” cried a New York Times Business Day headline. The article continued, “Stock prices fell as investors continued to be concerned about third-quarter results.” A slump? Let’s see. “The Dow Jones Industrial Average (DJIA) declined 2.96 points, to 10,628.36.” That’s 0.03 percent, compared with a typical daily change of about 1 percent. Based on the historical behavior of changes in the DJIA, a percentage change greater than this happens more than 97 percent of the time. The Dow is likely to be this close to even on fewer than eight days a year, hardly evidence of investor concern. The DJIA is calculated by adding the prices of the thirty stocks that currently make up the average, then multiplying by a number that continually is readjusted to incorporate the effects of dividends and stock splits. The current multiplier was a little over five, meaning that if just one of the thirty stocks had closed an additional point and a quarter higher, the closing DJIA number would have been over six points larger, for a rise of over three points, or 0.03 percent. DJIA stocks reportedly would have jumped, not slumped. The S&P 500 Stock Index was down a mere 0.04 percent, a lack of change almost as tiny as that of the Dow. The only real move was in the NASDAQ composite, which fell 32.8 points, or 0.9 percent. Even this volatile index was having larger daily changes two-thirds of the time. What’s going on here? The story said stocks with earnings that didn’t meet expectations had been penalized the previous day. But the impact on the indexes was so small as to be meaningless. The reporter had made two errors. First, he thought statistical noise meant something. Second, he missed the other half of the story-the one about the stocks that must have gone up, and why they did-as they must have done to offset the effect of the ones that dropped. Offering explanations for insignificant price changes is a recurrent event in financial reporting. The reporters often don’t know whether a fluctuation is statistically common or rare. Then again, people tend to make the error of seeing patterns or explanations when there aren’t any, as we’ve seen from the history of gambling systems, the plethora of worthless pattern-based trading methods, and much of story-based investing.
Neither Jerry nor I believed the efficient market theory. I had overwhelming evidence of inefficiency from blackjack, from the history of Warren Buffett and friends, and from our daily success in Princeton Newport Partners. We didn’t ask, Is the market efficient? but rather, In what ways and to what extent is the market inefficient? and How can we exploit this?
I prefer to think in terms of the inverse of P/E, or earnings divided by price, sometimes known as E/P but perhaps better described as earnings yield. When the P/E is 20, for example, the earnings yield is 1/20, or 5 percent. An investor who owns the S&P 500 Index could think of it as a low-grade long-term bond, comparing the earnings yield of this “bond” to the total return from some benchmark for actual bonds, such as long-term Treasuries or corporates of a particular quality grade. When the earnings yield on the stock index is historically high relative to the bond benchmark, the investor sells some of his bonds and buys stocks. When bond yields are high compared with stocks, he shifts money from stocks back to bonds.
Stories sell stocks: the wonderful new product that will revolutionize everything, the monopoly that controls a product and sets prices, the politically connected and protected firm that gorges at the public trough, the fabulous mineral discovery, and so forth. The careful investor, when he hears such tales, should ask a key question: At what price is this company a good buy? What price is too high?
I apply this to the trade-offs among health, wealth, and time. You can trade time and health to accumulate more wealth. Why health? You may be stressed, lose sleep, have a poor diet, or skip exercise. If you are like me and want better health, you can invest time and money on medical care, diagnostic and preventive measures, and exercise and fitness.
Gambling now is largely a socially corrosive tax on ignorance, draining money from those who cannot afford the losses.
For financial titans who aggressively continue to seek tens of millions, hundreds of millions, and sometimes billions, you can ask, “Is the winner really the one who dies with the most toys?” How much is enough? When will you be done? Often the answer is “Never.”

Algorithms To Live By by Brian Christian & Tom Griffiths

Sat, 27 Jan 2024 00:00:00 GMT

I. Brief Summary

A book about maximizing human cognition and decision-making using computer science algorithms. Cognitive load is expensive. The underlying directive of any good algorithm is to minimize the labor of thought. Brian Christian and Tom Griffiths explain these complex algorithms in simple words make it practical to use in your day-to-day life.

II. Big Ideas

Optimal Stopping: You have to hire a secretary from a pool of fixed applicants. You have to interview the candidates one by one and make a hire/no-hire decision right after each interview. If you pass on someone, you cannot come back to them. If you hire someone, the process stops and they are your new secretary. How do you maximize your chances to find the best secretary in the group? This is the famous Secretary Problem.
- 37% Rule: The optimal strategy involves interviewing and rejecting the first few candidates no matter how good they are just to set up the baseline first and then hiring the best you’ve seen so far after. This optimal point turns out to be about 37%. Reject 37% of the applicants, and then hire the next one better than anyone you’ve seen so far.
- Optimal Stopping: It is analogous to a “look-then-leap” scenario. You stop looking too early, you don’t know if someone better isn’t going to come along. You stop too late, you might have passed on the best candidate already. Time is an important factor in decision-making. There is often a cost to taking too much time when making a decision. Consider whether the extra time spent searching all options to find the “best” really better than a slightly less optimal (but still good) decision found in much less time.
Explore vs Exploit: Give yourself enough time to explore. Exploration has a higher payoff than exploitation in the early stages. However, when time is running out, exploit what you know. The value of exploration can only go down over time. The value of exploitation can only go up over time. Explore when you have time to use the resulting knowledge, exploit when you are ready to cash in. Be sensitive to how much time you have left. Explore early, exploit late.
- The Gittin's Index: It provides a formal justification for favoring exploration early on, provided we have some opportunity to exploit the results later on. The act of searching is valuable in itself even if the payoff in the short term is not as big as an already found option. The Gittin’s Index shows that, early on, a previously untried option has a higher chance of a payoff than an option that you already know to payout.
- A/B Testing: It is an example of exploration vs exploitation. You are risking worse performance for some customers in the hope the knowledge you gain will be more beneficial in the long run.
Sorting: Sorting is ubiquitous in our daily lives. You sort something so it can be searched later. When sorting, err on the side of messiness almost perfectly sorted is better than no sorting but significantly quicker than perfect sorting.
- Bubble sort + Insertion sort: The most common, least efficient sorting, when you put the book in alphabetically against a shelf of books, there is a billion different permutations and options.
- Mergesort: The next best thing, when you compare two sets against each other and sort each time, then compare them against the next set.
- Bucketsort: The most efficient, fastest way of a “close” enough solution, putting things into buckets/classifying of course that depends how well you choose your buckets.
- Single Elimination: It is a terrible way to rank, ie sports teams all it tells you is the 1st place, but all other places in the ranking are not truly representative.
- Round Robin: Gives you full information, but also requires the most effort as everyone plays everyone
- Bracket tournaments are the most efficient way of ranking, they are a combination of a bucket and mergesort.
Caching: Caching is about storing something for future use. It is a memory hierarchy, what to keep on top of your mind, and what to delegate to pen and paper or a Notes app. Cache management is to minimize the number of times you can’t find what you’re looking for in the cache and must go to the slower main memory to find it.
- First In, First Out (FIFO): It’s essentially a queue kicking the oldest things out of the memory.
- Least Recently Used (LRU): It is the most effective algorithm of caching. Keep documents or items you used recently close to you as you are most likely to use them again in the near future.
- The Noguchi Filing System: It is simple but surprisingly efficient. Noguchi filing is a left-side insertion rule. Every time you pull out a file to use its content, you put it back as the leftmost file when you return it to the box. The most recently accessed files are fastest to find.
Scheduling: How do you get things done? How do you schedule your day? How do you arrange the tasks so that the most gets done in the least amount of time? How do you handle a situation where a low priority task is blocking a higher priority task Optimal scheduling is hard and sometimes impossible. Identify blockers, beware of context switching overheads and use heuristics to identify which tasks to complete first. Don’t stress about it starting in the wrong order is better than not starting at all. Before you can have a plan, choose a metric, which metric you choose will affect which scheduling approaches are best. Context switching comes with an overhead sometimes it is better to just get what you are currently doing done before moving to another higher priority task.
- Blocking: It occurs when the main task is blocked because resources are being used by another, less important, task. In which case, the main priority should be to clear the trivial task rather than waiting it out and returning to the main task.
- Shortest Processing Time: Always do the quickest task you can.
- Thrashing: It is the point when your interrupted so often and have so much to do that you get no actual work done and at this point you can step back and reevaluate and often just do whatever you can get done and not worry about the optimal way to do it.
- Batching: Having set times to do things such as only looking at emails first thing in the morning and at night is a good way to keep from being interrupted too often.
Bayes’s Rule: It’s just a simple way to determine how probable something (A) is given something else (B) has happened, usually denoted as P(A|B). It’s assumed you have good information about the priors: how likely those two things are to happen independently, and you know how likely things are things to occur. This is Bayes's rule. Knowing what distribution you are up against can make all the difference and allow you to make better guesses in the absence of hard data.
- Copernican Principle: If we want to predict how long something will last, and have no other knowledge about it, the best guess we can make is that it will continue just as long as it has gone on so far.
Overfitting: We can make better decisions by deliberately thinking and doing less (regularization). Considering too many options when making a decision can lead to overfitting. We can make better decisions by applying regularization, deliberately thinking and doing less. Considering more and more factors for a model can actually lead to worse performing models. We should apply this thinking to our daily lives. Over analyzing a situation or decision can actually be counter-productive. Giving yourself more time to decide about something does not necessarily mean you will make a better decision.
Relaxation: If a problem is difficult, try relaxing the constraints and solve a simpler problem. You can apply these learning to the harder problem or might find that the solution to the simpler problem is sufficient. There are consequences to everything, you just decide whether you want to face those consequences when applying constraints to problems think of the “cost” of the constraint. Is the penalty/cost actually tolerable? There are three effective techniques for relaxing a difficult problem:
- Constraint Relaxation: Remove or add constraints and make progress on a loser form of the problem before coming back.
- Continuous Relaxation: Turn discrete or binary choices into continua.
- Lagrangian Relaxation: Turn impossibilities into penalties (bending the rules), sometimes the penalties are worth it.
Randomness: Leave it to chance.
- Sampling: It is a very effective method for learning about an unknown quantity. If you are stuck, try sampling the quantity with trial and error to learn more about it. There will always be an error associated with sampling, but if you take many samples this can be minimized. Sampling can succeed where analysis fails. You can never be certain, but you can be awfully close.
Networking: Networking in computer science concerns the way computers send messages to each other. For example, which protocol to use TCP/HTTP etc. and how those protocols relay information. Modern technology has meant we are always connected, people can reach us anywhere, anytime. This can lead to communication overload. However, the main problem is not that we are always connected, it is that we are always “buffered.” Then how do you get as many things done as fast as possible? The tactical dropping of balls is a critical part of getting things done under overload. Dropping messages that aren’t important will dramatically reduce cognitive effort and workload.
Game Theory: Reducing the number of options can make decisions less computationally challenging and also lead to better outcomes. Information cascades can lead to rational decision-making. People’s actions are not necessarily their beliefs. When interacting with others where you need them to make a decision, you should narrow their choices to have a higher chance of a quicker response.
- Leveling: Poker players use it. You only ever want to play one level about your opponent.
  - Level 1: I know.
  - Level 2: You know that I know.
  - Level 3: I know that you know that I know.
- Prisoner’s Dilemma: An incentive to cheat. The paradox where two individuals acting in their own self-interest does not result in the optimal outcome. Succinctly, think of two prisoners being interrogated by a detective: if they rat each other out, they both have to serve time in the prison, but if only one rats the other out, he gets to walk away free while the other one goes behind the bars. If they both stay loyal to each other, both of them walk away free: but this optimal outcome will never be reached if both the prisoners act in their self-interest which is something you would expect them to do. This is the core problem used to introduce anyone to Game Theory.
- Tragedy of the Commons: Cheating is easy and nobody will notice, and it’s not going to make a difference in the grand scheme of things. Problem is everyone thinks that way and everyone cheats. For example, climate change.
- Competition: In Silicon Valley companies started giving unlimited vacations to compete for talent. The problem is everyone wants to take one less day than their peer to show loyalty and their ambition. It is a classic race to 0, so nobody ends up taking any holidays.

III. Quotes

But lest you think this is another fluffy brain book, it's actually hard computer programming with the occasional laugh-out-loud line. The team behind it are serious academics who have thought deeply about how computers think and how we can use those algorithms to make our lives easier. Which, when you think about it, isn't so crazy, because who taught the computers to think in the first place? We're just reclaiming tactics that are ours to begin with.
The best algorithms are all about doing what makes the most sense in the least amount of time, which by no means involves giving careful consideration to every factor and pursuing every computation to the end. Life is just too complicated for that.
People are almost always confronting what computer science regards as the hard cases. Up against such hard cases, effective algorithms make assumptions, show a bias toward simpler solutions, trade off the costs of error against the costs of delay, and take chances.
A man with one watch knows what time it is, a man with two never knows.
The mistakes made by people say more about the intrinsic difficulties of the problem, than the fallibility of the human brain.
Timely proposals are often accepted, tardy are rarely.
The best minds of my generation are making people click on ads.
Tossing things on the top of the pile is the most efficient thing you can do, shy of knowing the future.
The optimist thinks we are living in the best of all worlds, and the pessimist fears this is true.
When we talk about decision-making, we usually focus just on the immediate payoff of a single decision-and if you treat every decision as if it were your last, then indeed only exploitation makes sense. But over a lifetime, you’re going to make a lot of decisions. And it’s actually rational to emphasize exploration-the new rather than the best, the exciting rather than the safe, the random rather than the considered-for many of those choices, particularly earlier in life.
Don’t always consider all your options. Don’t necessarily go for the outcome that seems best every time. Make a mess on occasion. Travel light. Let things wait. Trust your instincts and don’t think too long. Relax. Toss a coin. Forgive, but don’t forget. To thine own self be true.
Even the best strategy sometimes yields bad results-which is why computer scientists take care to distinguish between “process” and “outcome.” If you followed the best possible process, then you’ve done all you can, and you shouldn’t blame yourself if things didn’t go your way.
Our judgments betray our expectations, and our expectations betray our experience. What we project about the future reveals a lot-about the world we live in, and about our own past.
If you want to be a good intuitive Bayesian-if you want to naturally make good predictions, without having to think about what kind of prediction rule is appropriate-you need to protect your priors. Counterintuitively, that might mean turning off the news.
If changing strategies doesn’t help, you can try to change the game. And if that’s not possible, you can at least exercise some control about which games you choose to play. The road to hell is paved with intractable recursions, bad equilibria, and information cascades. Seek out games where honesty is the dominant strategy. Then just be yourself.
Sorting something you will never search is a complete waste. Searching something you never sorted is merely inefficient.
No choice recurs. We may get similar choices again, but never that exact one. Hesitation-inaction-is just as irrevocable as action. What the motorist, locked on the one-way road, is to space, we are to the fourth dimension: we truly pass this way but once.
To try and fail is at least to learn; to fail to try is to suffer the inestimable loss of what might have been.
It’s fairly intuitive that never exploring is no way to live. But it’s also worth mentioning that never exploiting can be every bit as bad. In the computer science definition, exploitation actually comes to characterize many of what we consider to be life’s best moments. A family gathering together on the holidays is exploitation. So is a bookworm settling into a reading chair with a hot cup of coffee and a beloved favorite, or a band playing their greatest hits to a crowd of adoring fans, or a couple that has stood the test of time dancing to “their song.”
The greater the uncertainty, the bigger the gap between what you can measure and what matters, the more you should watch out for overfitting - that is, the more you should prefer simplicity.
Optimal stopping tells us when to look and when to leap. The explore/exploit tradeoff tells us how to find the balance between trying new things and enjoying our favorites. Sorting theory tells us how (and whether) to arrange our offices. Caching theory tells us how to fill our closets. Scheduling theory tells us how to fill our time.
They don’t need a therapist; they need an algorithm.
We say “brain fart” when we should really say “cache miss.”
Learning self-control is important, but it’s equally important to grow up in an environment where adults are consistently present and trustworthy.
Tackling real-world tasks requires being comfortable with chance, trading off time with accuracy, and using approximations.
In the long run, optimism is the best prevention for regret.
Instead of thinking about only the next decision you will make, think about all of the decisions you are going to make about the same options in the future.
Seizing the day and seizing a lifetime are two entirely different endeavors.
When balancing favorite experiences and new ones, nothing matters more than the interval over which we plan to enjoy them.
The old adage tells us that “the grass is always greener on the other side of the fence,” but the math tells us why: the unknown has a chance of being better, even if we actually expect it to be no different, or if it’s just as likely to be worse.
Explore when you will have time to use the resulting knowledge; exploit when you are ready to cash-in.
Thrashing is a very recognizable human state. If you've ever had a moment where you wanted to stop doing everything just to have the chance to write down everything you were supposed to be doing, but couldn't spare the time, you've thrashed.
Exploration in itself has value.
Forgetting can be as important as remembering.
How we spend our days is how we spend our lives.
The best strategy for getting things done might be to slow down.
If you can’t explain it simply, you don’t understand it well enough.
The right action can produce a bad outcome. Process is all we have control over, not results.
We can hope to be fortunate but we should strive to be wise.
Use thick markers in brainstorming.
Love is like organized crime.
Communication is one of those delightful things that work only in practice; in theory it’s impossible.
When our expectations are uncertain and the data are noisy, the best bet is to paint with a broad brush.
Unless we have good reason to think otherwise, it seems that our best guide to the future is a mirror image of the past. The nearest thing to clairvoyance is to assume that history repeats itself - backward.
When the future is foggy, it turns out you don’t need a calendar-just a to-do list.
Learning the structure of the world around us and forming lasting social relationships are both lifelong tasks.
Living by the wisdom of computer science doesn’t sound so bad after all. And unlike most advice, it’s backed up by proofs.
Do the difficult things while they are easy and do the great things while they are small. - Lao Tzu

Letting Go Of Perfectionism

Fri, 19 Jan 2024 00:00:00 GMT

Perfection isn't nature's way. It has continued to experiment for billions of years, and yet we are in constant motion of searching for perfection.

Isn't perfection based on individual perception? How do you quantify perfection? How does an artist reach a stopping point and share his or her work with the world? For an incremental change, is it worth loading your cognition? Will it make a huge difference? I continue to ask myself these questions and challenge whether perfection is attainable.

I look to the world and nature to find answers.

First, we do not live in a controlled world. We are seeking for consistency, but the world we operate in is constantly changing. There are lessons to be learned from natural evolution where organisms are going through constant mutation and evolution. The world is constantly expanding and shrinking creating a dynamic environment. This is why adaptation plays a key role for survival.

Second, perfection requires uniformity, but we know everything in nature is unique. Biodiversity plays a critical role in the ecosystem. Welcoming diversity has an advantage.

Third, perfection requires specialization. But we know in a specialized world, we are our own limiting factors because we cannot imagine everything. And if we cannot imagine everything, we cannot have appropriate feedback mechanics in place. To prove this point, no one imagined pandemic in 2020. Every guru that made prediction for 2020 was now in trouble. Specialists start out faster creating immediate gratification. They come out earlier but soon reach a plateau. Generalists start out slower with later gratification with room for a ton of growth. Specialization has drawbacks.

If perfection is unattainable then how do you operate in an uncertain world?

Think long-term. How do you think long-term? Getting the short-term is much harder to target with precision. It is much easier to predict long-term if you have a north star that is several years out. This gives you a lot of room to fail and adapt. Getting the trajectory is not critical as long as you reach your final destination in long-term.

Long-term thinking requires resiliency and optimism.

Resiliency is hard to find in resumes. Great people know how to overcome adversity. If you have emotional intelligence, you can execute in life and overcome failures. You want to be able to survive for years and decades. Mistakes make you resilient overtime.

Optimism yields resiliency. If you fail and want to get back up, pessimism is not going to help. You want to be optimistic but not inflamed with over-confidence. It can blind you. You want to balance your short-term paranoia with long-term optimism. But in the end, progress requires optimism.

Optimism and resiliency is not enough. You got to make moves. Be decisive. But how?

First look.

In your search for information, you never want to stop too early or too late. You should set aside enough time to explore your options and gathering data. You shouldn't be judgmental while exploring. Know when to stop because not making a decision is hurting you and costing you money and time. The optimal strategy is walking the tightrope between looking too much and not enough.

Then take a leap!

You'll never get everyone to agree to a decision. The best thing you can do is to commit to a decision as long as you trust your or your team's judgment. Gamble with someone who is on the front-line. Being decisive increases velocity. And in the event of a decision not yielding results, you have now put an end to arguments and opinions that was slowing you and your team down. You have information to act on for next steps.

Make decisions to let go of the pursuit of perfection.

The rules of nature are that it evolves, changes and adapts. We should learn this too.

Perfectionism is the voice of an oppressor. Don't let it be your enemy.

A Little History Of The World by E.H. Gombrich

Fri, 05 Jan 2024 00:00:00 GMT

I. Brief Summary

Ernst Gombrich authored a book on history of the world for younger readers. He accounts the full span of human history from the Stone Age to the Atomic Bomb. The book is playful due to the audience it is being addressed to. A great place to start on learning about the history of our world.

II. Big Ideas

It is a bad idea to try to prevent people from knowing their own history. If you want to do anything new you must first make sure you know what people have tried before.

III. Quotes

The history of the world is, sadly, not a pretty poem. It offers little variety, and it is nearly always the unpleasant things that are repeated, over and over again.
It's bad idea to try to prevent people from knowing their own history. If you want to do anything new you must first make sure you know what people have tried before.
If we want to avoid suffering, we must start with ourselves, because all suffering comes from our own desires.
But children grow up too, and they too must learn from history how easy it is for human beings to be transformed into inhuman beings through incitement and intolerance.
I know a wise Buddhist monk who, in a speech to his fellow countrymen, once said he'd love to know why someone who boasts that he is the cleverest, the strongest, the bravest or the most gifted man on earth is thought ridiculous and embarrassing, whereas if, instead of 'I', he says, 'we are the most intelligent, the strongest, the bravest and the most gifted people on earth', his fellow countrymen applaud enthusiastically and call him a patriot. For there is nothing patriotic about it. One can be attached to one's own country without needing to insist that the rest of the world's inhabitants are worthless. But as more and more people were taken in by this sort of nonsense, the menace to peace grew greater.
Never favor those who flatter you most, but hold rather to those who risk your displeasure for your own good. Never neglect business for pleasure, organize your life so that there is time in it for relaxation and entertainment. Give the business of government your full attention. Inform yourself as much as you can before taking any decision. Make every effort to get to know men of distinction, so that you may call on them when you need them. Be courteous to all, speak hurtfully to no man.
Love does not envy, it does not boast, it is not proud, it does not behave improperly, it does not seek its own advantage, it is not easily provoked, it bears no grudge, delights not in evil but rejoices only in the truth. It shelters all, trusts all, always hopes, always endures. Love is everlasting.
The first man to understand the extraordinary magical power of applying mathematical calculation to things in nature was an Italian called Galileo Galilei.
At first there’s nothing to see, but you feel a sort of weariness that tells you something is in the air.
He sent messengers ahead to meet Alexander and offered him half his kingdom and his daughter in marriage, if only he would agree not to fight. ‘If I were Alexander, I’d take it,’ said Alexander’s friend, Parmenios. ’And so would I, if I were Parmenios,’ was Alexander’s reply.
Their assemblies had taught the Athenians how to discuss all matters openly, with arguments for and against. This was good training in learning how to think.
China is, in fact, the only country in the world to be ruled for hundreds of years, not by the nobility, nor by soldiers, nor even by the priesthood, but by scholars.
Cyrus became lord of that great realm. His first act was to free all the peoples held in captivity by the Babylonians. Among them were the Jews, who went home to Jerusalem
For what [Aristotle] had done was to gather together all the knowledge of his time. He wrote about the natural sciences – the stars, animals and plants; about history and people living together in a state – what we call politics; about the right way to reason – logic; and the right way to behave – ethics.
Hitler was therefore determined to trump the enemy in the art of propaganda. He was a brilliant popular orator and drew huge crowds. He knew there was no better way to incite a mob to action than to give them a scapegoat, someone they could blame for their suffering, and he found one in the Jews.
If the appetite goes, the pain goes with it.

Same as Ever by Morgan Housel

Mon, 01 Jan 2024 00:00:00 GMT

I. Brief Summary

Morgan Housel captures timeless lessons that are same as ever. It is a collection of stories that amplifies human behavior, patterns and psychology that never change. The timeless principles make us better in dealing with success, failure, environment and technological shifts. Focusing on what is permanent is far more rewarding than losing sleep on what is beyond our control.

II. Big Ideas

Abig lesson from history is realizing how much of the world hangs by a thread. Some of the biggest and most consequential changes in history happened because of a random, unforeseeable, thoughtless encounter or decision that led to magic or mayhem.
The law of life is everything will change around you but human greed and fear.
Predicting what the world will look like 50 years from now is impossible. But predicting that people will still respond to greed, fear, opportunity, exploitation, risk, uncertainty, tribal affiliations, and social persuasion in the same way is a bet I’d take.
The biggest risk is always what no one sees coming, because if no one sees it coming, no one’s prepared for it; and in if no one’s prepared for it, its damage will be amplified when it arrives.
- Victor Prather, NASA pilot who successfully tested a new space suit in a low-orbit flight in 1961. As Prather descended back to earth, he opened the faceplate on his helmet when he was low enough to breathe on his own. He landed in the ocean as planned, but there was a small mishap: Prather slipped from his craft while connecting himself to the rescue helicopter’s line, falling into the ocean. The spacesuit should have been watertight and buoyant. But since Prather had opened his faceplate, he was now exposed to the elements. Water rushed into his suit. Prather drowned. How could NASA miss something so obvious when it always has an alternative plan on anything that could go wrong?
Your happiness depend on your expectations more than anything else. Today’s economy is good at generating 3 things: wealth, the ability to show off wealth and great envy for other people’s wealth.
The key thing is that unique minds have to be accepted as a full package, because the things they do well and that we admire cannot be separated from the things we wouldn’t want for ourselves or we look down upon.
A common trait of human behavior is the burning desire for certainty despite living in an uncertain and probabilistic world. Probability is about nuance and gradation. But in the real world people pay attention to black-and-white results.
Best story wins. There is too much information in the world for everyone to calmly sift through the data, looking for the most rational, most correct answer. People are busy and emotional, and a good story is always more powerful and persuasive than ice-cold statistics. The power of stories over statistics. It’s hard to compute, but it’s how the world works.
The ones who thrive long term are those who understand the real world is a never-ending chain of absurdity, confusion, messy relationships, and imperfect people. For example, accepting that what’s rational to one person can be crazy to another.
The irony of good times is that they breed complacency and skepticism of warnings. What calm planting the seeds of crazy does is important: It makes us fundamentally underestimate the odds of things going wrong, and the consequences of something going wrong. Things can become the most dangerous when people perceive them to be the safest. Accepting that crazy doesn’t mean broken. Crazy is normal; beyond the point of crazy is normal.
A most convenient size is a proper state where things work well but break when you try to scale them to a different size or speed. It applies to many things in life. Most great things in life gain their value from two things:
- Patience, to let something grow.
- Scarcity, to admire what it grows into.
The circumstances that tend to produce the biggest innovations are those that cause people to be worried, scared, and eager to move quickly because their future depends on it. Stress focuses your attention in ways good times can’t. It kills procrastination and indecision, taking what you need to get done and shoving it so close to your face that you have no choice but to pursue it, right now and to the best of your ability.
Good news takes time but bad news tends to occur instantly. The most important things come from compounding. But compounding takes awhile, so it’s easy to ignore. Complex to make, simple to break.
Most amazing things happen when something tiny and insignificant compounds into something extraordinary. The real lesson from evolution: if you have a big number in the exponent slot, you do not need extraordinary change to deliver extraordinary results. It’s not intuitive, but it’s so powerful.
Progress requires optimism and pessimism to coexist. Planning like a pessimist and dreaming like an optimist. You can only be an optimist in the long run if you’re pessimistic enough to survive the short run. The rational optimists are those who acknowledge that history is a constant chain of problems and disappointments and setbacks, but who remain optimistic because they know setbacks don’t prevent eventual progress.
There are no shortcuts in life. One of the most useful life skill is enduring the pain when necessary rather than assuming there’s a hack, or a shortcut, around it. Everything has a price, and the price is usually proportionate to the potential rewards. A unique skill, an underrated skill, is identifying the optimal amount of hassle and nonsense you should put up with to get ahead while getting along.
You should never be surprised when something that dominates one era dies off in the next. Keep running. No competitive advantage is so powerful that it can let you rest your laurels.
It’s easy to always feel like we’re falling behind. When you realize that progress is made step-by-step, slowly over time, you realize that tiny little innovations that no one thinks much of are the seeds for what has the potential to compound into something great.
Everything is sales. Skills are advertised. Flaws are hidden. What most of us see most of the time is a fraction of what has actually happened, or what’s going on inside people’s heads.
What makes incentives powerful is not just how they influence other people’s decisions but how blind we can be to how they impact our own. One of the strongest pulls of incentives is the desire for people to hear inwardly what they want to hear and see only what they want to see.
People often have no idea how they’ll respond to a big windfall or an incredible gift of good luck until they’ve experienced it firsthand. You might think you know how it’ll feel. Then you experience it firsthand and you realize, ah, okay. It’s more complicated than you thought.
Long term is less about time horizon and more abut flexibility. The world changes, which makes changing your mind not just helpful, but crucial. But changing your mind is hard because fooling yourself into believing a falsehood is so much easier than admitting a mistake. Doing long-term thinking well requires identifying when you’re being patient vs just stubborn.
Complexity gives a comforting impression of control, while simplicity is hard to distinguish from cluelessness.
Wounds heal, scars last. People who’ve had different experiences than you will think differently than you do. They’ll have different goals, outlooks, wishes, and values. So most debates are not actual disagreements; they’re people with different experiences talking over each other. Disagreement has less to do with what people know and more to do with what they’ve experienced. And since experiences will always be different, disagreement will be constant.
Questions to ask:
- Who has the right answers but I ignore because they’re not articulate?
- Which of my current views would I disagree with if I were born in a different country or generation?
- What do I desperately want to be true so much that I think it’s true when it’s clearly not?
- What is a problem that I think applies only to other countries/industries/careers that will eventually hit me?
- What do I think is true but is actually just good marketing?
- What haven’t I experienced firsthand that leaves me naive about how something works?
- What looks unsustainable but is actually a new trend we haven’t accepted yet?
- Who do I think is smart but is actually full of it?
- Am I prepared to handle risks I can’t even envision? Which of my current views would change if my incentives were different?
- What are we ignoring today that will seem shockingly obvious in the future?
- What events very nearly happened that would have fundamentally changed the world I know if they had occurred?
- How much have things outside my control contributed to things I take credit for?
- How do I know if I’m being patient (a skill) or stubborn (a flaw)?
- Who do I look up to that is secretly miserable?
- What hassle am I trying to eliminate that’s actually an unavoidable cost of success?
- What crazy genius that I aspire to emulate is actually just crazy?
- What strong belief do I hold that’s most likely to change?
- What’s always been true?
- What’s the same as ever?

III. Quotes

This is a short book because most books about writing are filled with bullshit. I figured the shorter the book, the less bullshit.
New ways of looking at things create much greater innovation than new ways of doing them. - Dee Hock
The first rule of happiness is low expectations.
We might have higher incomes, more wealth, and bigger homes-but it’s all so quickly smothered by inflated expectations.
When asked, “You seem extremely happy and content. What’s your secret to living a happy life?” ninety-eight-year-old Charlie Munger replied: The first rule of a happy life is low expectations. If you have unrealistic expectations you’re going to be miserable your whole life. You want to have reasonable expectations and take life’s results, good and bad, as they happen with a certain amount of stoicism.”
It’s become so much easier in recent decades to look around and say, “I may have more than I used to. But relative to that person over there, I don’t feel like I’m doing that great.” Part of that envy is useful, because saying “I want what they have” is such a powerful motivator of progress. Yet the point stands: We might have higher incomes, more wealth, and bigger homes-but it’s all so quickly smothered by inflated expectations.
You cannot compare a Silicon Valley engineer who is forcing you to click on ads with a Manhattan Project engineer who is working to protect the existence of our country.
Risk is what’s left over after you think you’ve thought of everything. - Carl Richard
Invest in preparedness, not in prediction. - Nassim Taleb
If you only wished to be happy, this could be easily accomplished; but we wish to be happier than other people and this is always difficult, for we believe others to be happier than they are. - Montesquieu
One day, I realized with all these people I was jealous of, I couldn’t just choose little aspects of their life. I couldn’t sat I want his body, I want her money, I want his personality. You have to be that person. Do you want to actually be that person with all of their reactions, their desires, their family, their happiness level, their outlook on life, their self-image? If you’re not willing to do a wholesale, 24/7, 100% swap with who that person is, then there is no point in being jealous. - Naval Ravikant
Everything comes with overhead. That’s reality, Everything comes with pieces that you don’t like....And we need to say: That’s part of it. - Jeff Bezos
The more the internet exposes people to new points of view, the angrier people get that different views exist. - Benedict Evans
Our life is indeed the same as it ever was the same physiological and psychological processes that have been man’s for hundreds of thousands of years still endure. - Carl Jung
Complacency breeds doom.
Perfect is the enemy of good.
Good news is the deaths that didn’t take place, the diseases you didn’t get, the wars that never happened, the tragedies avoided, and the injustices prevented. That’s hard for people to contextualize or even imagine, let alone measure. But bad news is visible…It’s the terrorist attack, the war, the car accident, the pandemic, the stock market crash, and the political battle you can’t look away from.
A simple rule that’s obvious but easy to ignore is that nothing worth pursuing is free. How could it be otherwise? Everything has a price, and the price is usually proportionate to the potential rewards. But there’s rarely a price tag. And you don’t pay the price with cash. Most things worth pursuing charge their fee in the form of stress, uncertainty, dealing with quirky people, bureaucracy, other peoples’ conflicting incentives, hassle, nonsense, long hours, and constant doubt. That’s the overhead cost of getting ahead.
People tend to have short memories. Most of the time they can forget about bad experiences and fail to heed lessons previously learned. But hard-core stress leaves a scar. Experiencing something that makes you stare ruin in the face and question whether you’ll survive can permanently reset your expectations and change behaviors that were previously ingrained.
Militaries are engines of innovation because they occasionally deal with problems so important-so urgent, so vital-that money and manpower are removed as obstacles, and those involved collaborate in ways that are hard to emulate during calm times.
We spend so much effort trying to improve our income, skills, and ability to forecast the future-all good stuff worthy of our attention. But on the other side there’s an almost complete ignorance of expectations, especially managing them with as much effort as we put into changing our circumstances.
Risk is what’s left over after you think you’ve thought of everything.” That’s the real definition of risk-what’s left over after you’ve prepared for the risks you can imagine. Risk is what you don’t see.
Every current event-big or small-has parents, grandparents, great-grandparents, siblings, and cousins. Ignoring that family tree can muddy your understanding of events, giving a false impression of why things happened, how long they might last, and under what circumstances they might occur again. Viewing events in isolation, without an appreciation of their long roots, helps explain everything from why forecasting is hard to why politics is nasty.
The best story wins. Not the best idea, or the right idea, or the most rational idea. Just whoever tells a story that catches people’s attention and gets them to nod their heads is the one who tends to be rewarded.
When someone is viewed as more extraordinary than they are, you’re more likely to overvalue their opinion on things they have no special talent in.
The decline of local news has all kinds of implications. One that doesn’t get much attention is that the wider the news becomes the more likely it is to be pessimistic. Two things make that so: Bad news gets more attention than good news because pessimism is seductive and feels more urgent than optimism. The odds of a bad news story-a fraud, a corruption, a disaster-occurring in your local town at any given moment is low. When you expand your attention nationally, the odds increase. When they expand globally, the odds of something terrible happening in any given moment are 100 percent.
Van Valen called it the Red Queen hypothesis of evolution. In Alice in Wonderland, Alice meets the Red Queen in a land where you have to run just to stay in place: However fast they went, they never seemed to pass anything. “I wonder if all the things move along with us?” thought poor puzzled Alice. And the Queen seemed to guess her thoughts, for she cried, “Faster! Don’t try to talk! Keep running!” “Keep running” just to stay in place is how evolution works. And isn’t this how most things in modern life work? Business? Products? Careers? Countries?
The irony is that growth and progress are way more powerful than setbacks. But setbacks will always get more attention because of how fast they occur.
Real GDP per capita increased eightfold in the last hundred years.
Good news comes from compounding, which always takes time, but bad news comes from a loss in confidence or a catastrophic error that can occur in a blink of an eye.
Money buys happiness in the same way drugs bring pleasure: incredible if done right, dangerous if used to mask a weakness, and disastrous when no amount is enough.
The typical attempt to clear up an uncertain future is to gaze further and squint harder-to forecast with more precision, more data, and more intelligence. Far more effective is to do the opposite: Look backward, and be broad. Rather than attempting to figure out little ways the future might change, study the big things the past has never avoided.
We can see and measure just about everything in the world except people’s moods, fears, hopes, grudges, goals, triggers, and expectations. That’s partly why history is such a continuous chain of baffling events, and always will be.
An important component of human behavior is that people who’ve had different experiences than you will think differently than you do. They’ll have different goals, outlooks, wishes, and values. So most debates are not actual disagreements; they’re people with different experiences talking over each other.
Simplicity is the hallmark of truth-we should know better, but complexity continues to have a morbid attraction. When you give an academic audience a lecture that is crystal clear from alpha to omega, your audience feels cheated....The sore truth is that complexity sells better.
When an economy is stable, people get optimistic. When people get optimistic, they go into debt. When they go into debt, the economy becomes unstable. Minsky’s big idea was that stability is destabilizing.
A carefree and stress-free life sounds wonderful only until you recognize the motivation and progress it prevents. No one cheers for hardship-nor should they-but we should recognize that it’s the most potent fuel of problem-solving, serving as both the root of what we enjoy today and the seed of opportunity for what we’ll enjoy tomorrow.
What makes life mean something is purpose. A goal. The battle, the struggle-even if you don’t win it.
The need for certainty is the greatest disease the mind faces. - Robert Greene
There are two types of information: permanent and expiring. Permanent information is: “How do people behave when they encounter a risk they hadn’t fathomed?” Expiring information is: “How much profit did Microsoft earn in the second quarter of 2005? Expiring knowledge catches more attention than it should, for two reasons. One, there’s a lot of it, eager to keep our short attention spans occupied. Two, we chase it down, anxious to squeeze insight out of it before it loses relevance. Permanent information is harder to notice because it’s buried in books rather than blasted in headlines. But its benefit is huge. It’s not just that permanent information never expires, letting you accumulate it. It also compounds over time, leveraging off what you’ve already learned. Expiring information tells you what happened; permanent information tells you why something happened and is likely to happen again. That “why” can translate and interact with stuff you know about other topics, which is where the compounding comes in.
How can I endure a never-ending parade of nonsense?
If you find the right balance between desperation and fear, you can make people do anything. – Trevor Noah
The next generation never learns anything from the previous one until it’s brought home with a hammer.
Psychologist Jonathan Haidt says people don’t really communicate on social media so much as they perform for one another.
A lot of bankers screwed up during the 2008 financial crisis. But too many of us underestimate how we ourselves would have acted if someone dangled enormous rewards in our face. Most people are blind to their own faults. To paraphrase Ben Franklin: Vice knows it’s ugly, so it hides behind a mask.
Edison understood the process of scientific discovery. Big innovations don’t come at once, but rather are built up slowly when several small innovations are combined over time. Edison wasn’t a grand planner. He was a prolific tinkerer, combining parts in ways he didn’t quite understand, confident that little discoveries along the way would be combined and leveraged into more meaningful inventions.
A one-hundred-year event doesn’t mean it happens every one hundred years. It means there’s about a 1 percent chance of it occurring in any given year.
I can promise you that will be the case going forward. The biggest risk and the most important news story of the next ten years will be something nobody is talking about today.
The best financial plan is to save like a pessimist and invest like an optimist.
Whenever a once powerful thing loses an advantage, it is tempting to ridicule the mistakes of its leaders. But it’s easy to overlook how many forces pull you away from a competitive advantage once you have one, specifically because you have one. Success has its own gravity. “The higher the monkey climbs a tree, the more you can see his ass,” oil tycoon T. Boone Pickens used to say. Five big things tend to eat away at competitive advantages. One is that being right instills confidence that you can’t be wrong, which is a devastating characteristic in a world where outlier success has a target on its back, with competitors in tow. Size is associated with success, success is associated with hubris, and hubris is the beginning of the end of success.
Marbles don’t get better at staying in the jar.
Harry Truman-a failed retailer, failed farmer, failed zinc miner, failed oil driller, almost universally panned when he became president after Franklin Roosevelt died.
A little cool air from the north is no big deal. A little warm breeze from the south is pleasant. But when they mix together over Missouri you get a tornado. That’s called emergent effects, and they can be wildly powerful. Same with new technology. One boring thing plus one boring thing can equal one world-changing thing in a way that’s hard to fathom if you don’t respect exponential growth.
“Great books are wine,” Twain said, “but my books are water. But everybody drinks water.”
Mark Twain found the universal emotions that influence everyone, regardless of who they were or where they were from, and got them to nod their heads in the same direction. It’s nearly magic. Guiding people’s attention to a single point is one of the most powerful life skills.
The world changes, which makes changing your mind not just helpful, but crucial. But changing your mind is hard because fooling yourself into believing a falsehood is so much easier than admitting a mistake.
Time is compounding’s magic, and its importance can’t be minimized. But the odds of success fall deepest in your favor when you mix a long time horizon with a flexible end date-or an indefinite horizon.
The first nuclear bomb was developed to end World War II. Within a decade we had enough bombs to end the world-all of it.
Franklin Roosevelt - the most powerful man in the world, whose paralysis meant his aides often had to carry him to the bathroom - once said, "If you can't use your legs and they bring you milk when you wanted orange juice, you learn to say 'that's all right,' and drink it."
Ho Chi Minh once put it more bluntly: “You will kill ten of us, and we will kill one of you, but it is you who will tire first.” Same in investing. Cash is an inefficient drag during bull markets and as valuable as oxygen during bear markets.
I’m confident in other people’s overconfidence, so I know there will be mistakes and accidents and booms and busts along the way.
Just like evolution, the key is realizing that the more perfect you try to become, the more vulnerable you generally are.
Every investment price, every market valuation, is just a number from today multiplied by a story about tomorrow.
In finance, spending less than you make, saving the difference, and being patient is perhaps 90 percent of what you need to know to do well.
People don’t remember books; they remember sentences.
Seinfeld asked if McKinsey is funny. No, the magazine said. “Then I don’t need them,” he said. “If you’re efficient, you’re doing it the wrong way. The right way is the hard way. The show was successful because I micromanaged it-every word, every line, every take, every edit, every casting.” If you’re efficient, you’re doing it the wrong way. That is so counterintuitive. But I think it perfectly highlights the danger of shortcuts.”
Philosophers have spent centuries discussing the idea that there are an infinite number of ways your life could play out, and you just happen to be living in this specific version. It’s a wild thing to contemplate, and it leads to the question: What would be true in every imaginable version of your life, not just this one?
Albert Einstein put it this way: I take time to go for long walks on the beach so that I can listen to what is going on inside my head. If my work isn’t going well, I lie down in the middle of a workday and gaze at the ceiling while I listen and visualize what goes on in my imagination. Mozart felt the same way: When I am traveling in a carriage or walking after a good meal or during the night when I cannot sleep-it is on such occasions that my ideas flow best and most abundantly.
The brain of man is programmed with a tendency to quickly remove doubt by reaching some decision. It is easy to see how evolution would make animals, over the eons, drift toward such quick elimination of doubt. After all, the one thing that is surely counterproductive for a prey animal that is threatened by a predator is to take a long time in deciding what to do.
The world is driven by forces that cannot be measured.
The core here is that people think they want an accurate view of the future, but what they really crave is certainty.
Biologist Leslie Orgel used to say, “Evolution is cleverer than you are,” because whenever a critic says, “Evolution could never do that,” they usually just lacked imagination. It’s also easy to underestimate because of basic math. Evolution’s superpower is not just selecting favorable traits. That part is so tedious, and if it’s all you focus on you’ll be skeptical and confused. Most species’ change in any millennia is so trivial it’s unnoticeable. The real magic of evolution is that it’s been selecting traits for 3.8 billion years. The time, not the little changes, is what moves the needle.”
What kind of person makes their way to the top of a successful company, or a big country? Someone who is determined, optimistic, doesn’t take no for an answer, and is relentlessly confident in their own abilities. What kind of person is likely to go overboard, bite off more than they can chew, and discount risks that are blindingly obvious to others? Someone who is determined, optimistic, doesn’t take no for an answer, and is relentlessly confident in their own abilities.
The generation who lived through the Great Depression never viewed money the same afterward. They saved more money, took on less debt, and were wary of risk-for the rest of their lives.
Here you have one of the top cancer researchers in the world, and he’s saying he could make a bigger impact on cancer if he focused on getting people to quit smoking-but that’s not intellectually stimulating enough for him. Or for many scientists, for that matter. Now, I don’t blame him-and Weinberg has added enormous value to the war on cancer. But here we have an example of complexity being favored for its excitement, when simplicity may actually do a better job. And that, I’ll tell you, is a big lesson that applies to many things.
A mind that is stretched by new experience can never go back to its old dimensions. - Oliver Wendell Holmes
If you understand the math behind compounding you realize the most important question is not “How can I earn the highest returns?” It’s “What are the best returns I can sustain for the longest period of time?” Little changes compounded for a long time create extraordinary changes. Same as ever.

The Creative Act by Rick Rubin

Mon, 01 Jan 2024 00:00:00 GMT

I. Brief Summary

Rick Rubin provides wisdom on creativity. Rubin is a legendary music producer, and he asserts that we are all inherently creative beings. The reason we are alive is to express ourselves in the world and creating art may be the most effective and beautiful method of doing so. He provides useful ways to contextualize internal or external battles that an artist faces. This is one of the best books I have read on creative process which consists of 78 essays.

II. Big Ideas

View the creative process through four key phases:
- Seed: where intuition reigns supreme
- Experimentation: is playfulness where possibilities are explored without judgment
- Craft: where your ideas take shape and are refined
- Completion: where your creation is ready to meet the world
Creativity isn’t strictly limited to a profession.
If you’ve truly created an innovative work, it’s likely to alienate as many people as it attracts. The best art divides the audience. If everyone likes it, you probably haven’t gone far enough.
Look for what you notice but no one else sees.
It’s nourishing to be in a community of people who are enthusiastic about art, who you can have long discussions with, and with whom you can trade feedback on the work. Being part of an artistic community can be one of the great joys of life.
Creativity is not a rare ability. It is not difficult to access. Creativity is a fundamental aspect of being human. It’s our birthright.
Creativity doesn’t exclusively relate to making art. We all engage in this act on a daily basis. To create is to bring something into existence that wasn’t there before. It could be a conversation, the solution to a problem, a note to a friend, the rearrangement of furniture in a room, a new route home to avoid a traffic jam.
What you make doesn’t have to be witnessed, recorded, sold, or encased in glass for it to be a work of art.
There’s an abundant reservoir of high-quality information in our subconscious, and finding ways to access it can spark new material to draw from.
With life comes pain, insecurity, and fear. We’re all different and we’re all imperfect, and the imperfections are what makes each of us and our work interesting. We create pieces reflective of who we are, and if insecurity is part of who we are, then our work will have a greater degree of truth in it as a result. The making of art is not a competitive act. Our work is representative of the self.
By accepting self-doubt, rather than trying to eliminate or repress it, we lessen its energy and interference.
The goal of art isn’t to attain perfection. The goal is to share who we are. And how we see the world.
Art is a reflection of the artist’s inner and outer world during the period of creation.
In the end, you are the only one who has to love it. This work is for you. Part of the process of letting go is releasing any thoughts of how you or your piece will be received. When making art, the audience comes last. Let’s not consider how a piece will be received or our release strategy until the work is finished and we love it.
In the abundant mindset, the river never runs dry. Ideas are always coming through. And an artist is free to release them with the faith that more will arrive. When we use our material, new content comes through. And the more we share, the more our skills improve.
There is no more valid metric to predict what someone else might enjoy than us liking it ourselves. Success occurs in the privacy of the soul. It comes in the moment you decide to release the work, before exposure to a single opinion. When you’ve done all you can to bring out the work’s greatest potential. When you’re pleased and ready to let go. Success has nothing to do with variables outside yourself.
Sometimes they will be applauded or rewarded, sometimes not. If we second-guess our inner knowing to attempt to predict what others may like, our best work will never appear.
Most variables are completely out of our control. The only ones we can control are doing our best work, sharing it, starting the next, and not looking back.

III. Quotes

All that matters is that you are making something you love, to the best of your ability, here and now.
If you have an idea you’re excited about and you don’t bring it to life, it’s not uncommon for the idea to find its voice through another maker. This isn’t because the other artist stole your idea, but because the idea’s time has come.
Living life as an artist is a practice. You are either engaging in the practice or you’re not. “Living life as an artist is a practice. You are either engaging in the practice or you’re not. It makes no sense to say you’re not good at it. It’s like saying, “I’m not good at being a monk.” You are either living as a monk or you’re not. We tend to think of the artist’s work as the output. The real work of the artist is a way of being in the world.
Look for what you notice but no one else sees.
In terms of priority, inspiration comes first. You come next. The audience comes last.
All art is a work in progress. It’s helpful to see the piece we’re working on as an experiment. One in which we can’t predict the outcome. Whatever the result, we will receive useful information that will benefit the next experiment. If you start from the position that there is no right or wrong, no good or bad, and creativity is just free play with no rules, it’s easier to submerge yourself joyfully in the process of making things. We’re not playing to win, we’re playing to play. And ultimately, playing is fun. Perfectionism gets in the way of fun. A more skillful goal might be to find comfort in the process. To make and put out successive works with ease.
Zoom in and obsess. Zoom out and observe. We get to choose.
A river of material flows through us. When we share our works and our ideas, they are replenished. If we block the flow by holding them all inside, the river cannot run and new ideas are slow to appear. In the abundant mindset, the river never runs dry. Ideas are always coming through. And an artist is free to release them with the faith that more will arrive. If we live in a mindset of scarcity, we hoard great ideas.
The imagination has no limits. The physical world does. The work exists in both.
Oscar Wilde said that some things are too important to be taken seriously. Art is one of those things. Setting the bar low, especially to get started, frees you to play, explore, and test without attachment to results.
As artists, we seek to restore our childlike perception: a more innocent state of wonder and appreciation not tethered to utility or survival.
Doubting yourself can lead to a sense of hopelessness, of not being inherently fit to take on the task at hand. All or nothing thinking is a nonstarter. However, doubting the quality of your work might, at times, help to improve it. You can doubt your way to excellence.
Good habits create good art. The way we do anything is the way we do everything. Treat each choice you make, each action you take, each word you speak with skillful care. The goal is to live your life in the service of art.
Think of the universe as an eternal creative unfolding. Trees blossom. Cells replicate. Rivers forge new tributaries. The world pulses with productive energy, and everything that exists on this planet is driven by that energy. Every manifestation of this unfolding is doing its own work on behalf of the universe, each in its own way, true to its own creative impulse.
The magic is not in the analyzing or the understanding. The magic lives in the wonder of what we do not know.
Art is choosing to do something skilfully, caring about the details, bringing all of yourself to make the finest work you can.
Art is our portal to the unseen world.
Without the spiritual component, the artist works with a crucial disadvantage. The spiritual world provides a sense of wonder and a degree of open-mindedness not always found within the confines of science. The world of reason can be narrow and filled with dead ends, while a spiritual viewpoint is limitless and invites fantastic possibilities. The unseen world is boundless.
To the best of my ability, I’ve followed my intuition to make career turns, and been recommended against doing so every time. It helps to realize that it’s better to follow the universe than those around you. Interference may also come from the voices within. The ones in your head that murmur you’re not talented enough, your idea isn’t good enough, art isn’t a worthwhile investment of your time, the result won’t be well-received, you’re a failure if the creation isn’t successful. It’s helpful to turn those voices down so you can hear the chimes of the cosmic clock ring, reminding you it’s time. Your time to participate.
To vary your inspiration, consider varying your inputs. Turn the sound off to watch a film, listen to the same song on repeat, read only the first word of each sentence in a short story, arrange stones by size or color, learn to lucid dream. Break habits. Look for differences. Notice connections.
When you believe the work before you is the single piece that will forever define you, it's difficult to let go. The urge for perfection is overwhelming. It's too much. We are frozen, and sometimes ends up convincing ourselves that discarding the entire work is the only way to move forward.
Of all the great works that we can experience, nature is the most absolute and enduring. We can witness it change through the seasons. We can see it in the mountains, the oceans, the deserts, and the forest. We can watch the changes of the moon each night, and the relationship between the moon and the stars.
The universe is only as large as our perception of it. When we cultivate our awareness, we are expanding the universe. This expands the scope, not just of the material at our disposal to create from, but of the life we get to live.
There’s an abundant reservoir of high-quality information in our subconscious, and finding ways to access it can spark new material to draw from.
How do we pick up on a signal that can neither be heard nor be defined? The answer is not to look for it. Nor do we attempt to predict or analyze our way into it. Instead, we create an open space that allows it. A space so free of the normal overpacked condition of our minds that it functions as a vacuum. Drawing down the ideas that the universe is making available.
Awareness is not a state you force. There is little effort involved, though persistence is key. It’s something you actively allow to happen. It is a presence with, and acceptance of, what is happening in the eternal now.
One of the greatest rewards of making art is our ability to share it. Even if there is no audience to receive it, we build the muscle of making something and putting it out into the world. Finishing our work is a good habit to develop. It boosts confidence. Despite our insecurities, the more times we can bring ourselves to release our work, the less weight insecurity has.
One indicator of inspiration is awe. We tend to take so much for granted. How can we move past disconnection and desensitization to the incredible wonders of nature and human engineering all around us?
In nature, some seeds lie dormant in anticipation of the season most conducive to their growth. This is true of art as well. There are ideas whose time has not yet come. Or perhaps their time has come, but you are not yet ready to engage with them. Other times, developing a different seed may shed light on a dormant one.
Artists who are able to continually create great works throughout their lives often manage to preserve these childlike qualities. Practicing a way of being that allows you to see the world through uncorrupted, innocent eyes can free you to act in concert with the universe’s timetable.
Thoughts and habits not conducive to the work: Believing you’re not good enough. Feeling you don’t have the energy it takes. Mistaking adopted rules for absolute truths. Not wanting to do the work (laziness). Not taking the work to its highest expression (settling). Having goals so ambitious that you can’t begin. Thinking you can only do your best work in certain conditions. Requiring specific tools or equipment to do the work. Abandoning a project as soon as it gets difficult. Feeling like you need permission to start or move forward. Letting a perceived need for funding, equipment, or support get in the way. Having too many ideas and not knowing where to start. Never finishing projects. Blaming circumstances or other people for interfering with your process. Romanticizing negative behaviors or addictions. Believing a certain mood or state is necessary to do your best work. Prioritizing other activities and responsibilities over your commitment to making art. Distractibility and procrastination. Impatience. Thinking anything that’s out of your control is in your way.
Part of the process of letting go is releasing any thoughts of how you or your piece will be received. When making art, the audience comes last. Let's not consider how a piece will be received or a release strategy until the work is finished and we love it.
The ability to look deeply is the root of creativity.
Find the sustainable rituals that best support your work.
Intention is all there is. The work is just a reminder.
If you know what you want to do and you do it, that’s the work of a craftsman. If you begin with a question and use it to guide an adventure of discovery, that’s the work of the artist.
To create is to bring something into existence that wasn’t there before. It could be a conversation, the solution to a problem, a note to a friend, the rearrangement of furniture in a room, a new route home to avoid a traffic jam.
Expressing oneself in the world and creativity are the same. It may not be possible to know who you are without somehow expressing it.
Pay particular attention to the moments that take your breath away-a beautiful sunset, an unusual eye color, a moving piece of music, the elegant design of a complex machine.
Rules direct us to average behaviors. If we’re aiming to create works that are exceptional, most rules don’t apply. Average is nothing to aspire to. The goal is not to fit in. If anything, it’s to amplify the differences, what doesn’t fit, the special characteristics unique to how you see the world.
Sometimes the most valuable touch a collaborator can have is no touch at all.
The making of art is not a competitive act. Our work is representative of the self.
Consider how different your experience of the world might be if you engaged in every activity with the attention you might give to landing a plane.
In Japanese pottery, there’s an artful form of repair called kintsugi. When a piece of ceramic pottery breaks, rather than trying to restore it to its original condition, the artisan accentuates the fault by using gold to fill the crack. This beautifully draws attention to where the work was broken, creating a golden vein. Instead of the flaw diminishing the work, it becomes a focal point, an area of both physical and aesthetic strength. The scar also tells the story of the piece, chronicling its past experience.
Tomorrow presents another opportunity for awareness, but it’s never an opportunity for the same awareness.
“Making the simple complicated is commonplace,” Charles Mingus once said. “Making the complicated simple, awesomely simple, that’s creativity.”
When we’re making things we love, our mission is accomplished.
Creativity is not a rare ability. It is not difficult to access. Creativity is a fundamental aspect of being human. It’s our birthright. And it’s for all of us.
If you make the choice of reading classic literature every day for a year, rather than reading the news, by the end of that time period you’ll have a more honed sensitivity for recognizing greatness from the books than from the media.
Formulating an opinion is not listening. Neither is preparing a response, or defending our position or attacking another’s. To listen impatiently is to hear nothing at all.
Do what you can with what you have. Nothing more is needed.
The reason to make art is to innovate and self-express, show something new, share what’s inside, and communicate your singular perspective.
If you’ve truly created an innovative work, it’s likely to alienate as many people as it attracts. The best art divides the audience. If everyone likes it, you probably haven’t gone far enough.
Flaws are human, and the attraction of art is the humanity held in it. If we were machinelike, the art wouldn’t resonate. It would be soulless. With life comes pain, insecurity, and fear.
Being part of an artistic community can be one of the great joys of life.
Talent is the ability to let ideas manifest themselves through you.
The word inspire comes from the Latin-inspirare, meaning to breathe in or blow into. For the lungs to draw in air, they must first be emptied. For the mind to draw inspiration, it wants space to welcome the new. The universe seeks balance. Through this absence, you are inviting energy in.
Receive wisdom skillfully. Try it on for size and see how it fits. Incorporate what’s useful. Let go of the rest. And no matter how credible the source, test and tune in to yourself to discover what works for you.
The only practice that matters is the one you consistently do, not the practice of any other artist.
Something will be gained through the process, whatever the result. Give yourself permission to be wrong and experience the joy of being surprised.
The synergy of a group is as important- if not more important- than the talent of the individuals.
Efforts to portray point of view on purpose often lead to a false representation.
Art is above and beyond judgment. It either speaks to you or it doesn’t. The artist’s only responsibility is to the work itself. There are no other requirements. You’re free to create what you will.
Art doesn’t get made on the clock. But it can get finished on the clock.
When something doesn’t go according to plan, we have a choice to either resist it or incorporate it.
What we say, what we sing, what we paint- we get to choose. We have no responsibility to anything other than the art itself. The art is the final word.
Avoid thinking in impossibilities. If there’s a skill or piece of knowledge you need for a particular project, you can do the homework and work toward it over time. You can train for anything.
Failure is the information you need to get where you’re going.
Sometimes the mistakes are what makes a work great. Humanity breathes in mistakes.
If you are living in the belief that success will cure your pain, when the treatment comes and doesn’t work, it can lead to hopelessness.
Sometimes disengaging is the best way to engage.
Analysis is a secondary function.
Success occurs in the privacy of the soul.
We can quiet our inside so we can perceive more on the outside, or quiet the outside so we can notice more of what’s happening inside.

On Complex Systems

Fri, 17 Nov 2023 00:00:00 GMT

I strongly believe the most valuable skill in the world is understanding complex systems and how they interact with each other.

They are all around us. Forests, thermostat, oceans, economy, internet, and even our galaxy. There are also countless subsystems, for example, a business or a human body. You can break these even further which will result in subsystems of a subsystem.

In engineering, it is the ability to debug, understand feedback loops, and understanding what a good measurement is.

In business, it is the ability to design drive-thru, so customers can purchase goods and services faster and business can maximize efficiency per unit of resource it employs.

In forests, it is the ability to maximize photosynthesis when there is no sun for days.

Or think of a thermostat when it is operating during harsh winters. If a thermostat is constantly fighting to reach equilibrium because the inflow of cold air from outside is higher than the outflow of hot air from HVAC system, it will reach a breaking point.

Everything is a system. The ability to design a complex system and how it interacts with other system is critical to understand. If you can understand the system you operate within, you will know how to drive possible solutions.

Learning to be a system thinker is highly advantageous.

A system is better than a single element and that good design is the overall configuration of a product. - Dieter Rams

The source of all our problems today comes from the gap between how we think and now nature works. - Dee Hock

Life is not about control. It’s not about getting. It’s not about having. It’s not about knowing. It’s not even about being. Life is eternal, perpetual becoming, or it is nothing. Becoming is not a thing to be known, commanded, or controlled. It is a magnificent, mysterious odyssey to be experienced. - Dee Hock

We can’t control systems or figure them out. But we can dance with them! - Donella H. Meadows

If we’re to understand anything, we have to simplify, which means we have to make boundaries. - Donella H. Meadows

You think that because you understand “one” that you must therefore understand “two” because one and one make two. But you forget that you must also understand “and.” - Donella H. Meadows

Remember, always, that everything you know, and everything everyone knows, is only a model. Get your model out there where it can be viewed. Invite others to challenge your assumptions and add their own. - Donella H. Meadows

There are no separate systems. The world is a continuum. Where to draw a boundary around a system depends on the purpose of the discussion. - Donella H. Meadows

We can't impose our will on a system. We can listen to what the system tells us, and discover how its properties and our values can work together to bring forth something much better than could ever be produced by our will alone. - Donella H. Meadows

Let's face it, the universe is messy. It is nonlinear, turbulent, and chaotic. It is dynamic. It spends its time in transient behavior on its way to somewhere else, not in mathematically neat equilibria. It self-organizes and evolves. It creates diversity, not uniformity. That's what makes the world interesting, that's what makes it beautiful, and that's what makes it work. - Donella H. Meadows

An adaptive agent is constantly playing a game with its environment. What exactly does that mean? Distilled to the essence, what actually has to happen for game-playing agents to survive and prosper? Two things, Holland decided: prediction and feedback. - M. Mitchell Waldrop

All these complex systems have somehow acquired the ability to bring order and chaos into a special kind of balance. This balance point-often called the edge of chaos-is were the components of a system never quite lock into place, and yet never quite dissolve into turbulence, either. - M. Mitchell Waldrop

System overview

A system is a set of things-people, cells, molecules, or whatever-interconnected in such a way that they produce their own pattern of behavior over time.

A system is an interconnected set of elements that is coherently organized in a way that achieves something.

A system must consist of three kinds of things: elements, interconnections, and a function or purpose.

A system is more than the sum of its parts. It may exhibit adaptive, dynamic, goal-seeking, self-preserving, and sometimes evolutionary behavior.

A system is composed of stocks (quantities measured at a specific moment in time) and flows (change over time) A complex system is more than just the sum of its parts.

Feedback loops are where changes in stock affects the flow in/out of the same stock. There can be “balancing” feedback loops that have a regulatory, stabilizing behavior, and “re-enforcing” feedback loops that snowballs into an avalanche in the direction of change (positive or negative).

A diverse system with multiple pathways and redundancies is more stable and less vulnerable to external shock than a uniform system with little diversity.

Stocks are the elements of the system that you can see, feel, count, or measure at any given time. Stocks change over time through the actions of a flow. A stock takes time to change, because flows take time to flow. Changes in stocks set the pace of the dynamics of systems. Time lags that come from slowly changing stocks can cause problems in systems, but they also can be sources of stability. The presence of stocks allows inflows and outflows to be independent of each other and temporarily out of balance with each other.

Systems thinkers see the world as a collection of stocks along with the mechanisms for regulating the levels in the stocks by manipulating flows.

Characteristics of a system

The following are the key characteristics of a system:

Resilience: is a major determining factor in a system’s ability to adapt to changing conditions because it is a system’s elasticity, or how well it recovers from a transition. The resilience of any given system is a product of its structure as well as its feedbacks.
Self-organization: some can also self-organize. That means they can learn, diversify, evolve and build on their own structure.
Hierarchy: reduce the level of information any given part of the system has to handle. For example, since liver cells know how to decompose toxins, lung cells don’t need to.

Feedback loop

A feedback loop is a closed chain of causal connections from a stock, through a set of decisions or rules or physical laws or actions that are dependent on the level of the stock, and back again through a flow to change the stock.

There are different kinds of feedback. If a flow stabilizes the difference between the actual and desired levels of stock then it’s known as balancing feedback. There is another kind of feedback loop which is known as reinforcing feedback, which generates more or less of what already exists.

In physical, exponentially growing systems, there must be at least one reinforcing loop driving the growth and at least one balancing loop constraining the growth, because no physical system can grow forever in a finite environment.

The balancing feedback loop that should keep the system state at an acceptable level is overwhelmed by a reinforcing feedback loop heading downhill. The lower the perceived system state, the lower the desired state. The lower the desired state, the less discrepancy, and the less corrective action is taken. The less corrective action, the lower the system state. If this loop is allowed to run unchecked, it can lead to a continuous degradation in the system’s performance.

The more output that is produced, the more can be invested to make new capital. This is a reinforcing loop, like the birth loop for a population. The investment fraction is equivalent to the fertility. The greater the fraction of its output a society invests, the faster its capital stock will grow.

Every balancing feedback loop has its breakdown point, where other loops pull the stock away from its goal more strongly than it can pull back.

System malfunction

Most of what goes wrong in systems goes wrong because of biased, late, or missing information. Missing information flows is one of the most common causes of system malfunction. Adding or restoring information can be a powerful intervention, usually much easier and cheaper than rebuilding physical infrastructure.

A change in purpose changes a system profoundly, even if every element and interconnection remains the same.

All systems share common features, but some of them can produce extremely unnatural and even problematic behavior. This can happen when the individual subsystems each have a different goal, and it’s called policy resistance. If one actor within a system or any of its subsystems gets the upper hand and uses it to shift the system’s direction, all the others will have to work twice as hard to pull it back in line. The result is a system that looks stuck, reproducing the same problems over and over again. For instance, drug traffickers and addicts both want drug supplies to be high, but police want the opposite.

Stop looking for who’s to blame; instead you’ll start asking, “What’s the system?” The concept of feedback opens up the idea that a system can cause its own behavior.

Hunger, poverty, environmental degradation, economic instability, unemployment, chronic disease, drug addiction, and war, for example, persist in spite of the analytical ability and technical brilliance that have been directed toward eradicating them. No one deliberately creates those problems, no one wants them to persist, but they persist nonetheless. That is because they are intrinsically systems problems-undesirable behaviors characteristic of the system structures that produce them. They will yield only as we reclaim our intuition, stop casting blame, see the system as the source of its own problems, and find the courage and wisdom to restructure it.

Before you disturb the system in any way, watch how it behaves.

NASA on systems engineering

Aerospace is one of the areas where precision is most needed. It is a combination of the most rigorous science and the most complex engineering. Its work, a spacecraft, must be precise enough to ensure the smooth completion of its mission.

Since its founding, the National Aeronautics, and Space Administration (NASA) has been dedicated to the advancement of aeronautics and space science. The NASA The scientific and Technical Information (STI) program plays a key part in helping NASA maintain this important role. The handbook provides top-level guidelines for good systems engineering practices; it is not intended in any way to be a directive.

Systems engineering is a methodical, disciplined approach for the design, realization, technical management, operations, and retirement of a system. A “system” is a construct or collection of different elements that together produce results not obtainable by the elements alone.
Systems engineering is the art and science of developing an operable system capable of meeting requirements within often opposed constraints. Systems engineering is a holistic, integrative discipline, wherein the contributions of structural engineers, electrical engineers, mechanism designers, power engineers, human factors engineers and many more disciplines are evaluated and balanced, one against another, to produce a coherent whole that is not dominated by the perspective of a single discipline.
Systems engineering seeks a safe and balanced design in the face of opposing interests and multiple, sometimes conflicting constraints. The systems engineer must develop the skill and instinct for identifying and focusing Efforts on assessments to optimize the overall design and not favor one system/subsystem at the expense of another.
There are three sets of common technical processes in NPR 7123.1, NASA Systems Engineering Processes and Requirements: system design, product realization, and technical management.
The systems engineer will usually play the key role in leading the development of the system architecture, defining and allocating requirements, evaluating design tradeoffs, balancing technical risk between systems, defining and assessing interfaces, providing oversight of verification and validation activities, as well as many other tasks.
In summary, the systems engineer is skilled in the art and science of balancing organizational and technical interactions in complex systems.
All other products in the system structure are realized by integration. Designers not only develop the design solutions to the products intended to perform the operational functions of the system but also establish requirements for the products and services that enable each operational/mission product in the system structure.
The first is design. After the entire framework and top-level design are made, it is then realized by engineering methods; at the same time, management is also involved in the process of experimentation. Only in this way can it be ensured that the problems can be adjusted and corrected in time so that they can get back on track as soon as possible.

Santa Fe Institute (SFI)

Santa Fe Institute is an influential interdisciplinary research institute. The main focus is on complex adaptive system.

Complex adaptive system originated at Santa Fe Institute (SFI). Santa Fe Institute was formed in 1984. The SFI is an independent, nonprofit theoretical research institute dedicated to the study of complex adaptive systems.

Complexity is the science of emergence where many individual agents interact and the outcomes are difficult to predict. A complex adaptive system is a system in which a large network of components with no central control exhibit complex behavior, sophisticated information processing, and adaptive learning.

The theory of complexity manifests itself in “complex adaptive systems,” which are made up of many independent agents who interact and adapt to each other and to their environment, producing the phenomenon of emergence-a system behaving as more than the sum of its parts.

Adaptive agents play game with its environment for fitness. It is feedback driven. Hence, competition is much more essential than consistency. Competition and cooperation may seem antithetical but at some very deep level, they are two sides of the same coin.

Spontaneous self-organization can be found all over nature. It is the most powerful force in biology and living systems operate at the edge of chaos. The characteristics of self-organization are positive feedback, increasing returns, lock-in (harder to change technology until something vastly better comes along), unpredictability and tiny events that have immense consequences all seem to be a re-requisite for life itself.

Everything is caught up in non-linear web of incentives, constraints and connections. The crucial skill is insight. The ability to see connections. Power lies in connections between exploitation (improving current conditions) vs. exploration (taking chances for greater reward).

Frameworks

Several frameworks can help manage and overcome complexity.

Structured thinking is required to solve complex problems and to conduct deep analysis. Without hard parameters, it is difficult to manage scope of the problem and create actionable steps. Frameworks are not immediately applicable to the real world because the real world doesn't share all the assumptions and parameters. All frameworks have complementary weaknesses. And vice versa. It is wise to use caution to stay adaptable while using frameworks. A few frameworks I have used or continue to use in my daily life.

Decision-making & goal setting

Framework	Description
S.M.A.R.T	The SMART framework is a popular method for setting effective goals where SMART stands for-Specific, Measurable, Achievable, Relevant, and Time-Bound.
Rocks, Pebbles & Sand	The “rocks in a jar” analogy is used to explain task prioritization. A jar is a finite place with a collection of rocks, pebbles and sand.
S.P.A.D.E	A decision-making framework to help synchronize and speed up collaboration to make difficult choices. An acronym for Setting, People, Alternatives, Decide and Explain.
Eisenhower Matrix	The Eisenhower box includes one axis that is important, the other axis is urgent. It is a two by two matrix to help with prioritization.
Objective Key Results (OKR)	OKR is a goal setting framework that was popularized in Silicon Valley. It stands for Objective and Key Results. Objective answers the WHAT is to be achieved. Key Results answers the HOW is it going to be achieved.
Now Next Later	The Now-Next-Later roadmap is a product management tool that organizes work into three-time horizons, from immediate to long term, starting with the most urgent problems to solve.
One-way & Two-way Decisions	One-way door decisions have lasting effects and are often hard to reverse. Conversely, two-way door decisions are reversible and less impactful. They provide opportunities to experiment, learn, and iterate.
3Ds	A tactical decision-making framework by Annie Duke who is a decision-making expert. The 3 Ds are-discover, discuss and decide.

S.M.A.R.T

The SMART framework is a popular method for setting effective goals, where SMART stands for Specific, Measurable, Achievable (or Attainable), Relevant, and Time-bound, helping individuals and organizations create clear, focused, and realistic objectives that are easier to track and achieve by adding detail, metrics, feasibility, purpose, and deadlines.

S-Specific:
- Key question: What exactly do I want to accomplish?
- Why it matters: Vague goals produce vague results. You need to define the “Who, What, Where, and Why.”
M-Measurable:
- Key question: How will I know when it is accomplished?
- Why it matters: You need concrete evidence (numbers, metrics, binary yes/no) to track progress.
A-Achievable:
- Key question: Is this realistic with my current resources?
- Why it matters: The goal should stretch you, but remain possible given your time, money, and talent constraints.
R-Relevant:
- Key question: Does this align with broader efforts?
- Why it matters: Ensure this goal matters to your long-term strategy (your "Rocks"). If it doesn't, it’s a distraction.
T-Time-bound:
- Key question: When is the deadline?
- Why it matters: A goal without a deadline is just a dream. Deadlines create urgency and prevent procrastination.

Examples of Weak vs SMART: Here is how to transform vague statements into SMART goals across different contexts.

Business Context (Sales):

Weak Goal: “We need to increase our sales.”
- Critique: How much? By when? Which product?
SMART Goal: “Increase sales of the Enterprise Software tier by 15% (Measurable) among existing clients in the Northeast region (Specific) by December 31st (Time-bound) using the new referral discount program (Achievable/Relevant).”

Professional Development (Upskilling):

Weak Goal: “I want to get better at public speaking.”
- Critique: Subjective and open-ended.
SMART Goal: “Present a 15-minute quarterly update (Specific) to the senior leadership team at the Q3 review meeting (Time-bound/Relevant) without reading from notes (Measurable), after practicing twice a week with a mentor (Achievable).”

Personal Finance (Savings):

Weak Goal: “I want to save money for a house.”
- Critique: No target, no timeline.
SMART Goal: “Save $20,000 for a down payment (Specific/Measurable) by automating a transfer of $850 from every paycheck (Achievable) into a high-yield savings account for the next 24 months (Time-bound).”

Health & Fitness:

Weak Goal: “I want to run a marathon.”
- Critique: Unrealistic if you currently don't run; lacks a training structure.
SMART Goal: “Complete the Chicago Marathon (Specific) in under 4 hours (Measurable) on October 13th (Time-bound) by following a 16-week progressive training plan (Achievable/Relevant).”

Common Pitfalls to Avoid:

Confusing "Activity" with “Outcome”:
- Bad: “Send 50 emails a week.” (This is just an activity).
- SMART: “Secure 5 new qualified leads per week via email outreach.” (This is an outcome).
The “Achievable” Trap:
- Setting the bar too low just to check a box is “sandbagging.”
- Setting the bar impossibly high leads to burnout. Aim for the “sweet spot”-difficult but doable.
Ignoring the “Relevant”:
- You can set a SMART goal to “Count every paperclip in the office by 5 PM.” It is specific, measurable, achievable, and time-bound-but it is completely irrelevant to business success.

Rocks, Pebbles & Sand

The classic “Rocks, Pebbles, Sand” analogy-popularized by Stephen Covey-teaches us that if you schedule the big things first, the small things will fit around them. Rocks are boulders which represent the most important priority like your family. Pebbles are least important but are critical to keep the lights on. Sand is insignificant which represents space filler with distraction. If you do the inverse, you run out of time for what matters.

However, most teams misinterpret this lesson as purely a matter of size (e.g., Rocks = 3 months, Pebbles = 1 month). This misses the point. In the real world, these three categories require fundamentally different mindsets, metrics, and management styles.

If you treat a “Rock” like a big “Pebble,” or manage “Sand” with the rigor of a “Rock,” you create a team that looks productive (high code output) but feels stuck (low strategic progress).

I. ROCKS-Maximizing Strategic Impact: Rocks are not just “long projects.” They are strategic initiatives intended to materially advance the company down a unique path, build durable advantages, or solve the most critical challenges.

Duration: 3–12 Months
Core philosophy:
- Maximize Impact, Not ROI: Do not choose Rocks based on efficiency. You are looking for dramatic results. If an idea is quick to build but offers only incremental improvement, it is not a Rock.
- Hofstadter’s Law: “It always takes longer than you expect, even when you take into account Hofstadter's Law.” A 3-month estimate is realistically a 3-to-12-month commitment.
- The “Greatness” Threshold: Because Rocks consume massive resources, “good” ideas are the enemy. You must hold out for “great” ideas. If you lack a truly strategic idea, do not invent busy work; focus on Pebbles until the strategy clarifies.
How to execute:
- Deliberate Decisions: Unlike Agile development, Rock selection should be slow and deliberate. Once committed, treat it as a one-way door.
- Executive Ownership: While Product Managers (PMs) drive the definition, Executives must own the final decision to align it with the broader company strategy.

III. PEBBLES-Maximizing ROI: Pebbles are the “Goldilocks” of work. They are tactical wins-features that delight customers or counter competitors in the short term.

Duration: 1–4 Sprints
Core philosophy:
- Maximize ROI: Here, efficiency rules. We calculate ROI using the standard formula: ROI = Value/Effort
- The Estimation Trap: Be wary of the “Hofstadter” effect on ROI. If a project estimated at 4 weeks drags to 6, and the impact comes in 20% lower than expected, your ROI can drop by half.
- Scope Discipline: If a Pebble balloons beyond 4 sprints, it is becoming a Rock. You must either ruthlessly cut scope to fit the Pebble timeframe or pause and re-evaluate it as a strategic Rock.
How to execute:
- PM Sovereignty: The Product Manager is the ultimate decider for Pebbles. They sit at the intersection of customer needs, market pressure, and engineering reality.

III. SAND-Maximizing Throughput: Sand consists of the thousand small tweaks-bug fixes, UI polish, text changes, library upgrades-that cumulatively create quality.

Duration: less than 1 Sprint (often hours)
Core philosophy:
- Maximize Throughput: Individual grains of sand are rarely measurable in isolation. Do not waste time trying to quantify the impact of fixing one bug. The goal is volume: how many small improvements can we ship?
- Kill Admin Overhead: The biggest enemy of Sand is process. If you spend 20 minutes creating a JIRA ticket for a 5-minute code fix, you have destroyed productivity.
- Emotional Prioritization: Because the business value of a single grain is negligible, prioritize based on energy. Let engineers fix the things that annoy them. Happy engineers produce better code.
How to execute:
- Self-Managed Teams: Management should not schedule Sand. If executives are prioritizing bug fixes, they are micromanaging. The team knows what needs to be polished; let them fit it in.

IV. The Execution Algorithm: How do you fit this into a real Sprint Plan? Use this hierarchy of needs. If you cannot fit an item, cut from the bottom up.

Time-Critical Items: (Security patches, immovable launch dates).
The Rock: Schedule enough stories to make visible progress. Never starve the Rock.
The Pebble: Schedule stories for the current tactical win.
Sand: Fill the gaps.

Further reading

Rocks, Pebbles, Sand: How to implement in practice

S.P.A.D.E

Consensus doesn't work and when time comes to make hard decisions, there should be a person in-charge of it. So how do you do that? S.P.A.D.E-a technique for making difficult decisions-formed by Gokul Rajaram at Google and Facebook, and widely deployed at Square.

S is for Setting: Precisely define the “what.” Show the why of the “when.” Clarify the “why.”
P is for People: People come first. The first thing you do for every S.P.A.D.E. is identify the people who should consult (give input), approve, and most importantly, a single person who is responsible. Responsible means accountable. Consult maximally.
A is for Alternatives: It’s the job of the responsible person-the decision maker-to come up with a set of alternatives that are feasible and realistic; diverse-they should not all be micro-variants of the same situation; and comprehensive-they should maximally cover the problem space. Brainstorm publicly.
D is for Decide: Once you've laid out all the alternatives-complete with their respective pros and cons and quantitative modelーit is time to get your consultants to vote. Get feedback privately.
E is for Explain: Once you've decided, now the real work begins. Go to the approver and lay out the alternatives and your argument. If you created a high-quality decision framework, they're unlikely to veto it. Call a commitment meeting. Broadcast your decision. Add it to the S.P.A.D.E. log. Keep a log that links to your S.P.A.D.E. and marks the date of the decision. It will be much easier than relying on Gmail search or Slack when you want to reference or amend a past decision.

Further reading

Gokul's S.P.A.D.E. Toolkit: How to implement Square's famous decision-making framework

Eisenhower Matrix

A decision-making framework designed and named after the 34th President of the United States of America-Dwight Eisenhower. He launched one of the most successful programs that are critical to our society today-highways, space exploration, internet (DARPA) and energy alternatives. He accomplished a ton! How did he do it?

The Eisenhower box includes one axis that is important, the other axis is urgent. You put each task in one of the four quadrants:

Urgent and important: tasks you will do immediately
Important, but not urgent: tasks you will schedule to do later
Urgent, but not important: tasks you will delegate to someone else
Neither urgent nor important: tasks that you will delete

The most important quadrant is the last one because it challenges me to question whether an action is really necessary. Mindlessly doing something is lazy thinking and procrastinating.

It isn't perfect because urgent can mean different things to different people. But it is intuitive and adaptive framework to help with prioritization.

What is important is seldom urgent and what is urgent is seldom important. - Dwight Eisenhower

Further reading

The Eisenhower Matrix | Avoid the "Urgency Trap" with Dwight D. Eisenhower's famous prioritization framework

Objective Key Results (OKR)

Objective Key Results (OKR)-a goal setting framework that was popularized in Silicon Valley has been widely adopted beyond the West Coast. OKR has been a better part of my professional journey, but the implementation of the methodology has always been messy because they do not cascade through the entire organization as they are intended to.

This led me to study the topic from the father of OKR who came up with the methodology-John Doer.

A lot of companies create organization-wide objectives, but they don’t translate them down into personal OKRs. That’s right - and creating that cascade is one of the powerful parts of the system. The book says that there are four superpowers. On reflection, I think there are really five benefits that you get out of this. Focus is the first, because these are limited in number. Alignment is the one you’re talking about - you get everybody aligned. Commitment is third. When you’ve transparently set these goals, and all your colleagues see them, commitment clears that up quickly. And then the fourth superpower is tracking the progress. This is why Bill Gates uses the system at the Gates Foundation. Then the fifth superpower is stretching. Larry Page of Google is the high priest of 10x-ing everything, stretching further. He’ll say, I’d rather have the objective be to go to Mars, and if we fall short, we’ll get to the moon. This is how you make moonshots. Focus, alignment, commitment, tracking and stretching, I love that because it spells FACTS. And I can remember it. How do OKRs differ from, or complement, an Agile system? Agile guides your day-to-day work. OKRs don’t govern your day-to-day behavior. I’d say this is more of a weekly check-in. But it’s not set the goals and then stuff them away in a drawer and ignore them. People really care whether or not the CEO is watching their goals or cheering them on. If a leader wants a way to reach down into an organization, this is a great tool for doing it. You even use OKRs in your personal life? Yes, it can work against any agenda. I have had a set of personal objectives and key results. Most of mine have been around family. Now both daughters are off to school, but years ago I read and believed that having family dinners together was a key to having a happy family. So my key result was to get home for dinner by 6PM at least 20 nights a month, and be present, with our phones in another room. And that’s pretty hard to do. I was living in the 70% threshold is a good result - that would mean 14 or 15 nights a month. That’s an example of how OKRs can span any range of human activity. They’re transparent vessels that describe the “what” and the “how.” The values we pour into those vessels are the answers for the question, “Why?” - John Doer

If implemented right, OKRs can drive 5 things-focus, alignment, commitment, tracking progress and stretching (FACTS).

OKRs are not perfect. In the absence of strong leadership or the absence of a visionary leader, the entire organization could be working on wrong things if objectives are not bold enough for the business. OKRs also do not allow for what isn't under your control. Self-worth is tied into objective and key results, but the individual does not have full control over its environment. Though Doerr argues against tying performance into key results, but hardly seen this in practical world. A system is equally responsible for failure to meet its objective.

Nonetheless, OKRs are valuable in driving focus for the entire organization and measure progress against set objectives.

Background

John Doerr is the father of OKR who is responsible for bringing OKRs to Google and the world. He transformed Andy Grove's managerial system from Intel and made the process formal through OKR. Andy Grove was best known for driving operational excellence at Intel during its peak. Following were Grove's managerial philosophy:

Less is more–each objective should be tied to no more than five key results.
Set goals from the bottom up-team members are motivated when individuals set their own OKRs.
No dictating-OKRs are “a cooperative social contract,” so there should always be space for debating and negotiations.
Stay flexible–in a fast changing environment, objectives can stop being relevant, so it should always be easy to modify them, together with the key results.
Dare to fail-some OKRs should be uncomfortable, even unattainable, which means you’d need to be ready to fail.
A tool, not a weapon-OKRs are not legal documents according to which you’re expected to measure your performance.
Be patient-it’s next to impossible to fully understand the mechanism of the system in one cycle (1 quarter); five quarterly cycles should be enough to see how the goals actually perform.

Definition

OKR is short for Objective and Key Results. Both are collaboratively driven by an entire organization to execute on the vision and strategic goals.

Objective: answers the WHAT is to be achieved.
Key Results: answers the HOW is it going to be achieved.

If implemented correctly, it drives focus and transparency while eliminating conflicting priorities.

An illustrative example of OKRs in an organization:

CEO

Objective: gain ice-cream market share in Chicago.
Key Results: sell 5000 pallets of vanilla ice-cream a week in neighborhoods with large population.

Head of Manufacturing

Objective: produce 5000 pallets of vanilla ice-cream a week.
Key Result: make 150,000 gallons of vanilla ice-cream a week.

Head of Sales

Objective: sell 5000 pallets of vanilla ice-cream a week.
Key Result 1: create a referral program to achieve >90% brand recommendation from existing buyers.
Key Result 2: create a brand promotion with summer camp organizations to sell ice-cream during game days.

This is simple, but an illustrative example of OKR in action. It ties back into CEO's objective which cascades down to every business unit.

The secret sauce of OKRs is in the Key Results.

Performance should be measured by results (note, not tied to employee compensation). Each key result is measurable and verifiable. This is the best way to align incentives. Results should be regularly updated every quarter. If results are not achieved within a defined timeframe, it is time to reassess.

A key point to remember-progress should be measured by outcome not an output otherwise goals are up for gamification. For example, Wells Fargo's organizational goals led personal bankers to open fake customer accounts to meet the quota. The goals backfired and took Wells Fargo into compliance trouble. Key results should be set intentional to ensure they cannot be tricked.

Lastly, the goal is not to create a feature factory machine, but to solve a business problem and create organizational value. If organization is structured and aligned correctly, OKRs can be extremely effective by ensuring all members of the organization are working toward the same goals.

OKR superpowers

The 5 superpowers of OKRs-focus, alignment, commitment, tracking progress and stretching.

Focus-the organization on what matters for the company to survive and function.
Align-OKRs to individual goals and the company’s game plan. Identify cross-team dependencies that require collaboration. For sound decision-making, and superior performance, top-line goals must be clearly understood throughout the organization and shared throughout the entire organization.
Commit-to goals 100% which are supposed to be achieved within a specific time limit.
Track for accountability-OKRs are driven by data and require periodic check-ins for objective grading, done in a spirit of no-judgment accountability. Google scores on 0 to 1.0 system:
- 0.7 to 1.0 is green
- 0.4 to 0.6 is yellow
- 0.0 to 0.3 is red
Stretch your goals-aspirational objectives are those that go beyond your everyday routine and are more about your vision of the company’s future. They are not always attainable, but necessary for management and contributors to challenge themselves.

If companies don’t continue to innovate, they’re going to die-and I didn’t say iterate, I said innovate. - Bill Campbell

Continuous performance management

Feedback is an opinion, grounded in observations and experiences, which allows us to know what impression we make on others. - Sheryl Sandberg

OKRs set the context for Continuous Performance Management (CFR). CFRs help promote transparency, accountability, empowerment, and teamwork.

Conversations-an authentic, richly textured exchange between manager and individual contributor aimed at driving performance.
Feedback-bidirectional or networked communication among peers to evaluate progress and guide future improvement. For example, “We are constantly surrounded by positive reinforcement and feedback, but many of us haven’t been trained to seek it out. Say you give a presentation to your team. After the fact, somebody comes up to you and says, ‘Hey, nice job.’ Most of us would say, ‘Oh great, thanks,’ and move on. But we want to probe a little deeper: ‘Thank you. What one thing did you like about it?’ The idea is to capture more specific feedback in real time.”
Recognition-expressions of appreciation to deserving individuals for contributions of all sizes.

Relationship between OKRs and culture

Culture eats strategy for breakfast. OKRs are the raw ingredients to make that breakfast.

Culture is a set of values and beliefs, as well as familiarity with the way things are done and should be done in a company. The point is that a strong and positive corporate culture is absolutely essential. - Andy Grove

A culture that drives focus, alignment and meaning will always win. If an organization believes the work they are doing, members of the organization will feel empowered and motivated to show up. OKRs should be set in a way that answer the following:

Structure and clarity-are goals, roles, and execution plans on our team clear?
Psychological safety-can we take risks on this team without feeling insecure or embarrassed?
Meaning of work-are we working on something that is personally important for each of us?
Dependability-can we count on each other to do high-quality work on time?
Impact of work-do we fundamentally believe that the work we are doing matters?

Further reading

Now Next Later

This is one of the best frameworks for roadmapping and planning. It accounts for simplicity (KISS-keep it simple), flexibility and easier to follow. Roadmaps often face disruption for some unforeseen reason. The Now-Next-Later roadmap is a product management tool that organizes work into three-time horizons, from immediate to long term, starting with the most urgent problems to solve. This roadmap format conveys the overall product vision, as each element of work is tied back to a business objective.

Now-Next-Later framework:
- The Now column contains the initiatives that you are working on, well, now. Requirements are clear.
- The Next column is what will happen once everything in the Now column is complete. Requirements are less refined.
- The Later column is everything else you’ve proposed doing, but it won’t happen until sometime in the undefined future. Requirements are hazy.
Ask the following to categorize your feature set or solutions:
- Is the problem large?
- Is the problem urgent?
- Is the problem valuable?

One-way & Two-way Decisions

With a one-way door decision, the idea is that, when we make the decision, we walk through the door. Upon entering the space on the other side of the door, we are able to see the consequences of our decisions. Unfortunately, because it’s a one-way door, if we don’t like what we see, we can’t turn around and walk out through the door again. This is what Bezos calls a “Level 1 decision.” For these types of decisions, we want to be cautious, data-driven, and deliberate in our decision-making.

With a two-way door decision, on the other hand, when we walk through the door, if we don’t like what we see, we get to turn around and undo our decision. This is what Bezos calls a “Level 2 decision.” He suggests that, with a two-way door decision, we’ll learn more by acting-walking through the door and seeing what’s on the other side-than we would by trying to imagine what’s on the other side of the door.

Jeff Bezos, founder and CEO of Amazon, made this exact argument in his 2015 letter to shareholders,33 where he introduced the idea of Level 1 and Level 2 decisions. He describes a Level 1 decision as one that is hard to reverse, whereas a Level 2 decision is one that is easy to reverse. Bezos argues that we should be slow and cautious when making Level 1 decisions, but that we should move fast and not wait for perfect data when making Level 2 decisions.

You need people to be ambitious, technically ambitious, “If there are five ways to do something, we’ll study them, but let’s study them very quickly and make a decision.” We can always change our mind. Changing your mind, I talk about one-way doors and two-way doors, most decisions are two-way doors. If you make the wrong decision, if it’s a two-way door decision, you pick a door, you walk out and you spend a little time there. It turns out to be the wrong decision, you can come back in and pick another door. Some decisions are so consequential and so important and so hard to reverse that they really are one-way door decisions. You go in that door, you’re not coming back. And those decisions have to be made very deliberately, very carefully. If you can think of yet another way to analyze the decision, you should slow down and do that. So when I was CEO of Amazon, I often found myself in the position of being the chief slow down officer because somebody would be bringing me a one-way door decision and I would say, “Okay, I can think of three more ways to analyze that. So let’s go do that because we are not going to be able to reverse this one easily. Maybe you can reverse it if it’s going to be very costly and very time-consuming. We really have to get this one right from the beginning.” And what happens, unfortunately, in companies, what can happen, is that you have a one-size-fits-all decision-making process where you end up using the heavyweight process on all decisions. Two-way door decisions should mostly be made by single individuals or by very small teams deep in the organization. And one-way door decisions are the irreversible ones. Those are the ones that should be elevated up to the senior-most executives who should slow them down and make sure that the right thing is being done. Changing the decision is going to be very, very complicated. Some of them are technical decisions too because some technical decisions are like quick-drying cement. Once you make them, it gets really hard. Choosing which propellants to use in a vehicle, selecting LNG for the booster stage and selecting hydrogen for the upper stage, that has turned out to be a very good decision. But if you changed your mind, that would be a very big setback. So that’s the kind of decision you scrutinize very, very carefully. Other things just aren’t like that. Most decisions are not that way. Most decisions should be made by single individuals and done quickly in the full understanding that you can always change your mind. I’m here and I could say, “Lex, how tall do you think this ceiling is?” And you’d be like, “I don’t know, Jeff, maybe 12 feet tall.” And I would say, “I think it’s 11 feet tall.” And then we’d say, “You know what? Let’s just call it 11 and a half feet.” That’s compromise, instead of. The right thing to do is to get a tape measure or figure out some way of actually measuring, but think getting that tape measure and figure out how to get it to the top of the ceiling and all these things, that requires energy. Compromise, the advantage of compromise as a resolution mechanism is that it’s low energy, but it doesn’t lead to truth. And so in things like the height of the ceiling where truth is a noble thing, you shouldn’t allow compromise to be used when you can know the truth. - Jeff Bezos/Lex Fridman

3Ds

Annie Duke is a decision-making expert, former professional poker player, special partner at First Round Capital, and the author of Thinking in Bets (a national bestseller) and Quit: The Power of Knowing When to Walk Away. She also co-founded Alliance for Decision Education, a nonprofit whose mission is to improve lives by empowering students through decision skills education. Use the “3Ds” framework to make better decisions for your org. More can be found on Lenny's Podcast.

Discover: Collect individual opinions independently before group discussion and then share these with everybody prior to the meeting.
Discuss: Compare perspectives within the group, focusing on understanding points of disagreement rather than building consensus.
Decide: Make decisions independently post-discussion to minimize group influence.

Other tips from Annie Duke:

Incorporate the word “nevertheless” into discussions, especially when making decisions or addressing disagreements. It acknowledges the other person’s perspective while affirming your decision or stance.
Replace confrontational language like “I disagree” or “you’re wrong” with phrases like “I don’t understand” so everyone feels heard and valued. If people feel heard, they are more likely to feel like they contributed to the decision, even when they disagree.
Use pre-mortems to set kill criteria. Before starting a project, imagine failure and what early warning signs might have predicted it. Commit in advance to reassess or pivot if you notice those red flags later on. This makes it easier to walk away when sunk costs and overconfidence bias loom large.

Product design & discovery

Framework	Description
Jobs To Be Done (JTBD)	A theory of innovation that is based on the economic principle that people buy products and services to get “jobs” done, i.e., to help them accomplish tasks, achieve goals and objectives, resolve and avoid problems, and to make progress in their lives.
Continuous Discovery	Teresa’s Torres authored Continuous Discovery Habits, which is her continuous discovery framework for building better products that are guided by user feedback.

Jobs To Be Done (JTBD)

A theory of innovation that is based on the economic principle that people buy products and services to get “jobs” done, i.e., to help them accomplish tasks, achieve goals and objectives, resolve and avoid problems, and to make progress in their lives. In order to succeed in implementing this framework, work to gain a deep understanding of those jobs, and then create offerings that will help customers get their jobs done significantly better and/or more cheaply.

The whole premise of JTBD is that people hire products, they don't buy them, they hire them to make progress in their life.
The primary cause of failed products and services is a misalignment with customer needs. Using the JTBD framework product teams can deeply understand the jobs its customers are trying to get done and the metrics they use to measure success. It can help determine which needs are unmet or discover segments of customers with unique sets of unmet needs.
Context makes the irrational rational. For example, think of Snickers and Milky Way.
- “They're both candy bars, they're both bought in the checkout aisle, they're both made almost with the same ingredients, one has peanuts, one doesn't. And if you start to compare the products and do a competitive benchmark, you start to get to one's a little softer, one's a little harder, one's got a few more calories, one's got less calories. But when you talk to people about when's the last time they ate a Snickers, when time's the last time they ate a Milky Way, you start to realize that Snickers typically is a case where they missed the last meal, they've got a lot of work to do, they're running out of energy and they want to basically get back to the tasks as fast as possible. And so you start to realize that Snickers is about almost like a meal replacement and it's about the stomach is growling and things like that. And you start to realize that if they didn't have a Snickers, it competes with a protein drink, it competes with a Red Bull, a coffee. But a Milky Way typically is eaten after an emotional experience, could be positive, could be negative. It's usually eaten alone, and it's taking time to regroup after this emotional thing. And you start to realize that it competes with things like a glass of wine, a brownie, and to be honest, a run. And so when you start to realize that, jobs helps you see the true competitive set from what we call the demand side of the world as opposed to the competitive set from the supply side of the world, which is the technology or the underlying business model by how which we're making it. And so it allows you to actually see what customers really want as opposed to trying to figure out, how do we sell things to people?” - Bob Moesta
- “One of the lies I was told growing up was build it and they will come.” - Bob Moesta
- “Stop trying to sell people and just help them make progress, help them buy.” - Bob Moesta
- “There's the difference between what they say they want and what they want.” - Bob Moesta
- “I use the framework of pushes, pulls, anxieties and habits and say, "What caused them to do this?"” - Bob Moesta
- “I never trust anybody telling me things they're going to do because they can't assure it, and it usually never happens. Just because people bitch about something doesn't mean they're going to do anything about it....So for example, in the first five minutes of an interview, they're going to tell you, "I bought a new car because I got a deal on it and it was a car I've been dreaming about forever," and it's like they have all these things and then when you start to get to, it's like, no, the old car had 280,000 miles on it....The fact is it's making a sound and you've got a long trip coming up, that's why you're getting a car. You're not getting the car because of the deal. And so there's these, I call it the layers of language.” - Bob Moesta
The value of value depends on where a client starting from and where they want to go. The value of an outcome is much more if you are starting all the way at the bottom as opposed to closer to the top.
There are 3 levels of dimension of information/energy that needs to be retrieved from a job executor (customer/client/user):
- Functional Energy: The core part of their jobs that requires time, space, effort or knowledge.
- Emotional Energy: The emotional aspect of which is how I feel, I want to feel better, I feel frustrated, or I feel overlooked.
- Social Energy: The social aspect of how I want others to perceive me or how others perceive me.
Understand the causation behind the client's job and then use design thinking to craft client enablement for people to make progress.
Most people say, "If I just add more features, create more pull, people will buy." It's not true. More features create anxiety. Reduce friction and create make it easier for people to make progress.
“People don’t want to buy a quarter-inch drill. They want a quarter-inch hole!” - Theodore Levitt
“People buy products and services to get a job done”. - Clayton Christensen
“One of the biggest misconceptions around Jobs to Be Done is this notion that it's pain and gain as opposed to context and outcome.” - Bob Moesta, Co-creator of the Jobs To Be Done (JTBD)

Further reading

The ultimate guide to JTBD Lenny's Podcast | Bob Moesta

Continuous Discovery

Product Manager's work: work that you do to decide what to build as discovery and the work that you do to build and ship a product as delivery.

There are 6 habits required for continuous discovery:

Outcome-oriented. Focusing on outcome rather than output.
Customer-centric. Really understanding your customers.
Collaborative. Getting the right people involved in discovery.
Visual. Using the opportunity solution tree, among other tools to map-out what you want to learn in discovery.
Experimental. Making the process hypothesis-driven and learning all the time.
Continuous. Making discovery an ongoing part of business-as-usual rather than a one-off activity.

Think in the structure of trees. It helps us deconstruct large, intractable problems into a series of smaller, more solvable problems. The value of breaking big opportunities into a series of smaller opportunities is twofold. First, it allows us to tackle problems that otherwise might seem unsolvable. Second, it allows us to deliver value over time. That second benefit is at the heart of the Agile manifesto and is a key tenet of continuous improvement.

The biggest barrier to testing assumptions is becoming aware of the assumptions we are making. sizes. As product trios, we are primarily concerned with assumptions in the following categories:

Desirability assumptions: Does anyone want it? Will our customers get value from it?
Viability assumptions: Should we build it?
Feasibility assumptions: Can we build it?
Usability assumptions: Is it usable? Can customers find what they need? Will
Ethical assumptions: Is there any potential harm in building this idea? This is an area that is grossly underdeveloped for many product trios.

Here are a few other concepts from Teresa Torres.

Opportunity solution tree (OST): Opportunity solution trees are a simple way of visually representing the paths you might take to reach a desired outcome. The root of the tree is your desired outcome-the business need that reflects how your team can create business value. Opportunity solution trees help you resolve the tension between business needs and customer needs. As you embark on the wandering paths of discovery, your tree will act as your roadmap, helping you find the best path to your desired outcome.

Skipping “whether or not” decision is when we frame a problem as “Should we do this or not?” Instead of framing our decisions as “whether or not” decisions, develop a “compare and contrast” mindset. Instead of asking, “Should we solve this customer need?” we’ll ask, “Which of these customer needs is most important for us to address right now?” We’ll compare and contrast our options.

A business outcome (for example, retention) measures how well the business is progressing. A product outcome (for example, customers like your ice cream) measures how well the product is moving the business forward. A traction metric measures usage of a specific feature (for example, customers like the waffle cones) or workflow in the product.

Experience map: An experience map that reflects what you know about your customers’ experience today while answering outcome questions. Each individual comes up with their own visuals. Then the team combines all of their maps together. This shared map will guide your customer interviews, and it will help give structure to the opportunity space. It can and should evolve week over week as your team learns about your customers. Interview snapshot: An interview snapshot is a one-pager designed to help you synthesize what you learned in a single interview. It’s how you are going to turn your copious notes into actionable insights. Your collection of snapshots will act as a reference or index to the customer knowledge bank you are building through continuous interviewing.

Opportunity assessment: teams assess opportunities using the following criteria: opportunity sizing, market factors, company factors, and customer factors.

Opportunity sizing helps us answer the questions: How many customers are affected and how often?
Market factors help us evaluate how addressing each opportunity might affect our position in the market.
Company factors help us evaluate the strategic impact of each opportunity for our company, business group, or team.
Customer factors help us evaluate how important each opportunity is to our customers.

Business strategy

Framework	Description
7 Powers	7 Powers is arguably the best business strategic framework which includes scale economics, switching costs, cornered resource, counter positioning, branding, network effects, and process.
Wardley Maps	They provide situational awareness and shared assumptions about a context necessary for building a sound strategy. It is a representation of the landscape in which a business operates.
Porter's Five Forces	A framework for determining the level of competition within an industry and evaluate a firm's strategic position: bargaining power of suppliers and buyers, the threat of new entrants or substitutes, and industry rivalry, make up the five forces.
The Lean Canvas	It lays out a clear process for defining and adjusting a business model based on customer development.

7 Powers

Hamilton Helmer covers 7 powers that companies can leverage on:

Scale Economies: A business in which per unit cost declines as production volume increases.
Network Economies: A business in which the value realized by a customer increases as the installed base increases.
Counter-Positioning: A newcomer adopts a new, superior business model which the incumbent does not mimic due to anticipated damage to their existing business.
Switching Costs: The value loss expected by a customer that would be incurred from switching to an alternate supplier for additional purchases.
Branding: The durable attribution of higher value to an objectively identical offering that arises from historical information about the seller.
Cornered Resource: Preferential access at attractive terms to a coveted asset that can independently enhance value.
Process Power: Embedded company organization and activity sets which enable lower costs and/or superior product, and which can be matched only by an extended commitment.

Further reading

7 powers

Wardley Maps

They provide situational awareness and shared assumptions about a context necessary for building a sound strategy. It is a representation of the landscape in which a business operates. Inspired by military strategy, Simon Wardley created this framework to give businesses a clear view of their “battlefield.” Wardley Mapping forces you to see the big picture not just WHAT you’re building, but WHY it matters, WHEN it’s needed, and WHERE you can gain a competitive edge. It helps you move from reactive firefighting to proactive strategic thinking.

Simon Wardley, the technique’s inventor, describes strategy using Sun Tzu’s Five Factors:
- Purpose: What’s the goal or game" you’re playing? A wise leader has a purpose (a what and a why). This is the force that compels you to do what you do and make what you make. It’s the higher reason for doing your work, often called your moral imperative. What’s the goal or “game” you’re playing?
- Landscape: A wise leader grasps the terrain because every organization operates within a landscape that represents the context for its decisions (leader has a map). This is the context: a mapping of the competitive environment in which you operate.
- Climate: A wise leader anticipates the patterns of the forces acting on the environment. There are always external forces manipulating the environment. In the same way that you don’t control the weather, you don’t control external forces like trends and the economy. But you can be aware of the climate and learn how best to prepare for it.
- Doctrine: A wise leader trains the organization in universally useful principles. Just as a religion has a core set of beliefs, your company will have a certain set of principles that will be applied to any situation.
- Leadership: A wise leader makes shrewd decisions that lead to victory. This is the strategy that you’ll determine after you consider your purpose, landscape, and climate.
It consists of a value chain (activities needed to fulfill user needs) graphed against evolution (how individual activities change over time under supply and demand competition). The Wardley Map represents your value chain through three main components:
- Users: Who are the beneficiaries of your product?
- Needs: What are their core needs and pain points?
- Capabilites: How do you deliver value through different capabilities?
In Wardley Maps, the y-axis (vertical) represents visibility to the user. Like a traditional value chain, the higher the component, the more the user can see it. For example, a web page might be at the top, while a database or a server might be near the bottom. The x-axis (horizontal) contains the four stages of evolution:
- I. Genesis: The object is rare, poorly understood, and uncertain. There is the potential to have high future worth. The object is described with wonder, and it’s different from anything else in the market in this context. It should be a competitive advantage and experimentation is rife.
- II. Custom Built: More people are starting to consume and understand the object. The market is forming, and there is potential ROI. As understanding increases, users start to find its value, but inconsistently. The key focus is learning.
- III. Product Rental: Consumption is rapidly increasing as the market grows. The object is profitable, new features can differentiate it, and there is a refinement of needs. Things are starting to get competitive, and the profit margins mean it’s a crowded market.
- IV. Commodity/Utility: The object is widespread and stabilizing. It’s a mature and ordered market. The high volume has decreased margins. Operational efficiency is king, and failure is not tolerated in the market. This is the cost of doing business (like oil & gas).
Wardley Map Canvas Template

Further reading

Porter's Five Forces

It is not a boring business exercise. It helped the founders of Warby Parker create a company worth over $1B. Their analysis showed that the eyewear industry is dominated by a single player, Luxottica, which kept prices of prescription glasses artificially high. A pair was priced at around $300 even though it cost only $10-$20 to produce. The best framework for industry analysis is Porter’s Five Forces. It evaluates five competitive forces, which influence industry attractiveness. The basic idea is that your product or company is not competing just with direct competitors but with everyone in the ecosystem, including customers, suppliers, substitutes, and new entrants. For example, you might have very few competitors but you still can’t make any profit because your suppliers have more negotiating power and so they capture most of the profits.

Overview of Porter’s Five Forces:

Threat of new entrants: How hard is it to enter an industry?
Bargaining power of buyers: How easily can buyers drive our prices down? How well can they negotiate?
Threat of substitutes: How else can customers satisfy the same need?
Bargaining power of suppliers: how easily can suppliers drive their prices up? How well can they negotiate?
Rivalry amongst existing competitors: How many competitors are in an industry? How strong are they?

The essence of strategy is choosing what not to do. - Michael Porter

Strategy is about making choices, trade-offs; it's about deliberately choosing to be different. - Michael Porter

The Lean Canvas

The Lean Canvas is a one-page visual business plan that's ongoing and actionable. It was created by Ash Maurya, and inspired by Alex Osterwalder's Business Model Canvas. It is fantastic at identifying the areas of biggest risk and enforcing intellectual honesty.

Problem: List your topi 1-3 problems. Assess existing alternatives. List how these problems are solved today. Have you identified real problems people know they have?
Customer segments: List your target customers and users. Assess early adopters. List the characteristics of your ideal customers. Do you know your target markets? Do you know how to target markets? Do you know how to target messages to them as distinct groups?
Unique value proposition: Single, clear compelling message that turns an unaware visitor into an interested prospect. Produce a high level concept. List your X for Y analogy. For example, YouTube = Flickr for videos. Have you found a clear, distinctive, memorable way to explain why you are better or different?
Solution: Outline a possible solution for each problem. Can you solve the problem in a right way?
Channels: List your path to customers. How will you get your product or service to your customers, and their money back to you?
Revenue streams: List your source of revenue. Where will the money come from? Will it be one-time or recurring? The result of a direct transaction (e.g., buying a meal) or something indirect (magazine subscriptions)?
Cost structure: List your fixed and variable costs. What are the direct, variable, and indirect costs you'll have to pay for when you run the business?
Metrics: List the key numbers that tell you how your business is doing. Do you know what numbers to track to understand if you are making progress?
Unfair advantage: Something that cannot be easily copied or bought. What is the “force multiplier” that will make your efforts have greater impact than your competitors?

Analytics

Framework	Description
Analytics Maturity Model	AMM-analytics maturity model is a sequence of steps or stages that represent the organization's evolution in leveraging data to inform business decisions.
Google HEART	It offers five metrics to monitor the user experience-happiness, engagement, adoption, retention and task success.
AARRR Pirate Metrics	A venture capitalist Dave McClure coined Pirate Metrics which categorizes the user metrics into AARRR-acquisition, activation, retention, revenue and referral.
The Three Engines of SaaS Growth	In The Lean Startup Eric Ries identified the three drivers of business growth: viral, sticky and paid.
Lean Canvas Metrics	Lean Canvas is an adaptation of Business Model Canvas by Alexander Osterwalder which Ash Maurya created in the Lean Startup spirit (Fast, Concise and Effective startup). For each lean canvas box, there are relevant metrics associated to it.
The Lean Gates of Analytics	The analytics framework presented in Lean Analytics based on empathy, stickiness, virality, revenue and scale.

Analytics Maturity Model

Backward-looking stages-focusing on what the historical data shows already happened.

Foundational
- Companies that are in this stage are transitioning from no analytics to prioritize and understand what data they have and where it resides.
- Companies rely on this information, combined with benchmark data to make business decisions about how they might need to course correct or continue in a positive direction.
- Organizations start to ask questions such as:
  - What information do I need to make better business decisions?
  - How can I obtain that information?
Descriptive
- Data and reports in this stage answer the question “What happened?”.
  - How many quotes did we create?
  - How many of those quotes converted to sales?
  - How much revenue came from those sales?
Diagnostic
- This stage answers the question “Why did it happen?” to better understand the reason something happened the way it did.
  - How many quotes did we create compared to this time last year?
  - How did we convert quotes to sales by region?
  - Which regions had better or worse conversion rates?
  - How have our prices changed this year compared to last year?
- These diagnostic questions build upon the descriptive questions. They go one level deeper, focusing not on the outcome, but instead on understanding if that outcome should have been expected, or if not, why not. This stage looks for the factors that can explain why a certain outcome happened.

Forward-looking stages-focusing on predictive business mindset transitioning from reactive approach to proactive approach.

Predictive
- Questions in this stage are proactive. They focus on what is likely to happen next. Based on the information companies gather in stages two and three, here are some examples questions that can start to emerge:
  - What is our expected conversion rate next month by region?
  - Are we likely to meet our revenue budget this year based on early performance?
- At this stage, the analytics maturity model transitions to a forward-looking perspective, moving from a reactive approach to a proactive and predictive business mindset.
- This mindset enables stakeholders to have an idea of where the business is headed, based on the data they do have.
Prescriptive
- Building on the predictive questions, this stage focuses on what decisions can be made to influence the future – how can we make something happen? The goal is to find the best course of action for a given situation.
  - How would having more sales reps affect our conversion rate?
  - How would adjusting our prices affect the expected revenue next month?
- Moving to this stage in the model helps business leaders start considering what changes need to be made to move the business in the right direction by leveraging foundational analytics, simulations, or even artificial intelligence for decision support and perspective.
- Variable-driven, what-if style analysis can start to guide stakeholder understanding of where the company is to instead what they can do to affect the future and make more confident decisions.
Cognitive
- In this stage, companies begin utilizing machine learning and natural language processing to simulate human thought.
- The goal is to learn from data in real-time and with analytical agility at significant data scale.
- With a variety of approaches such as real-time data mining, pattern recognition, and natural language processing as just a few examples, organizations can identify unexpected, important, and influential patterns in large quantities of data across disparate sources.
- Companies that benefit most from this stage have discipline and a strong foundation in the previous 5 stages and have precise processes in place to gather and store data, often in a central data lake or warehouse, as well as strong cross-platform data analytics adoption.

Google HEART

The HEART metrics framework can help you share the results with stakeholders in a way that will build empathy for users and provide insight to make data-driven and user-centric decisions. It will supply the metrics you need to prioritize a long-delayed UI for a complex application.

Google applies three criteria to each HEART Metric: Goal, Signals, and Metrics. The criteria ranges from the qualitative to the quantitative.

A Goal is a high-level description of what you want to achieve.
Signals indicate what you can measure as you work toward your Goal.
Metrics include concrete data that can show your progress.

Here is more on the five metrics:

Happiness: Happiness is the state of being happy, which varies based on individual user attitudes. It’s relative and hard to quantify. In the HEART framework, Happiness is measured with user surveys.
Engagement: Engagement captures the user’s involvement. For consumer-facing web applications, the user equates to the person who logged into the application. This is not as straightforward for enterprise applications. Ask yourself:
- Did a human perform an action, like create a new record?
- Did an application use your application to communicate with another application? Did it read or write data?
Adoption and Retention: Adoption looks at new users while Retention tracks the longevity of all users. Adoption and Retention metrics can be used to provide stronger insight into counts of the number of unique users in a given time period (e.g. seven-day active users), addressing the problem of distinguishing new users from existing users. Adoption metrics track how many new users start using a product during a given time period (for example, the number of accounts created in the last seven days), and Retention metrics track how many of the users from a given time period are still present in some later time period (for example, the percentage of seven-day active users in a given week who are still seven-day active three months later). What counts as "using" a product can vary depending on its nature and goals.
Task Success: This category encompasses several traditional behavioral metrics of user experience, such as efficiency (e.g. time to complete a task), effectiveness (e.g. percent of tasks completed), and error rate. One way to measure these on a large scale is via a remote usability or benchmarking study, where users can be assigned specific tasks. With web server log file data, it can be difficult to know which task the user was trying to accomplish, depending on the nature of the site. If an optimal path exists for a particular task (e.g. a multi-step sign-up process) it is possible to measure how closely users follow it

One from Many by Dee Hock

Wed, 01 Nov 2023 00:00:00 GMT

I. Brief Summary

A beautiful chronicle by Dee Hock, the creator of VISA which had a profound impact on our society at scale. It is a part biography, history, business management and philosophy book. He argues that industrial age is an outdated operating model and has been destructive to our society and well-being. It explores the emergence of a new form of organization that blends chaos and order (chaordic organization). Chaordic is an operating model based on competitive but cooperative, distributed, decentralized organization modeled after nature rather than machine. This is going to be one of my all-time favorites. Dee Hock is my business hero!

II. Big Ideas

Dee Hock was born in North Ogden, Utah in 1929.
In 1967, Dee Hock helped open one of the first six BankAmericard credit card licensee operations at the National Bank of Commerce in Seattle. After seeing all of the problems of the licensee banks in working with Bank of America, he managed to create what would become Visa and acted as the CEO from 1970 to 1984.
Hock in the section “Old Monkey Mind” throughout the book explores the philosophical underpinnings of the things he was doing and learning.
Dee had three questions that were critical in the origin story of Visa & the chaordic organization:
- Why are organizations, everywhere, political, commercial, and social, increasingly unable to manage their affairs?
- Why are individuals, everywhere, increasingly in conflict with and alienated from the organizations of which they are part?
- Why are society & the biosphere increasingly in disarray?
Chaordic is defined as the behavior of any self-organizing and self-governing organism, organization, or system that harmoniously blends characteristics of chaos and order. Characteristic of the fundamental, organizing principle of nature.
Drawn from his observations of nature, evolution, and communities, Dee is a proponent of enabling people to organize and do their best collective work based on purpose and principle, not rule and regulation.
At VISA the entire team was working together to pick up tasks and help each other out, with no central control, but instead collective incentive and drive moved all the necessary projects forward.
On community:
- Composed of things that we cannot measure, for which we keep no record and ask no recompense. Since they can’t be measured, they can’t be denominated in dollars, or barrels of oil, or bushels of corn - such things as respect, tolerance, love, trust, generosity, and care, the supply of which is unbounded and unlimited.
- The non-monetary exchange of value is the most effective, constructive system ever devised. Evolution and nature have been perfecting it for thousands of millennia. It requires no currency, contracts, governments, laws, courts, police, economists, lawyers or accountants. It does not require anointed or certified experts of any kind. It requires only ordinary, caring people.
- In true community, unity of the “single one” and the “plural one” applies as well to beliefs, purposes, and principles. Some we hold in common with only part of the community. Others we may hold alone. In true community, the values others hold that we do not share we nonetheless respect & tolerate - either because we realize that our beliefs will require respect & tolerance or return, or because we know those who hold different beliefs well enough to understand & respect the common humanity that transcends all differences.
On management:
- The first and paramount responsibility of anyone who purports to manage is to manage self-one’s own integrity, character, ethics, knowledge, wisdom, temperament, words, and acts. It is a never-ending, difficult, oft-shunned task. The reason is not complicated. It is ignored precisely because it is incredibly more difficult than prescribing and controlling the behavior of others.
- The obvious question then always erupts. How can you manage bosses, peers, regulators, associates, customers? The answer is equally obvious. You cannot. But can you understand them? Can you persuade them? Can you motivate them? Can you disturb them, influence them, forgive them? Can you set them an example? Of course you can, provided only that you have properly managed yourself. Eventually the proper word will emerge. Can you lead them?
Purpose of card payments:
- The first primary function of the card was to identify buyer to seller and seller to buyer.
- The second primary function was as guarantor of the value data.
- The third primary function was origination and transfer of value data.

III. Quotes

The source of all our problems today comes from the gap between how we think and now nature works.
The theology of chaordic organization is simple. Heaven is purpose, principle, and people. Purgatory is paper and procedure. Hell is rule and regulation.
The list goes on and on: welfare, social security, global warming, ocean pollution, preservation of species, communications, software development, fisheries; each with a need for a concept of organization that enables independent, effective action as the smallest scale, right on down to the individual. One that also allows self-organization and self-governance to ensure effective action at any subsequent scale right on through to the global. An organization within which coherence, cohesion, and order could emerge on which every part could rely without need for knowledge or control of others.
The essence of community, its heart and soul, is the non-monetary exchange of value; things we do and share because we care for others, and for the good of the place.
Community is composed of that which we don't attempt to measure, for which we keep no record and ask no recompense. Most are things we cannot measure no matter how hard we try.
Life is not about control. It’s not about getting. It’s not about having. It’s not about knowing. It’s not even about being. Life is eternal, perpetual becoming, or it is nothing. Becoming is not a thing to be known, commanded, or controlled. It is a magnificent, mysterious odyssey to be experienced.
The truth is that a corporation, or for that matter, any organization has no reality save in the mind. It is nothing but a mental construct to which people are drawn in pursuit of common purpose; a conceptual embodiment of a very old, very powerful idea called community.
What is this chasm between how most institutions profess to function and how they actually do; between what they claim to do for people and what they actually do to them? What makes people behave in the name of institutions in ways they would never behave in their own name? Church, school, government-all the same.
Nothing in nature feels like church or school. There’s no black bird “principal” pecking away at the rest of the flock....no “teacher” tree lining up the saplings and telling them how to grow.
The essence of community, its very heart and soul, is the non-monetary exchange of value. The things we do and the things we share because we care for others, and for the good of the place. Community is composed of things that we cannot measure, for which we keep no record and ask no recompense. Since they can’t be measured, they can’t be denominated in dollars, or barrels of oil, or bushels of corn-such things as respect, tolerance, love, trust, generosity, and care, the supply of which is unbounded and unlimited. The non-monetary exchange of value does not arise solely from altrusitic motives. It arises from deep, intuitive, understanding that self-interest is inseparably connected with community interest; that individual good is inseparable from the good of the whole; that all things are simultaneously independent, and intradependent-that the singular “one” is inseparable from the plural “one.”
Protected by remoteness, anonymity, and insignificance, four lambs, whose average age was twenty, trashed the company manual, ignored commandments, and did things as common sense, conditions, and ingenuity combined to suggest. Within two years, business tripled and the office was leading the company in growth, profit, and quality of business.
How much time, energy, and ingenuity did they spend obeying senseless rules and procedures that had little to do with the results they were expected to achieve? How much did they devote to circumventing those rules and procedures in order to do something productive with the remainder? How much was wasted interpreting such rules and enforcing them on others? How much time and talent did they simply withhold due to frustration and futility? It’s a rare person who arrives at a sum less than 50 percent. Eighty is not uncommon.
Educe, a marvelous word seldom used or practiced, meaning, “to bring or draw forth something already present in a latent, or undeveloped form.” It can be contrasted with induce, too often used and practiced, meaning, “to prevail upon; move by persuasion or influence-to impel, incite, or urge.
Healthy organizations are a mental concept of relationship to which people are drawn by hope, vision, values & meaning, along with liberty to cooperatively pursue them. Healthy organizations educe behavior. Educed behavior is inherently constructive. Unhealthy organizations are no less a mental concept of relationship but one to which people are compelled by accident of birth, necessity, or force. Unhealthy organizations compel behavior. Compelled behavior is inherently destructive.
Leader presumes follower. Follower presumes choice. One who is coerced to the purposes, objectives, or preferences of another is not a follower in any true sense of the word, but an object of manipulation....If the behavior of either is compelled, whether by force, economic necessity, or contractual arrangement, the relationship is altered to one of superior/subordinate, manager/employee, master/servant, or owner/slave. All such relationships are materially different than leader/follower.
Clear, meaningful purpose and compelling, ethical principles evoked from and shared by all participants should be the essence of every institution.
Lead yourself, lead your superiors, lead your peers, employ good people, and free them to do the same. All else is trivia.
If your interest runs to sports, the same phenomenon is apparent. Teams whose performance transcends the ability of individuals.
Rules and regulations, laws and contracts, can never replace clarity of shared purpose and clear, deeply held principles about conduct in pursuit of that purpose.
Ordinances, orders, and enforcement are simply different words for control, command, and tyranny. Force is the ultimate tool of tyranny. Those who rise in a tyrannical world are those least capable of self-governance, whether of themselves, or inducement of it in others, else they would not engage in tyranny.
The time between the discovery of new knowledge, the resultant technology, and its universal application. It took centuries for the wheel, one of the first bits of technology, to gain universal acceptance-decades for the steam engine, electric light, and automobile-years for radio and television. Today, countless microchip devices sweep around the Earth like the light of the sun into universal use....The same is true of cultural float. For the better part of recorded history, it took centuries for the customs of one culture to materially affect another. Today, that which becomes popular in one country can sweep through others within weeks.... Today, the past is ever less predictive, the future ever less predictable and the present scarcely exists at all. Everything is accelerating change, with one incredibly important exception. There has been no loss of institutional float....there has been no new, commonly accepted idea of organization since the concepts of corporation, nation-state, and university emerged, the newest of which is several centuries old.
Money had become guaranteed alphanumeric data expressed in the currency symbol of one country or another. Thus, a bank would become no more than an institution for the custody, loan, and exchange of guaranteed alphanumeric data.
“Credit card” was a misnomer based on banking jargon. The card was no more than a device bearing symbols for the exchange of monetary value. That it took the form of a piece of plastic was nothing but an accident of time and circumstance. We were in the business of the exchange of monetary value.
Unlike finite physical resources, information multiplies by transfer. It is not depleted by use…the supply of information is infinite, therefore, it does not obey any of our industrial age concepts and laws of scarcity. To the extent that we increase the value of the mental content of goods and services, we can reduce the value of the physical content. We can make them lighter, more durable, more recyclable, more versatile, and more transportable. Information breeds. When one bit of information is combined with another, the result is new information.
Although Visa arose from thinking about organizations as living, biological systems, I missed completely the need for an institutional immune system to thwart the viruses of old ways.
By standards of what Visa out to be, it would be a lie to deny a sense of failure. In spite of my pride in all that Visa demonstrated about the power of the chaordic concept of organization and all the things it has accomplished, I do not believe that Visa is a model to emulate. It is no more than an archetype to study, learn from, and improve upon.
Failure is not to be feared. It is from failure that most growth comes, provided that one can recognize it, admit it, learn from it, rise above it, and try again.

Thinking In Systems by Donella H. Meadows

Tue, 31 Oct 2023 00:00:00 GMT

I. Brief Summary

An essential primer on systems thinking which can help better understand the biggest problems we are facing in the world. They cannot be solved in isolation. Everything we see, do and experience in this world is made of systems. Why is it important to understand systems? Doing so will enable us to help them function better and identify when a broken system is in need of repair.

II. Big Ideas

What is a system?
- A system is a set of things-people, cells, molecules, or whatever-interconnected in such a way that they produce their own pattern of behavior over time.
- A system is an interconnected set of elements that is coherently organized in a way that achieves something.
- A system must consist of three kinds of things: elements, interconnections, and a function or purpose.
- A system is more than the sum of its parts. It may exhibit adaptive, dynamic, goal-seeking, self-preserving, and sometimes evolutionary behavior.
- A system is composed of stocks (quantities measured at a specific moment in time) and flows (change over time).
- A complex system is more than just the sum of its parts.
- Feedback loops are where changes in stock affects the flow in/out of the same stock. There can be “balancing” feedback loops that have a regulatory, stabilizing behavior, and “re-enforcing” feedback loops that snowballs into an avalanche in the direction of change (positive or negative).
Why do systems work so well? Because of the following characteristics:
- Resilience: is a major determining factor in a system’s ability to adapt to changing conditions because it is a system’s elasticity, or how well it recovers from a transition. The resilience of any given system is a product of its structure as well as its feedbacks.
- Self-organization: some can also self-organize. That means they can learn, diversify, evolve and build on their own structure.
- Hierarchy: reduce the level of information any given part of the system has to handle. For example, since liver cells know how to decompose toxins, lung cells don’t need to.
Systems often have the property of self-organization-the ability to structure themselves, to create new structure, to learn, diversify, and complexity. Even complex forms of self-organization may arise from relatively simple organizing rules-or may not.
Systems thinkers see the world as a collection of stocks along with the mechanisms for regulating the levels in the stocks by manipulating flows.
Stop looking for who’s to blame; instead you’ll start asking, “What’s the system?” The concept of feedback opens up the idea that a system can cause its own behavior.
- Hunger, poverty, environmental degradation, economic instability, unemployment, chronic disease, drug addiction, and war, for example, persist in spite of the analytical ability and technical brilliance that have been directed toward eradicating them. No one deliberately creates those problems, no one wants them to persist, but they persist nonetheless. That is because they are intrinsically systems problems-undesirable behaviors characteristic of the system structures that produce them. They will yield only as we reclaim our intuition, stop casting blame, see the system as the source of its own problems, and find the courage and wisdom to restructure it.
- Before you disturb the system in any way, watch how it behaves.
A change in purpose changes a system profoundly, even if every element and interconnection remains the same.
The least obvious part of the system, its function or purpose, is often the most crucial determinant of the system’s behavior.
Missing information flows is one of the most common causes of system malfunction. Adding or restoring information can be a powerful intervention, usually much easier and cheaper than rebuilding physical infrastructure.
Many of the interconnections in systems operate through the flow of information. Information holds systems together and plays a great role in determining how they operate.
Stocks usually change slowly. They can act as delays, lags, buffers, ballast, and sources of momentum in a system.
A feedback loop is a closed chain of causal connections from a stock, through a set of decisions or rules or physical laws or actions that are dependent on the level of the stock, and back again through a flow to change the stock.
- There are different kinds of feedback. If a flow stabilizes the difference between the actual and desired levels of stock then it’s known as balancing feedback. There is another kind of feedback loop which is known as reinforcing feedback, which generates more or less of what already exists.
- In physical, exponentially growing systems, there must be at least one reinforcing loop driving the growth and at least one balancing loop constraining the growth, because no physical system can grow forever in a finite environment.
- The balancing feedback loop that should keep the system state at an acceptable level is overwhelmed by a reinforcing feedback loop heading downhill. The lower the perceived system state, the lower the desired state. The lower the desired state, the less discrepancy, and the less corrective action is taken. The less corrective action, the lower the system state. If this loop is allowed to run unchecked, it can lead to a continuous degradation in the system’s performance.
- The more output that is produced, the more can be invested to make new capital. This is a reinforcing loop, like the birth loop for a population. The investment fraction is equivalent to the fertility. The greater the fraction of its output a society invests, the faster its capital stock will grow.
- Every balancing feedback loop has its breakdown point, where other loops pull the stock away from its goal more strongly than it can pull back.
All systems share common features, but some of them can produce extremely unnatural and even problematic behavior. This can happen when the individual subsystems each have a different goal, and it’s called policy resistance. If one actor within a system or any of its subsystems gets the upper hand and uses it to shift the system’s direction, all the others will have to work twice as hard to pull it back in line. The result is a system that looks stuck, reproducing the same problems over and over again. For instance, drug traffickers and addicts both want drug supplies to be high, but police want the opposite.
The central question of economic development is how to keep the reinforcing loop of capital accumulation from growing more slowly than the reinforcing loop of population growth-so that people are getting richer instead of poorer.
A diverse system with multiple pathways and redundancies is more stable and less vulnerable to external shock than a uniform system with little diversity.
Most of what goes wrong in systems goes wrong because of biased, late, or missing information.

III. Quotes

We can’t control systems or figure them out. But we can dance with them!
If we’re to understand anything, we have to simplify, which means we have to make boundaries.
We don’t talk about what we see; we see only what we can talk about.
You think that because you understand “one” that you must therefore understand “two” because one and one make two. But you forget that you must also understand “and.”
Remember, always, that everything you know, and everything everyone knows, is only a model. Get your model out there where it can be viewed. Invite others to challenge your assumptions and add their own.
There are no separate systems. The world is a continuum. Where to draw a boundary around a system depends on the purpose of the discussion.
We can't impose our will on a system. We can listen to what the system tells us, and discover how its properties and our values can work together to bring forth something much better than could ever be produced by our will alone.
Let's face it, the universe is messy. It is nonlinear, turbulent, and chaotic. It is dynamic. It spends its time in transient behavior on its way to somewhere else, not in mathematically neat equilibria. It self-organizes and evolves. It creates diversity, not uniformity. That's what makes the world interesting, that's what makes it beautiful, and that's what makes it work.
No one can define or measure justice, democracy, security, freedom, truth, or love. No one can define or measure any value. But if no one speaks up for them, if systems aren’t designed to produce them, if we don’t speak about them and point toward their presence or absence, they will cease to exist.
Addiction is finding a quick and dirty solution to the symptom of the problem, which prevents or distracts one from the harder and longer-term task of solving the real problem.
If you define the goal of a society as GNP, that society will do its best to produce GNP. It will not produce welfare, equity, justice, or efficiency unless you define a goal and regularly measure and report the state of welfare, equity, justice, or efficiency.
You can drive a system crazy by muddying its information streams.
We know a tremendous amount about how the world works, but not nearly enough. Our knowledge is amazing; our ignorance even more so. We can improve our understanding, but we can't make it perfect.
Managers do not solve problems, they manage messes. - Russell Ackoff
Because of feedback delays within complex systems, by the time a problem becomes apparent it may be unnecessarily difficult to solve. - A stitch in time saves nine.
A system just can’t respond to short-term changes when it has long term delays. That’s why a massive central-planning system, such as the Soviet Union or General Motors, necessarily functions poorly.
Once you start listing the elements of a system, there is almost no end to the process. You can divide elements into sub-elements and then sub-sub-elements. Pretty soon you lose sight of the system. As the saying goes, you can’t see the forest for the trees.
The system, to a large extent, causes its own behavior! An outside event may unleash that behavior, but the same outside event applied to a different system is likely to produce a different result.
Storing information means increasing the complexity of the mechanism.
Self-organization is often sacrificed for purposes of short-term productivity and stability. Productivity and stability are the usual excuses for turning creative human beings into mechanical adjuncts to production processes. Or for narrowing the genetic variability of crop plants. Or for establishing bureaucracies and theories of knowledge that treat people as if they were only numbers.
I have yet to see any problem, however complicated, which, when looked at in the right way, did not become still more complicated.
The world is nonlinear. Trying to make it linear for our mathematical or administrative convenience is not usually a good idea even when feasible, and it is rarely feasible.
Loss of resilience can come as a surprise, because the system usually is paying much more attention to its play than to its playing space.
There always will be limits to growth. They can be self-imposed. If they aren’t, they will be system-imposed.
Everyone understands that you can prolong the life of an oil-based economy by discovering new oil deposits. It seems to be harder to understand that the same result can be achieved by burning less oil. A breakthrough in energy efficiency is equivalent, in its effect on the stock of available oil, to the discovery of a new oil field-although different people profit from it.
President Jimmy Carter had an unusual ability to think in feedback terms and to make feedback policies. Unfortunately, he had a hard time explaining them to a press and public that didn’t understand feedback.
Hierarchical systems evolve from the bottom up. The purpose of the upper layers of the hierarchy is to serve the purposes of the lower layers.
Remember-all system diagrams are simplifications of the real world.
The more I practice piano, the more pleasure I get from the sound, and so the more I play the piano, which gives me more practice.
If the desired system state is good education, measuring that goal by the amount.
In the end, it seems that mastery has less to do with pushing leverage points than it does with strategically, profoundly, madly, letting go and dancing with the system.
Resilience is a measure of a system’s ability to survive and persist within a variable environment. The opposite of resilience is brittleness or rigidity.
Mental flexibility-the willingness to redraw boundaries, to notice that a system has shifted into a new mode, to see how to redesign structure-is a necessity when you live in a world of flexible systems.

Embracing Unfair Advantage

Sun, 29 Oct 2023 00:00:00 GMT

Life isn't fair-this is one thing I am absolutely sure about because every stage of life has presented me with this fact. As the saying goes, “You are always going to meet someone in life who's smarter, richer, or better looking.”

We are born with different capacities. This reminds me of a famous quote by Aleksandr Solzhenitsyn, a Russian writer, who did not agree with Soviet ideology who once said, “Human beings are born with different capacities. If they are free, they are not equal. And if they are equal, they are not free.”

Aiming for radical equality sounds great in theory, but this defeats the purpose of diversity. Imagine a world where nobody is smarter or stronger than anybody else.

This would be a dull world to live in. Creativity demands an openness to characters from all walks of life and to be free is to follow our unique abilities.

Opportunities are never equal. Everyone’s got an unfair disadvantage, and you should accept that as a fact of life.

Make your unfair advantage (natural talent) count. We all have something special in us, so we should use that to our advantage.

You should know what your natural talents are. If you don't, spend time on exploring and discovering them. If you explore far and deep enough, you will stumble upon something that you truly enjoy. There are many ways to get started.

See why people come to you. My wife is good at listening. People find comfort in her.

See what you are naturally drawn to. I recently discovered the joy and talent for art. It took Covid lockdown for me to realize that.

See what comes easy to you which is harder for others. Aiming for effortlessness is far greater than aiming for friction. Success can come from both. I can read or write for hours without feeling like it is hard work.

Life gets a lot easier when you surrender to your natural gifts and talents. This allows you to live the life that you want to live in.

Embracing your unfair advantage is where the magic lies for your success.

Follow the wisdom of Phil Knight which he mentioned in his book Shoe Dog, “If you are following your calling, the fatigue will be easier to bear, disappointments will be fuel, the highs will be like nothing you’ve ever felt.”

Tune down on your weaknesses and lean in on your strengths.

High Output Management by Andrew S Grove

Tue, 19 Sep 2023 00:00:00 GMT

I. Brief Summary

Andrew Grove teaches his readers through his experience as CEO of Intel how to manage and lead an organization. This book is all you need to run and manage a business. He was a legend of his time and Intel thrived because of a great business manager like Grove.

II. Big Ideas

As a general rule, you have to accept that no matter where you work, you are not an employee–you are in a business with one employee: yourself. You are in competition with millions of similar businesses. There are millions of others all over the world, picking up the pace, capable of doing the same work that you can do and perhaps more eager to do it.
The output of a manager is the output of the organizational units under his or her supervision or influence.
Great work is accomplished by a team of people working together.
Be plugged in. Try new ideas. Make sure what you are doing is actually valuable and worth paying for.
Managing Process
- Everything is a process. Whether you’re compiling code, hiring staff, or making breakfast, everything can be modeled as a repeatable production process.
- Understanding the elements of production-inputs, outputs, timing, limiting steps, quality controls, variability-lets us create and improve the “machinery” needed to fulfill our organizational goals.
- We all aim to achieve the same thing-high quality results in less time with least waste.
- Design around the limiting step.
- Fix problems at the lowest-value step in the process.
- How do we produce something in the most efficient way possible? By designing our processes to facilitate flow through the entire system.
- Any measurement is better than none. But a good indicator is one that measures output, not simply the activity involved.
- Focus on vital, measurable indicators of output. What you measure should be quantified. Avoid measures of activity, subjective measures and unquantifiable measures.
- Increase productivity through simplification. Reduce the number of steps involved.
Managerial Leverage
- Managerial leverage dramatically impacts organizational output.
- Managers are responsible for increasing the output of their organizations and neighboring organizations they influence. Managers “leverage” their time by spending small amounts to have large impact through three activities:
  - Information gathering
  - Decision making
  - “Nudging” others
- Reports are a medium of self-discipline than a way to communicate information. Writing the report is important. Reading it often is not.
- If you want good information, go and see what’s going on for yourself.
- Values are communicated by what you do.
- How you handle your own time is, in my view, the single most important aspect of being a role model and leader.
- Delegation without follow-through is abdication.
- You should move toward the active use of your calendar, taking the initiative to fill the holes between the time-critical events with non-time-critical though necessary activities. You should say ‘no’ at the outset to work beyond your capacity to handle.
- A manager should carry a raw material inventory in terms of project. This inventory should consist of things you need to do but don’t need to finish right away.
- Don’t reinvent the wheel. Do what has worked before.
- Standardize procedures, but continue to think critically about what approaches we use.
Meetings
- Meetings are a medium of work, both too few and too many meetings create waste.
- A meeting is nothing less than the medium through which managerial work is performed.
- We should not be fighting their very existence, but rather using the time spent in them as efficiently as possible.
- Process-oriented meetings are held regularly to process substantive matters in batches, and come in three sub categories:
  - One-on-ones: should be held more frequently with less experienced team members. One-on-one meetings between one manager and one staff member, are used to exchange information, discuss “thorny” issues, uncover problems and review important but not urgent items.
  - Staff meetings: among a manager and team for structured free discussion, sharing of different points of view, and decision-making. Managers here balance being leader, observer, expediter, questioner and decision-maker - but avoid lecturing or weighing in too soon or too heavily to bias decisions that should be owned by the team.
  - Operational reviews: where one organization presents to others to share information and receive questions and feedback. Managers play a critical role in keeping these very expensive meetings on-track.
  - Mission-oriented: meetings created ad-hoc to reach a decision. These should be rare (less than 25% of your time). The meeting chair should be well-prepared and ensure the people vital to reaching a decision attend and are also prepared.
- Always take notes, even though you may never look at them again. It keeps your mind focused. Active listening.
- Regard attendance at the meeting for what it is, work.
- Before calling a meeting, ask yourself, what am I trying to accomplish? Then ask, is a meeting necessary? Or desirable? Or justifiable? Don’t call a meeting if all the answers aren’t yes.
- Decision-making is not a spectator sport, because onlookers get in the way of what needs to be done.
- If the meeting was worth having, then it’s worth the effort to summarize what happened with meeting notes.
Decisions
- Decisions are the output of a process framed by six questions.
  - What decision needs to be made?
  - When does it have to be made?
  - Who will decide?
  - Who will need to be consulted prior to making the decision?
  - Who will ratify or veto the decision?
  - Who will need to be informed of the decision?
- Work hard to frame the terms of the decision that needs to be made with utter clarity.
- An organization does not live by its members agreeing with one another at all times about everything. It lives instead by people committing to support the decisions and the moves of the business.
Planning
- Today’s gap represents a failure of planning sometime in the past.
- Remember that by saying “yes” – to projects, a course of action, or whatever – you are implicitly saying “no” to something else (trade-offs).
- Manage short-term objectives based on long-term plans.
- Be thoughtful about long term plans:
  - Size your market
  - Know where you are
  - Find a hypothetical path to meet demand
- Move towards long term plans using short-term Objectives (sub-goals) and corresponding Key Results (clear, unambiguous milestones to pace progress). Cascade “OKRs” across organizations. For example, if a manager’s objective was to “keep a factory expansion plan on schedule” with one key result being “obtain plant expansion decision by October”, she might delegate that key result to a staff member as an objective, and so on.
- OKRs provide clarity and alignment, but they can’t be run on auto-pilot. It takes judgment and common sense to guide day-to-day priorities based on OKR hierarchies.
Functional Teams vs Mission-Oriented Teams
- As organizations grow speed decreases while leverage increases. Businesses become more complex as they grow. Duplication and redundancy increase - multiple products may lead to multiple marketing teams, for example - and decisions are constantly being made on whether to centralize functions for consistency and greater leverage or to keep them decentralized for greater speed.
- Functional teams increase leverage, mission-oriented teams increase speed.
- Functional organizations (e.g. “Recruiting”, “Finance”, “Human Resources”) offer leverage by centralizing services to deliver benefits to an entire enterprise, rather than a subset. The trade-off is increased complexity and delay in managing requests from business units. In contrast, mission-oriented organizations (e.g. “Component Business Group”, “Systems Business Group”) are decentralized and pursue objectives largely independent of other parts of the enterprise, trading-off leverage for speed (closer proximity to customers and faster time to react).
- Speed is the only benefit to mission-oriented organizations, in all other cases functional organizations are superior.
- Dual reporting increases both leverage and speed. Invented at NASA as “matrix management” individuals in dual reporting structures have managers in both mission-oriented and functional teams. For example, a financial controller reports to both the Division Manager and the Director of Finance. While this solution creates complexity, the cost of complexity is outweighed by the benefits of operating in both functional and mission-oriented teams.
Sports Analogy
- Motivate employees by “shaping the field” based on what drives them.
- When someone isn’t doing their job, there can be only two reasons. Either they are incapable or unmotivated. To determine which, ask, “Could this person do it if their life depended on it?”
- Motivation has to come from within somebody. Accordingly, all a manager can do is create an environment in which motivated people can flourish.
- If we want to cultivate achievement-driven motivation, we need to create an environment that values and emphasizes output. To increase motivation, understand an individual’s highest level needs, whether it’s increasing competence or achievement, and preferred measure, whether compared to others or objective benchmarks. Then, like a coach motivating athletes, “shape the field” to create the motivation to grow team members to the limit of their abilities.
- The best way to get that spirit into the workplace is to establish some rules of the game and ways for employees to measure themselves. Eliciting peak performance means going up against something or somebody.
- Turning the workplace into a playing field can turn our subordinates into athletes dedicated to performing at the limits of their capabilities–the key to making our team consistent winners.
Group Interests vs Self-Interests
- Manage teams by setting expectations and cultural values.
- Complexity, Uncertainty and Ambiguity (“CUA”):
  - When CUA, is low, a team’s performance is influenced by expectations (via role definitions, setting objectives, checking-in and reviewing performance). When CUA is high, behavior is influenced by cultural values (as articulated and exemplified by the manager). Managers need to choose which mode to use depending on context.
  - This model assumes individuals share group interests, if individuals are too highly self-interested their behavior will be influenced very differently.
  - In low CUA situations they’ll behave based on incentives (“free market forces”, like commission rewards for selling certain products). In high CUA situations individuals with high self-interest and low group-interest will be unmanageable, like people panicking on a sinking ship.
  - People’s mix of self-interest and group-interest can shift over time. It’s a manager’s responsibility to align team members to group interests.
Task Relevant Maturity
- When you’re managing a skilled sales person with high task-relevant maturity your involvement should be minimal, focused only on setting and monitoring high-level objectives.
- Transfer that same person into a plant management role, where they’ll initially have low task-relevant maturity, and you’re more effective with a lower-level, task-oriented management style, focused on “what”, “when”, and “how” of operations.
- Getting this right is difficult because it’s hard for managers to assess task-relevant maturity and it’s hard to override personal preferences in management style.
- One managerial approach may not be equally effective in all conditions.
- Supervisors are responsible for teaching their subordinates. Training is one of the highest-leverage activities a manager can perform. If a manager spends 12 hours preparing training for 10 team members that increases their output by 1% on average, the result is 200 hours of increased output from the 10 employees. Don’t leave training to outsiders, do it yourself.
Performance Reviews
- Performance reviews are the single most important form of task-relevant feedback we as supervisors can provide. They are used to improve performance by identifying what skills we need to improve and/or to intensify motivation.
- Developing an effective assessment and message for an employee requires both including what’s important and leaving out what is not important.
Employee Departure
- When an employee quits, it’s the manager’s fault.
- When someone is dedicated and loyal and feels their work is unappreciated it is the failure of the manager when they decide to leave. Most often employees bring up leaving at an inconvenient, highly busy time. Regardless, it should be high priority for a manager to make sure the employee feels heard and valued, to address their issues and retain them or transfer them to another team within the enterprise that meets their needs.

III. Quotes

You have to accept that no matter where you work, you are not an employee-you are in a business with one employee: yourself. You are in competition with millions of similar businesses. There are millions of others all over the world, picking up the pace, capable of doing the same work that you can do and perhaps more eager to do it. Now, you may be tempted to look around your workplace and point to your fellow workers as rivals, but they are not. They are outnumbered-a thousand to one, one hundred thousand to one, a million to one-by people who work for organizations that compete with your firm. So if you want to work and continue to work, you must continually dedicate yourself to retaining your individual competitive advantage.
Remember too that your time is your one finite resource, and when you say “yes” to one thing you are inevitably saying “no” to another.
To get acceptable quality at the lowest cost, it is vitally important to reject defective material at a stage where its accumulated value is at the lowest possible level. Thus, as noted, we are better off catching a bad raw egg than a cooked one, and screening out our college applicant before he visits Intel. In short, reject before investing further value.
The absolute truth is that if you don’t know what you want, you won’t get it.
But in the end self-confidence mostly comes from a gut-level realization that nobody has ever died from making a wrong business decision, or taking inappropriate action, or being overruled. And everyone in your operation should be made to understand this.
I’d like to introduce the concept of leverage, which is the output generated by a specific type of work activity. An activity with high leverage will generate a high level of output; an activity with low leverage, a low level of output.
Let chaos reign, then rein in chaos.
My day always ends when I’m tired and ready to go home, not when I’m done. I am never done.
We must recognize that no amount of formal planning can anticipate changes such as globalization and the information revolution we’ve referred to above. Does that mean that you shouldn’t plan? Not at all. You need to plan the way a fire department plans. It cannot anticipate where the next fire will be, so it has to shape an energetic and efficient team that is capable of responding to the unanticipated as well as to any ordinary event.
Reports are more a medium of self-discipline than a way to communicate information. Writing the report is important; reading it often is not.
When a person is not doing his job, there can only be two reasons for it. The person either can’t do it or won’t do it; he is either not capable or not motivated. To determine which, we can employ a simple mental test: if the person’s life depended on doing the work, could he do it? If the answer is yes, that person is not motivated; if the answer is no, he is not capable.
The old saying has it that when we promote our best salesman and make him a manager, we ruin a good salesman and get a bad manager. But if we think about it, we see we have no choice but to promote the good salesman. Should our worst salesman get the job? When we promote our best, we are saying to our subordinates that performance is what counts.
At Intel, we put ourselves through an annual strategic long-range planning effort in which we examine our future five years off. But what is really being influenced here? It is the next year-and only the next year.
Are you trying new ideas, new techniques, and new technologies, and I mean personally trying them, not just reading about them? Or are you waiting for others to figure out how they can re-engineer your workplace-and you out of that workplace?
The output of a manager is the output of the organizational units under his or her supervision or influence.
The single most important task of a manager is to elicit peak performance from his subordinates. So if two things limit high output, a manager has two ways to tackle the issue: through training and motivation.
The key to survival is to learn to add more value.
The value system at Intel is completely the reverse. The Ph.D. in computer science who knows an answer in the abstract, yet does not apply it to create some tangible output, gets little recognition, but a junior engineer who produces results is highly valued and esteemed. And that is how it should be.
A poor performer has a strong tendency to ignore his problem.
Once someone’s source of motivation is self-actualization, his drive to perform has no limit. Thus, its most important characteristic is that unlike other sources of motivation, which extinguish themselves after the needs are fulfilled, self-actualization continues to motivate people to ever higher levels of performance.
Middle managers are the muscle and bone of every sizable organization, no matter how loose or “flattened” the hierarchy, but they are largely ignored despite their immense importance to our society and economy.
Adapt or die.
When the need to stretch is not spontaneous, management needs to create an environment to foster it.
So in the end careful interviewing doesn’t guarantee you anything, it merely increases your odds of getting lucky.

Lifecycle Of A Performer

Sun, 17 Sep 2023 00:00:00 GMT

Confidence is created from repetitive success from doing something you know you are going to win at. It comes from after doing it enough times successfully. For example, I love building side-projects. They are critical for my personal and professional growth. The more I build, the more confidence I accumulate.

Confidence compounds overtime because of successful outcomes. It requires less effort every time. Silence or chaos, confidence gets stronger. Capability shines over the difficulty of tasks because you spent time practicing your skill-sets. Confidence made overcoming obstacles easier.

But too much of it can be damaging. A sense of superiority kicks in from these successful outcomes. You lose touch with humility and willingness to discover more.

Confidence can be empowering at first, but can quickly lead to arrogance. Arrogance is deadly because you think you've figured it all out. You stop making progress. You no longer think there is more to discover. Or you put others down who are exploring.

This is why confidence is overrated for every new endeavor.

Confidence can be even more harmful during the early years of your profession because you haven't experienced repetitive success yet. As you are continuing to advance in life, you need to remember there is always more to discover and learn.

To learn new things, you need something more than confidence.

What is more important than confidence?

Courage!

Confidence comes from repetition. There is no substitution for reps. But the first step is always harder.

Armed with courage, you are able to cultivate that first step and live life under pressure.

And with courage comes achievement, progress, and a sense of pride.

If confidence comes from repetitive successful outcomes, where does courage come from?

One place it can come from is being highly obsessed.

Obsession requires motivation and if you are obsessed, you are likely going to have high motivation. This is the highest form of leverage as you begin your journey.

But motivation will likely decay overtime. Motivation is a perishable skill. It is up to you to not waste time and get to work.

Hard problems require courage even when your motivation is depleted.

To continue on, self-actualization is critical. It is an important characteristic of courage.

This will lead to higher performance even when emotional resources are depleted.

As time goes by, courage will lead to confidence.

You will need courage again when you are starting something new.

This is the lifecycle of a performer.

No Risk No Snack

Sun, 10 Sep 2023 00:00:00 GMT

What is my risk tolerance?

I was recently told that I am low on risk tolerance. I was confused with the feedback. The intention of the feedback wasn't negative, but to scale me on the risk spectrum. I personally appreciated the conversation, but nonetheless, investigation was warranted.

I have learned about risk taking from two worlds-investing and entrepreneurship. I have invested in common stocks to grow my personal portfolio since I was a teenager. It's been a decade and a half. In addition, I have started multiple businesses in that same amount of time. One flopped, and the other had a decent outcome.

They both inherently required making bets, but they were both different types of bets.

In investing, your job is to mitigate as much as risk possible, but I was vulnerable to my weakest impulses and passions during the Great Recession of 2008. Before the collapse, speculation dominated the culture and I participated in it. I made my quick dollars in short amount of time, but lost majority of it during the recession.

These lessons had a huge impact on me. I decided to never make those same mistakes again, at least in investing, which is not to lose initial investment.

I became a risk mitigator. The impact of that was I became too skeptical about everything and missed out on the large returns before the COVID-19 pandemic. I had no interest in get-rich-quickly conversations.

While everyone in the industry spent time debating about the biggest risk to the economy, I was watching the show from the sidelines. Everyone was busy making predictions about Tesla, Bitcoin, NFTs, interest rates, tax cuts, China, and money printing. But the industry missed out on the most important event of our lifetime-COVID-19 pandemic.

Carl Richards, the author of The Behavior Gap said, “Risk is what’s left when you think you’ve thought of everything.” There is no better definition of risk than this.

Markets were down 30-40% in 2020. It reminded me of 2008, but this time I was ready to pounce on fear. I gobbled everything that I could afford. The probability of upside was a lot higher than the downside. My risk tolerance this time was high due to probability being in my favor. Humanity has always come back from harsh times. The biggest risk here was going to be not taking any.

This time it worked out well!

Lessons I took away about risk taking from investing experience:

You don't make money if you don't take risks.
The basic trade-off in finance is to balance risk and return. I cannot control the markets, but what I can control is to minimize losses by purchasing a stock at a fair price with a right quantity. The goal is to minimize deficit on a potential outcome.
There is a difference between risk-taker and gambler. You can mitigate risk, but you can't overcome a losing gamble.
Uncertainty does not equal risk.
It is never a good idea to borrow conviction from others otherwise you'll misjudge risk and size your positions wrong.

This is one side of my experience with risk taking from investing. The other side comes from entrepreneurship which has a different flavor of risk.

I have now built two products which required funding from my own pocket without any customers. And if I were to fail, I didn't have anyone to fall back onto because I do not come from wealthy family. So, where did that confidence of risk taking come from?

For the pen and mental model project, I was brave enough to live life creatively. I didn't care about assessing risk. I had to listen to my gut.

The creative side is to bring the idea floating in my head to life. And if all failed, I would learn a skill or two. None of these ideas were change-the-world type of ideas. I would consider them lifestyle businesses within educational category. Both were strong enough to bring to life.

Entrepreneurship is like adventuring out into wilderness. There are no roads or buses. You rely on your intuition. You work hard. And you take risky path to the unknowns. But when all is said and done, you discover something beautiful. And you can share the experience with the world. Both of my products felt that way!

I am able to justify losing if the outcome is to be able to share something beautiful with the world. There was no risk mitigation strategy here. I worked hard to pave the path for progress. I couldn't quantify risk, but in the end it was all worth it.

Lessons I took away about risk taking from entrepreneurial experience:

It is hard to determine what is dumb luck and what is unfortunate risk in entrepreneurship.
Redundancy reduces risks. Consistency wins while you are in a build mode.
The biggest risk in entrepreneurship is giving up when you are getting close. First steps will lead to failures, but you gain experience for the next steps.
As an entrepreneur, it is your job to kill risks that is under your control. For example, increase the velocity of decision-making.
Optimism is a risk killer.

My experience tells me it is hard to quantify risks on this side of the coin, but there are varying degree of risk tolerances.

There are paths that are less traveled and there are paths that have never been traveled before. Risk tolerance varies when you are building a rocket ship versus a pen.

After all my friend was right-I am low on risk tolerance because I would be resistant to extreme paths, and I am too calculated in my risk taking approach. You cannot convince me to live on Mars. But at least I know the varying degree of risks that exist both in investing and entrepreneurship.

The takeaway lesson is the size of your snack depends on the type of risk you take. If you don’t take risk you don’t get a snack.

Mantras And Missions

Wed, 06 Sep 2023 00:00:00 GMT

What do mantras and mission have in common?

Growing up in an Indian household, mantras were engrained in us. They have been used for thousands of years to maintain health both at conscious and subconscious level. They manifest vibrations-which we call “energy” in modern life-to create a balance in life.

Let's look at this mantra called Shanti Hum from Sanskrit which means, “I radiate peace and calmness and I bring peace to those around me, I am then in control of my emotions and feelings. I emit love and kindness.”

I personally practice this mantra because I was not the calmest person growing up. And I am far out from being the kindest person in the room. But every time I chant Shanti Hum, I become the conduit of this mantra.

This brings order to life when I am the most volatile.

Can this type of thinking also translate into the business world?

I have seen it first-hand while I worked at Morningstar because management deeply cared about empowering investor's success. It directly came from the founder of the company, Joe Mansueto. This was Morningstar's North Star since its founding days. And the same mission statement is still being practiced today after 3 decades. It wasn't perfect, but a great manual on how to operate.

Another example is Amazon. Jeff Bezos first published his shareholder letter in 1997. That letter highlighted the vitality of “Day 1.” Day 1 companies obsess over customers and high velocity decisions. All subsequent letters until 2021 when Bezos retired included the link to his original letter-Day 1. A reminder for himself and for everyone else around him to operate as if it is Day 1. He even named one of the Amazon HQ buildings as Day 1.

This type of thinking is helpful for business leaders to keep their North Star closer to them. It is these consistent missions that help them make progress. There are no buts or compromises when they amplify these messages or run into roadblocks. Mission statement is a contract between the leader and the customers.

The consistency of your endeavors matter both during personal and professional journeys. Let their be a guiding philosophy on how you must operate.

These mantras and mission statements is what gets you out of these heavy storms.

More Zeroes More Weight

Fri, 01 Sep 2023 00:00:00 GMT

Why does money feel burdensome?

Ever since I was a kid I dreamt of making a lot of money. I made calculated decisions in choosing my professional career, so I could earn a lot.

A great monetary outcome is not a bad thing, but you have to recognize the weight it bears.

We all understand the pointlessness of money, yet we pursue it in life. There is a certain threshold that the utility of money is critical for survival, but after a certain point, the utility of money starts fading.

Seneca observed in one of his letters how often powerful people are slaves to their money. Consider the actions we take or the lengths we go in order to impress other people.

Money can distort your spiritual awareness if you don't keep your desires in check.

Money does not define an arbitrary rating of human value. Humans have soul. And our character is defined by how great our soul is, not by how deep our pockets are.

Don't let money hijack your soul.

Money is a tool. It is like calories for your body, and the purpose of a calorie is to fuel your body, so you can perform your daily human tasks. But you don't go to a grocery store to buy calories. It's a means to an end and so is money.

Money is a required pursuit in life, but pointless upon death.

More zeroes, more weight there is to it.

Retreat Seeking Dilemma

Sat, 26 Aug 2023 00:00:00 GMT

Why do we take retreats?

I have gone down the path of taking retreats to both escape and learn about other cultures. I thought they were both one and the same thing, but they are not.

We (my wife and I) left Chicago during the Covid-19 pandemic for Austin.

It was strictly to escape brutal winters and get more sun. The scenes of everyday life were no longer desired. You start daydreaming about what life could be on the other side. The idea of leaving ordinary life for something more exciting occupied my mind. There was no longer a desire to live a mundane life.

In Austin, it was remarkably easy to talk to strangers, locals, and other nomads. But this doesn't naturally happen when I am in Chicago. It takes a lot more effort to those same things.

I was open-minded about ideas, food, making new friends and exploring new things while I was in Austin, but the same things come with friction in Chicago. Understandably, time was a luxury in Austin because I was not occupied with social obligations.

Life was more exciting and free of obligations with a lot of sun and tacos.

Until we became parents. We wanted to escape again after our son was born. This retreat lasted for 18 months before we moved back to Chicago.

Winter is upon me in Chicago and I find myself asking if this is our permanent base. Or will I entertain escaping again because of never ending mundane life during harsh winters?

This time I am taking on a fatherly view because I have a 1-year-old on hand and the implications are beyond me including my son's grandparents. This was the reason we moved back to Chicago.

Giving a thought to this matter is making me appreciate my current base. I no longer desire to run away from things because it is much easier to create excuses than trying to work with the environment you are in.

Retreats stretch the horizon of our imaginations, but embracing the base we are in now is as valuable. It is joyful, but not flawless. And life also operates in similar fashion.

Escaping your base to renew your soul somewhere else is not sufficient in my view. It can be great, but it does not address the core.

We seek retreats by the mountains and beaches to escape our base. But no matter where you go, you take the same soul with you. I am the culprit of it because I am constantly escaping out to the mountains. But romanticizing escapism won't help me find peace or calm.

You have to find your base wherever you are.

Recognizing this is important otherwise you'll keep running away. I did for some time.

I have now changed my perspective on how I want to live in Chicago. I am not seeking sunshine. I am much more adaptable to seasons of life, different walks of people, and new ideas. What I did in Austin can be done here in Chicago. And this is the mindset I want to embrace.

All I needed was clarity and realization to convince my mind that any base can be beautiful as long as I wanted it to be. My gratitude for Chicago illuminates brighter than it ever has.

Marcus Aurelius in his text Meditations, “People seek retreats for themselves in the country, by the sea, or in the mountains. You are very much in the habit of yearnings for those same things. But this is entirely the trait of a base person, when you can, at any moment, finding such a retreat in yourself. For nowhere can you find a more peaceful and less busy retreat than in your own soul-especially if on close inspection it is filled with ease, which I say is nothing more than being well-ordered. Treat yourself often to this retreat and be renewed.”

I will continue to seek retreats, but not to escape, but to learn while loving my base. Next time I plan my retreat, it will be much more intentional.

To summarize all this-your soul is where the retreat is.

Extreme Ownership by Jocko Willink and Leif Babin

Fri, 25 Aug 2023 00:00:00 GMT

I. Brief Summary

A book on how to be a leader with extreme ownership. Navy SEALs Jocko Willink and Leif Babin discuss leadership lessons which includes practicing ownership, killing ego, enforcing standards, simplifying, prioritizing, and executing. Each chapter includes their experience fighting in the Battle of Ramadi, Iraq, with concluding lesson on a leadership principle and business application.

II. Big Ideas

The leader is always responsible.
Everyone on a team must believe in the mission.
Work with other teams to achieve mutually beneficial outcomes.
Keep plans simple, clear, and concise and communicate them clearly.
Check your ego and lead with humility.
Figure out your priorities, and then act on them one at a time.
Clarify your mission.
Engage with your higher-ups; keep them in the loop, especially when they frustrate you.
Act decisively, even when things are chaotic. Get comfortable making decisions with incomplete information.
Lead and support your superiors.
Leader's Planning Checklist:
- Analyze the mission.
- Understand the higher headquarter's mission, commander's intention, end state, and goal.
- Identify and state your own commander's intent and end state for the specific mission.
- Identify personnel, assets, resources and time available.
- Decentralize the planning process. Empower key leaders within the team to analyze possible courses of action.
- Determine a specific course of action.
- Lean towards accepting the simplest course of action.
- Focus efforts on the best course of action.
- Empower key leaders to develop a plan for the selected course of action.
- Plan for likely contingencies through each phase of the operation.
- Mitigate risk that can't be controlled as much as possible.
- Delegate portions of the plan, and brief to key junior leaders.
- Stand back, and be the Tactical Genius.
- Continually check and question the plan against emerging information to ensure it still fits the situation.
- Brief the plan to all participants and supporting assets.
- Emphasize commander's intent, ask questions, and engage in discussion and interaction with the team to ensure that they understand.
- Conduct post-operational debrief after execution. Analyze lessons learned and implement them in future planning.
Extreme Ownership:
- The leader must own everything in his or her world.
- It’s the leader’s fault when subordinates aren’t doing what they should.
- Total responsibility for failure is a difficult thing to accept. It requires extraordinary humility and courage.
- Extreme ownership requires leaders to look at an organization’s problems through the objective lens of reality, without emotional attachments to agendas or plans.
- Effective leaders do not take credit for his or her team’s successes but bestows that honor upon his subordinate leaders and team members.
- It is the direct responsibility of a leader to get people to listen, support, and execute plans.
- You can’t make people do things. You have to lead them.
- Extreme ownership is asking yourself, “How can I best get my team to most effectively execute the plan in order to accomplish the mission?”
- Every mistake, every failure or shortfall must be owned.
- Pointing fingers and blaming others is easy and contagious.
- You create the culture. What you do as a leader will be emulated by your subordinates.
- If something isn’t going your way, start with what you are going to do differently.

III. Quotes

Waiting for the 100 percent right and certain solution leads to delay, indecision, and an inability to execute.
Discipline equals freedom.
It’s not what you preach, it’s what you tolerate.
The test is not a complex one: when the alarm goes off, do you get up out of bed, or do you lie there in comfort and fall back to sleep? If you have the discipline to get out of bed, you win-you pass the test. If you are mentally weak for that moment and you let that weakness keep you in bed, you fail. Though it seems small, that weakness translates to more significant decisions. But if you exercise discipline, that too translates to more substantial elements of your life.
Implementing Extreme Ownership requires checking your ego and operating with a high degree of humility. Admitting mistakes, taking ownership, and developing a plan to overcome challenges are integral to any successful team.
The most fundamental and important truths at the heart of Extreme Ownership: there are no bad teams, only bad leaders.
On any team, in any organization, all responsibility for success and failure rests with the leader. The leader must own everything in his or her world. There is no one else to blame. The leader must acknowledge mistakes and admit failures, take ownership of them, and develop a plan to win.
When setting expectations, no matter what has been said or written, if substandard performance is accepted and no one is held accountable-if there are no consequences-that poor performance becomes the new standard.
Leaders should never be satisfied. They must always strive to improve, and they must build that mind-set into the team. They must face the facts through a realistic, brutally honest assessment of themselves and their team’s performance. Identifying weaknesses, good leaders seek to strengthen them and come up with a plan to overcome challenges. The best teams anywhere, like the SEAL Teams, are constantly looking to improve, add capability, and push the standards higher. It starts with the individual and spreads to each of the team members until this becomes the culture, the new standard. The recognition that there are no bad teams, only bad leaders facilitates Extreme Ownership and enables leaders to build high-performance teams that dominate on any battlefield, literal or figurative.
Prioritize your problems and take care of them one at a time, the highest priority first. Don’t try to do everything at once or you won’t be successful.” I explained how a leader who tries to take on too many problems simultaneously will likely fail at them all.
You can’t make people listen to you. You can’t make them execute. That might be a temporary solution for a simple task. But to implement real change, to drive people to accomplish something truly complex or difficult or dangerous-you can’t make people do those things. You have to lead them.
After all, there can be no leadership where there is no team.
The leader must explain not just what to do, but why. It is the responsibility of the subordinate leader to reach out and ask if they do not understand. Only when leaders at all levels understand and believe in the mission can they pass that understanding and belief to their teams so that they can persevere through challenges, execute and win.
Leaders must always operate with the understanding that they are part of something greater than themselves and their own personal interests.
A good leader does not get bogged down in the minutia of a tactical problem at the expense of strategic success.
We learned that leadership requires belief in the mission and unyielding perseverance to achieve victory, particularly when doubters question whether victory is even possible.
The true test for a good brief is not whether the senior officers are impressed. It’s whether or not the troops that are going to execute the operation actually understand it. Everything else is bullshit.
A good leader has nothing to prove, but everything to prove.
Instead of letting the situation dictate our decisions, we must dictate the situation.
Generally, when a leader struggles, the root cause behind the problem is that the leader has leaned too far in one direction and steered off course. Awareness.
Don’t ask your leader what you should do, tell them what you are going to do.
People do not follow robots.
A leader must lead but also be ready to follow. Sometimes, another member of the team-perhaps a subordinate or direct report-might be in a better position to develop a plan, make a decision, or lead through a specific situation.
If you don’t understand or believe in the decisions coming down from your leadership, it is up to you to ask questions until you understand how and why those decisions are being made. Not knowing the why prohibits you from believing in the mission. When you are in a leadership position, that is a recipe for failure, and it is unacceptable. As a leader, you must believe.
If the plan is simple enough, everyone understands it, which means each person can rapidly adjust and modify what he or she is doing. If the plan is too complex, the team can’t make rapid adjustments to it, because there is no baseline understanding of it.
All animals, including humans, need to see the connection between action and consequence in order to learn or react appropriately.
Our egos don’t like to take blame.
Everyone has an ego. Ego drives the most successful people in life-in the SEAL Teams, in the military, in the business world. They want to win, to be the best. That is good. But when ego clouds our judgment and prevents us from seeing the world as it is, then ego becomes destructive.
I had to take ownership of everything that went wrong. Despite the tremendous blow to my reputation and to my ego, it was the right thing to do-the only thing to do.
The focus must always be on how to best accomplish the mission.
Staying ahead of the curve prevents a leader from being overwhelmed when pressure is applied and enables greater decisiveness.
I can remember many times when my boat crew struggled. It was easy to make excuses for our team’s performance and why it wasn’t what it should have been. But I learned that good leaders don’t make excuses. Instead, they figure out a way to get it done and win.
Repetitive exceptional performance became a habit.
It’s not what you preach, it’s what you tolerate. You have to drive your CTO to exercise Extreme Ownership-to acknowledge mistakes, stop blaming others, and lead his team to success. If you allow the status quo to persist, you can’t expect to improve performance, and you can’t expect to win.
They must believe in the cause for which they are fighting.
It falls on leaders to continually keep perspective on the strategic mission and remind the team that they are part of the greater team and the strategic mission is paramount.
Leadership doesn’t just flow down the chain of command, but up as well. We have to own everything in our world. That’s what Extreme Ownership is all about.
When leading up the chain of command, use caution and respect. But remember, if your leader is not giving the support you need, don’t blame him or her. Instead, reexamine what you can do to better clarify, educate, influence, or convince that person to give you what you need in order to win.

Bird That Keeps Building

Thu, 17 Aug 2023 00:00:00 GMT

Does a bird need a plan to build its nest?

It does not have an architectural plan. It does not have a wireframe. Neither does it care about a business plan nor a deadline.

A bird just keeps building to lay its eggs.

It starts building a nest by weaving together grass and twigs to form a basket and use binding material such as mud to hold its nest.

But mother nature is unyielding to these gentle birds. The heavy storm, wind or hail brings the nest down with its forceful impact that is under construction.

The bird watches the destruction from far. After the storm settles and the sun rises back again, so does the bird. It gets back to work.

One weave at a time, with extra care, but with steady pace.

The bird puts a great deal of time and attention into preparing for its approaching offspring.

A clutch finally arrives, chicks get stronger, wings widen, and they are set free to soar on their own.

And the bird shows up next year with same focus to do it all over again. This time too without a plan.

A valuable lesson for us humans on how to build. The way to build a nest is by building a nest.

Declare Do Repeat

Sat, 05 Aug 2023 00:00:00 GMT

What are the mechanics of a reliable do-er?

In an increasing world of information and choices, a commitment of an individual is as good as its character. Success is measured in reliable outcomes, but how can one produce reliable outcomes?

DECLARE

50% of it is showing up. It is a superpower of any individual. The best operators in the world possess this quality. They are the kind of people who never miss showing up.

They create incredible value without any monetary expectations by being trustworthy and showing up for causes they believe in and standing up for what is right.

They prioritize, execute with speed, and cancel all distractions. It is a simple formula, but hard to follow.

Discipline is their friend. They set boundaries. They admire accountability.

Even in the absence of knowledge or facing hardships, they show up. They do not bail when people around them are not doing well. They are there for both wins and losses.

Team is greater than self-interest. They do not seek validation or permission. They are a repeat player on the team.

These are the mechanics of showing up. They have a reliable presence.

The rest of it is getting it done because execution is your moat. Be a participant, not a spectator.

Former US President Barack Obama once shared his most important career advice for young people-“Just learn how to get stuff done.”

These words again are simple, but the impact is astronomical. You can argue that ideas matter, but you cannot argue against ideas without action is worth nothing.

It is not about talk the talk. It is about walk the walk. Showing up without doing is pointless. Magic happens when you turn ideas into action and get things done.

Rising above noise is where the change-makers are. Inspiring the world around you with action is better than just words. MBA kids pay attention to market surveys, analysis and planning. Entrepreneurs just go out there and sell to see what happens. The paranoids survive who are customer obsessed, have ownership mindset, act with sense of urgency and learn from doing.

The clock doesn't stop. Time is undefeated. Only way to compete time is to do things. Once you do something, time cannot take it away. Take charge and get things done.

Saying you'll do it, then doing it in a short amount of time is a recipe for reliability. Become an uncertainty killer.

Declare, do, and repeat.

Beyond The Prototype by Douglas Ferguson

Mon, 03 Jul 2023 00:00:00 GMT

I. Brief Summary

Another text on product management and design thinking by a human centered design technologist. Ferguson combines years of experience at Google and IBM and shares design sprint frameworks. He helps in getting from problem/idea to tested hypothesis within a short span of a week (design sprint).

II. Big Ideas

The 6 stage roadmap for ideation to outcome: wrap it up, share your story, chart the course, expand the inner circle, cultivate the culture, get guidance.
- Wrap it up:
  - Your Design Sprint doesn’t end with a hard-stop on day five. One of the key post-Sprint activities is reflecting on how your hypothesis and questions were answered through testing.
  - Schedule a formal team retrospective for the Monday or Tuesday after your sprint.
  - Come to a consensus on what you learned, what you still have questions on and what might be next.
  - Reflect on how the sprint went overall: was it a big win, a learning moment or a bummer? Whatever it was, the learnings are the important pieces to take moving forward.
- Share your story:
  - Remember, if your sprint team doesn’t tell the story of what happened, someone else will.
  - Don’t procrastinate on crafting your narrative. You can begin by simply talking with the sprint team about what you achieved. Start this conversation at the end of your last sprint day.
  - If you have any unexpected or potentially controversial learnings, think about how you want to approach these conversations with colleagues.
  - Capture the beginning, middle, and end of the story of the sprint and find a way to communicate it with key stakeholders.
  - It’s always effective to share cuts of video or audio clips from your user interviews to support your big findings.
- Chart the course:
  - After you’ve reflected on the outcomes of your sprint, your next big task is to make a concrete plan for the next phase of work.
  - Depending on your specific organization, you might be making a plan for any number of next steps, from designing and developing new features to additional prototyping or research.
  - Often, organizations find themselves in the space between Design Sprint and development. You may need to bridge this gap by having a team go into more in-depth prototyping and design before development.
  - If you need more exploratory work to get you closer to execution, there are many ways to deconstruct the Design Sprint-from parallel sprints to sprinting on important features from your development backlog.
  - Decide how you are going to track and measure the progress of your effort.
  - Determine your communication cadence for sharing project status reports with your stakeholders and leadership team.
- Expand the inner circle:
  - Your sprint team will probably need to grow based on the needs you identified in your project plan.
  - Create a RACI matrix to determine governance structure and responsibilities from the very beginning.
  - Build a diverse team that has the right mix of leadership, entrepreneurship, skills, and vision.
  - Ensure that your team is poised to work collaboratively. If possible, have the team sit together and create a war room for meetings and regular pin-ups.
  - Consider bringing in a design thinking facilitator if you are going to need additional sprints.
- Cultivate the culture:
  - Culture can make or break your post-Design Sprint success. Be sure to support the right environment for innovation.
  - Understand where your organization is and if they are ready to embrace the sprint culture every day. An openness to experimentation, moving fast but deliberately, and curiosity is essential.
  - Failure will be part of your post-Sprint life. You’ll design and test things that won’t work. Consider ways to continually communicate your learnings to keep people abreast of successes and failures.
  - Don’t forget to give your team moments for decompression and breaks from the intense work they are doing.
  - The success of your Design Sprint may lead to interest from other organizations or business units. Be prepared to consult or assist other teams that are sprint-curious. Find easy ways to help spread the culture you’re inspiring and “infect” different parts of your company with the goodness!
- Get guidance:
  - A coach is someone who can ask you tough questions and provide you concrete, actionable guidance in achieving your personal and professional goals.
  - If you are not experienced in leading innovation work, consider regular check-ins with a coach who can help you navigate tricky moments and provide general counsel.
  - The first place to look is within your organization. See if there is a neutral party, experienced in innovation or design thinking, who is willing to meet with you to bounce ideas off of and to help you navigate the organization.
  - If you can’t find someone outside, look for an outside consultant or coach. The investment can be in-depth or light, and many coaches are open to designing an engagement plan that supports you and the time and money you can commit.
A RACI is a simple matrix that outlines the roles and responsibilities of a complex project. Having a RACI in place ensures that all stakeholders and team members know their part, who is doing what, and who is the ultimate decision-maker.

III. Quotes

A prototype is just a quick simulation of the real thing that you create to uncover deeper insights and expose the riskiest assumptions about your idea.
A lot of organizations have barriers towards new visions, products, or directions-whether explicitly or unintentionally.
No matter where you ended, it’s all good. That’s the point of a sprint-deep and directional insights in five days instead of diving into months of development and then finding out when it’s too late to make a change.
I think if you start well, you finish well, and if you start poorly, you finish poorly.
There are innovators whose success is the learning, not the dollars. Those innovators will come up with the thing that works because eventually there will be that intersection-the learning will lead to something that works in the market, and then it’ll take off.
It’s not so important to have the right degree, to have the right set of experiences. It’s more important to have the right mindset and to have the willingness to go and do stuff that is uncomfortable or may seem like it might be beneath your station.
Vulnerability is another attitude to cultivate in your corporate culture.
One way to make sure you build a culture that leans into failure (aka “learning”) is to communicate your stumbles, as well as your successes.
Developing coaching relationships with my clients is about long-term accountability, not just innovation events. There are some simple ways to do it, like a phone call to talk about ‘rose, thorn, and bud.’ What's something good that's happening? What are some challenges? What's on the road ahead?
We’ve realized that the strength of a facilitator is directly proportional to the success of the sprint. You can’t have low-level facilitators and expect the same results.

Continuous Discovery Habits by Teresa Torres

Tue, 27 Jun 2023 00:00:00 GMT

I. Brief Summary

If you haven’t had the good fortune to be coached by a strong leader or product coach, this book can help fill that gap and set you on the path to success.

II. Big Ideas

Discovery isn’t a one-time activity. A digital product is never done.
Product Manager's work: work that you do to decide what to build as discovery and the work that you do to build and ship a product as delivery.
Most successful digital products today are conceived, designed, built, and delivered by a cross-functional team composed of product managers, designers, and software engineers. Product managers bring the business context-they help teams ensure that the products they are building are viable for the business.
Agile Manifesto: The authors of the Agile manifesto advocated for shorter cycles with more frequent customer feedback. Second, they proposed working at a pace that could be sustained continuously, rather than furiously scurrying from one milestone to another. Third, they advocated for maximum flexibility-having the ability to adapt to customer feedback quickly and easily. And fourth, they advocated for simplicity.
There are six mindsets that must be cultivated to successfully adopt the habits outlined in this book.
- Outcome-oriented. Focusing on outcome rather than output.
- Customer-centric. Really understanding your customers.
- Collaborative. Getting the right people involved in discovery.
- Visual. Using the opportunity solution tree, among other tools to map-out what you want to learn in discovery.
- Experimental. Making the process hypothesis-driven and learning all the time.
- Continuous. Making discovery an ongoing part of business-as-usual rather than a one-off activity.
Starting with outcomes, rather than outputs (features), is what lays the foundation for product success.
Opportunity space represent customer needs, pain points, and desires collectively. Problems need fixing, but desires don't. Desires are equally important. For example, ice cream on a hot summer day.
- The implication for product trios is that two of the most important steps for reaching our desired outcome are first, how we map out and structure the opportunity space, and second, how we select which opportunities to pursue. Unfortunately, many product trios skip these steps altogether.
Ill-structured problems are defined by having many solutions. There are no right or wrong answers, only better or worse ones. How we frame an ill-structured problem impacts how we might solve it.
Product teams often have to do some discovery work to identify the connections between product outcomes (the metrics they can influence) and business outcomes (the metrics that drive the business). OKRs is one way to measure it.
The key distinction with this strategy over traditional roadmaps is that we are giving the team the autonomy to find the best solution.
A fixed roadmap communicates false certainty. An outcome communicates uncertainty.
The product trio brings customer and technology knowledge to the conversation and should communicate how much the team can move the metric in the designated period of time (usually one calendar quarter). The trio should not be required to communicate what solutions they will build at this time, as this should emerge from discovery.
Thinking in the structure of trees:
- It helps us deconstruct large, intractable problems into a series of smaller, more solvable problems.
- The value of breaking big opportunities into a series of smaller opportunities is twofold.
  - First, it allows us to tackle problems that otherwise might seem unsolvable.
  - Second, it allows us to deliver value over time. That second benefit is at the heart of the Agile manifesto and is a key tenet of continuous improvement.
Researchers measure creativity using three primary criteria: fluency (the number of ideas we generate), flexibility (how diverse the ideas are), and originality (how novel an idea is).
Downward norm setting-the performance of the group tends to be limited to the lowest-performing member. Rather than the strongest member raising everyone else up, the opposite happens. The weakest member brings everyone else down. These factors combined to inhibit the performance of the brainstorming groups as compared to the individuals who generated ideas alone.
The biggest barrier to testing assumptions is becoming aware of the assumptions we are making. sizes. As product trios, we are primarily concerned with assumptions in the following categories:
- Desirability assumptions: Does anyone want it? Will our customers get value from it?
- Viability assumptions: Should we build it?
- Feasibility assumptions: Can we build it?
- Usability assumptions: Is it usable? Can customers find what they need? Will
- Ethical assumptions: Is there any potential harm in building this idea? This is an area that is grossly underdeveloped for many product trios.
A strong assumption test simulates an experience, giving your participant the opportunity to behave either in accordance with your assumption or not. This behavior is what allows us to evaluate our assumption.
Do not measure everything otherwise your team will get stuck trying to measure everything. Instead, measure impact on your desired outcome.
Action items from the book:
- Opportunity solution tree (OST): Opportunity solution trees are a simple way of visually representing the paths you might take to reach a desired outcome. The root of the tree is your desired outcome-the business need that reflects how your team can create business value. Opportunity solution trees help you resolve the tension between business needs and customer needs. As you embark on the wandering paths of discovery, your tree will act as your roadmap, helping you find the best path to your desired outcome.
- Skipping “whether or not” decision is when we frame a problem as “Should we do this or not?” Instead of framing our decisions as “whether or not” decisions, develop a “compare and contrast” mindset. Instead of asking, “Should we solve this customer need?” we’ll ask, “Which of these customer needs is most important for us to address right now?” We’ll compare and contrast our options.
- A business outcome (for example, retention) measures how well the business is progressing. A product outcome (for example, customers like your ice cream) measures how well the product is moving the business forward. A traction metric measures usage of a specific feature (for example, customers like the waffle cones) or workflow in the product.
- Experience map: An experience map that reflects what you know about your customers’ experience today while answering outcome questions. Each individual comes up with their own visuals. Then the team combines all of their maps together. This shared map will guide your customer interviews, and it will help give structure to the opportunity space. It can and should evolve week over week as your team learns about your customers.
- Interview snapshot: An interview snapshot is a one-pager designed to help you synthesize what you learned in a single interview. It’s how you are going to turn your copious notes into actionable insights. Your collection of snapshots will act as a reference or index to the customer knowledge bank you are building through continuous interviewing.
- Opportunity assessment: teams assess opportunities using the following criteria: opportunity sizing, market factors, company factors, and customer factors.
  - Opportunity sizing helps us answer the questions: How many customers are affected and how often?
  - Market factors help us evaluate how addressing each opportunity might affect our position in the market.
  - Company factors help us evaluate the strategic impact of each opportunity for our company, business group, or team.
  - Customer factors help us evaluate how important each opportunity is to our customers.
- One-way door & two-way decisions:
  - With a one-way door decision, the idea is that, when we make the decision, we walk through the door. Upon entering the space on the other side of the door, we are able to see the consequences of our decisions. Unfortunately, because it’s a one-way door, if we don’t like what we see, we can’t turn around and walk out through the door again. This is what Bezos calls a “Level 1 decision.” For these types of decisions, we want to be cautious, data-driven, and deliberate in our decision-making.
  - With a two-way door decision, on the other hand, when we walk through the door, if we don’t like what we see, we get to turn around and undo our decision. This is what Bezos calls a “Level 2 decision.” He suggests that, with a two-way door decision, we’ll learn more by acting-walking through the door and seeing what’s on the other side-than we would by trying to imagine what’s on the other side of the door.
  - Jeff Bezos, founder and CEO of Amazon, made this exact argument in his 2015 letter to shareholders,33 where he introduced the idea of Level 1 and Level 2 decisions. He describes a Level 1 decision as one that is hard to reverse, whereas a Level 2 decision is one that is easy to reverse. Bezos argues that we should be slow and cautious when making Level 1 decisions, but that we should move fast and not wait for perfect data when making Level 2 decisions.
- Alex Osborn 4 rules on brainstorming session: focus on quantity, defer judgement (separate idea generation from idea evaluation), welcome unusual ideas and combine and improve ideas.
- Story mapping to get clarity: one of the best ways to align as a team around what your ideas mean is to story map them. Story mapping is a popular technique in which teams map out each step end-users have to take to get value from a product or service.49 Story mapping forces you to get specific about how an idea will work and what you expect your end-users will do. While many teams use story mapping to align around product requirements, it’s also a great technique for helping us to surface underlying assumptions. To story map your ideas:
  - Start by assuming the solution already exists.
  - Identify the key actors.
  - Map out the steps each actor has to take for anyone to get value from the solution.
  - Sequence the steps horizontally over time.
- Communicating with stakeholders. When we show our work, we are inviting our stakeholders to co-create with us.
  - When meeting with stakeholders, don’t start with your conclusions. Instead, slow down and show your work.
  - When meeting with stakeholders, start at the top of your tree. Remind your stakeholders what your desired outcome is. Ask them if anything has changed since you last agreed to this outcome. This sets the scope for the conversation.
  - Share how you mapped out the opportunity space. Highlight the top-level opportunities.
  - Share how you assessed and prioritized the opportunity space. Use the tree structure to walk through each decision you made.
  - Share more context about your target opportunity. Help them fully understand the customer need or pain point you intend to address. Use your interview snapshots to help your stakeholders empathize with your customers.
  - Share the solutions you generated. Ask them if they have any of their own ideas. Make sure you capture and consider them. Share the set of three solutions you plan to move forward with.
  - Share your assumption map. Be sure to add any of the assumptions that your stakeholders identified. Ask them if they would have prioritized the assumptions differently. Make adjustments as needed.
  - Share your assumption tests. If you have data, share the data. Otherwise, share your execution plans. Ask for feedback. Consider and integrate their feedback.
- Make a habit talking to your customers on daily.

III. Quotes

“Product trio” refers to a product manager, a designer, and a software engineer working together to develop products for their customers.
Our goal with continuous discovery is to infuse those daily decisions with as much customer input as possible.
Businesses do need to make a profit. That’s required for their survival. However, profit should not come at the cost of serving the customer.
Many companies put a heavy emphasis on delivery-they focus on whether you shipped what you said you would on time and on budget-while under-investing in discovery, forgetting to assess if you built the right stuff. This book aims to correct for that imbalance.
And finally, teams continued to be measured by what they delivered, not whether anyone used it or if it created any value for the customer or the business.
There is huge pressure to solve customer problems and drive business value.
We shifted away from a more superficial understanding of our customers. Instead of relying on heavy, infrequent research, we developed a deeper understanding of the customer’s needs, problems, and desires through regular contact and lightweight research methods.
Shifting from a project mindset to a continuous mindset is hard.
We tend to take our six-month-long waterfall project, carve it up into a series of two-week sprints, and call it “Agile.” But this isn’t Agile. Nor is it continuous. A continuous mindset requires that we deliver value every sprint. We create customer value by addressing unmet needs, resolving pain points, and satisfying desires.
We want to ask: “Based on my current understanding of my customer, I thought this solution would work. It didn’t. What did I misunderstand about my customer?”
Customer retention during the first 90 days of service was a critical indicator of long-term retention.
The purpose of customer interviewing is not to ask your customers what you should build. Instead, the purpose of an interview is to discover and explore opportunities.
During a workshop, I asked a woman what factors she considered when buying a new pair of jeans. She didn’t hesitate to answer. She said, “Fit is my number-one factor.” I then asked her to tell me about the last time she bought a pair of jeans. She said, “I bought them on Amazon.” I asked, “How did you know they would fit?” She replied, “I didn’t, but they were a brand I liked, and they were on sale.” What’s the difference between her two responses? Her first response tells me how she thinks she buys a pair of jeans. Her second response tells me how she actually bought a pair of jeans. This is a crucial difference. She thinks she buys a pair of jeans based on fit, but brand loyalty, the convenience of online shopping, and price (or getting a good deal) were more important when it came time to make a purchase....These participants aren’t lying. We just aren’t very good at understanding our own behavior....Instead of asking, “What criteria do you use when purchasing a pair of jeans?”-a direct question that encourages our participant to speculate about their behavior-we want to ask, “Tell me about the last time you purchased a pair of jeans.”
Direct questions require that we recall facts without context. This process is prone to cognitive biases-common patterns in mental errors that result from the way our brains process information.23 We are bad at quantifying how often we do something. We often speculate about what we did, when, and why. We tend to favor generalities over specifics. We give answers that are influenced more by our sense of identity rather than our actual behavior. And we tend to come up with coherent reasons to explain our behavior that are often not grounded in reality. To be clear, this behavior is a function of how our brains work and not the result of interview participants trying to deceive us. In fact, many of these biases come into play because our interview subjects are trying to be helpful.
The left hemisphere was being asked to provide a rationalization for a behavior done by the right hemisphere. The left hemisphere didn’t know the answer. But that didn’t keep the left hemisphere from fabricating an answer. That answer, however, had no basis in reality.
Gazzaniga’s study means you can’t simply ask your customers about their behavior and expect to get an accurate answer. Most will obligingly give you what sounds like a reasonable answer. But you won’t know if they are telling you about their ideal behavior or their actual behavior.
Our failure wasn’t due to a lack of research. It was because we asked our customers the wrong questions. We built a product based on a coherent story told by both the thought leaders in our space and by our customers themselves. But it wasn’t a story that was based in reality. If you want to build a successful product, you need to understand your customers’ actual behavior-their reality-not the story they tell themselves.
The key to interviewing well is to distinguish what you are trying to learn (your research questions) from what you ask in the interview (your interview questions).
Our primary research question in any interview should be: What needs, pain points, and desires matter most to this customer?
You’ll want to tailor the scope of the question based on what you need to learn at that moment in time. A narrow scope will help you optimize your existing product. Broader questions will help you uncover new opportunities. The broadest questions might help you uncover new markets. The appropriate scope will depend on the scope you set when creating your experience map.
Weekly interviewing is foundational to a strong discovery practice. Interviewing helps us explore an ever-evolving opportunity space. Customer needs change. New products disrupt markets. Competitors change the landscape. As our products and services evolve, new needs, pain points, and desires arise. A digital product is never done, and the opportunity space is never finite or complete.
Our goal should be to address the customer opportunities that will have the biggest impact on our outcome first.
Trees depict two key relationships-parent-child relationships and sibling relationships. Both will help us make sense of the messy opportunity space....Sibling relationships help us make sense of similar opportunities like “I want to watch my shows on my flight” and “I want to watch my shows on my train commute.” We can easily depict both on our tree under the parent opportunity “I want to watch my shows on the go.” This allows us to treat each context (e.g., plane, train) as a specific need to address, while also visualizing the similarities. They are both sub-opportunities of the same parent.
Product strategy happens in the opportunity space. Strategy emerges from the decisions we make about which outcomes to pursue, customers to serve, and opportunities to address. Sadly, the vast majority of product teams rush past these decisions and jump straight to prioritizing features. We obsess about the competition instead of about our customers. Our strategy consists of playing catch-up, and, no matter how hard we work, we always seem to fall further and further behind.
Wisdom is finding the right balance between having confidence in what you know and leaving enough room for doubt in case you are wrong.
It’s important that we frame our discovery decisions as two-way door, reversible decisions.
When we run fast iterations, we are in a better position to make decisions using multiple data points from several tests rather than make decisions based on a single data point.
There is a cost to false negatives and false positives. And we should be aware that these costs exist. But the cost is not so great that we should be starting with large-scale, quantitative experiments every time. If we did that, we would never ship any software. Our tests would simply take too long. The vast majority of the time, you will learn plenty from your small-scale tests.
Product teams, fortunately, are not creating new knowledge. Instead, we are trying to create products that improve our customers’ lives....So, while we want to adopt a scientific mindset and we want to think about the reliability and the validity of the data that we collect, we are not running scientific experiments.
This is why we say discovery feeds delivery and delivery feeds discovery. They aren’t two distinct phases. You can’t have one without the other.
It’s counterintuitive, but when instrumenting your product, don’t try to measure everything from the start. You’ll quickly get overwhelmed. You’ll spend weeks debating what events to track, how to name your events, and who is responsible for what before you even get started. This is a waste of time. There is no way to know from the outset how you should set everything up. No matter how much planning you do, you’ll make mistakes.
Instead of asking for permission or waiting for someone to show you how, start small. Iterate from there. I made a career doing that, and I’ve coached hundreds of others to do the same.

Complexity by M. Mitchell Waldrop

Thu, 15 Jun 2023 00:00:00 GMT

I. Brief Summary

A compelling book about the scientific revolution of a complex adaptive system. The book takes the readers into the hearts and minds of scientific pioneers and their involvement with Santa Fe Institute. The Santa Fe Institute is an influential interdisciplinary research institute. Topics in this book include complexity, self-organization, emergence, order and chaos from the diverse fields such as economics, physics, computer science and biology. Waldrop does an excellent job of explaining non-linear systems. Both linear and non-linear systems co-exist, but non-linearity is fairly an emerging topic. Pick this book up and give it a go. I highly recommend it if you are interested in better models of reality, so that you can make better decisions.

II. Big Ideas

Complexity is the science of emergence where many individual agents interact and the outcomes are difficult to predict.
Complex adaptive system originated at Santa Fe Institute (SFI). Santa Fe Institute was formed in 1984. The SFI is an independent, nonprofit theoretical research institute dedicated to the study of complex adaptive systems.
The theory of complexity manifests itself in “complex adaptive systems,” which are made up of many independent agents who interact and adapt to each other and to their environment, producing the phenomenon of emergence-a system behaving as more than the sum of its parts.
A complex adaptive system is a system in which a large network of components with no central control exhibit complex behavior, sophisticated information processing, and adaptive learning.
One of the important insights emerging from complexity theory is the concept of complex systems poised at the “edge of chaos” in a zone between rigid stability and chaotic turbulence. Computer modeling has become prominent in the search for patterns of complexity, all leading to the same observation of a balance point between order and chaos where complex systems come alive and produce emergent order.
Existence of all this order at the edge of chaos would seem to fly in the face of the second law of thermodynamics, which declares process of decay from order into chaos. Waldrop argues that one of the important directions of complexity theory is toward a reformulation of the second law, to take into account the structure and trend toward greater, rather than less, complexity in the universe.
Human agents are not all-knowing and do not always make profit maximizing decisions, nor is the economy always in a frozen state of equilibrium. Complexity theory offers a window into the phenomenon of adaptive behavior of agents and emergent properties, same as the apparent personality of financial markets.
Spontaneous self-organization can be found all over nature. It is the most powerful force in biology and living systems operate at the edge of chaos. The characteristics of self-organization are positive feedback, increasing returns, lock-in (harder to change technology until something vastly better comes along), unpredictability and tiny events that have immense consequences all seem to be a re-requisite for life itself.
Increasing returns are prominent when marginal costs are minimal.
Innovation happens at the intersection of multiple fields. It does not happen in a vacuum.
Domino effect occurs once tipping point hits, leads to cascades, and often winner-take-all systems.
Reality is superior to elegant theory.
Essence of science lies in explanation more than prediction. If the future is unpredictable, what do you do? You must learn to act without prediction.
Everything is caught up in non-linear web of incentives, constraints and connections. The crucial skill is insight. The ability to see connections. Power lies in connections between exploitation (improving current conditions) vs. exploration (taking chances for greater reward).
Complex adaptive systems can never reach equilibrium as new opportunities are constantly rising.
Emergence is hierarchical-building blocks at one level combining into new blocks at a higher level. Hierarchies are one of the fundamental organizing principles of the world and is good for execution.
Adaptive agents play game with its environment for fitness. It is feedback driven.
Competition is much more essential than consistency. Competition and cooperation may seem antithetical but at some very deep level, they are two sides of the same coin.
Following are the paradigms of spectrum:
- Dynamic systems: order, complexity, chaos.
- Physical systems (matter): solid, phase transition, liquid.
- Computation: halting, undecidable, non-halting.
- Life: static, life/intelligence, noisy.
Life is based on a great degree on its ability to process and store information and then mapping it out to determine proper action.
Life is not a property of matter per se, but the organization of that matter.
“Aliveness” lies in the organization of the molecules and not the molecules themselves.
There is no duality between man and nature, we are all part of this interlocking network.
Increasing returns (on technology and molecules being a network of system as opposed to being a commodity):
- When you look at economic history, as opposed to economic theory, he told Kauffman, technology isn’t really like a commodity at all. It is much more like an evolving ecosystem. “In particular, innovations rarely happen in a vacuum. They are usually made possible by other innovations being already in place. For example, a laser printer is basically a Xerox machine with a laser and a little computer circuitry to tell the laser where to etch on the Xerox drum for printing. So a laser printer is possible when you have computer technology, laser technology, and a Xerox reproducing technology. But it is also only possible because people need fancy, high-speed printing.”
- Moreover, these technological webs can undergo bursts of evolutionary creativity and massive extinction events, just like biological ecosystems. Say a new technology like the automobile comes in and replaces an older technology, the horse. Along with the horse go the smithy, the pony express, the watering troughs, the stables, the people who curried horses, and so on. The whole subnetwork of technologies that depended upon the horse suddenly collapses in what the economist Joseph Schumpeter once called “a gale of destruction.” But along with the car come paved roads, gas stations, fast-food restaurants, motels, traffic courts and traffic cops, and traffic lights. A whole new network of goods and services begins to grow, each one filling a niche opened up by the goods and services that came before it.
- But to Kauffman, this autocatalytic set story was far and away the most plausible explanation for the origin of life that he had ever heard. If it were true, it meant the origin of life didn’t have to wait for some ridiculously improbable event to produce a set of enormously complicated molecules; it meant that life could indeed have bootstrapped its way into existence from very simple molecules. And it meant that life had not been just a random accident, but was part of nature’s incessant compulsion for self-organization.

III. Quotes

The royal road to a Nobel Prize has generally been through the reductionist approach.
Why is it that simple particles obeying simple rules will sometimes engage in the most astonishing, unpredictable behavior?
Like it or not, the marketplace isn’t stable. The world isn’t stable. It’s full of evolution, upheaval, and surprise.
Predictions are nice, if you can make them. But the essence of science lies in explanation, laying bare the fundamental mechanisms of nature.
Theoretical economists use their mathematical prowess the way the great stags of the forest use their antlers: to do battle with one another and to establish dominance.
Everything affects everything else, and you have to understand that whole web of connections.
If you have a truly complex system," he says, "then the exact patterns are not repeatable. And yet there are themes that are recognizable. In history, for example, you can talk about 'revolutions,' even though one revolution might be quite different from another. So we assign metaphors. It turns out that an awful lot of policy-making has to do with finding the appropriate metaphor. Conversely, bad policy-making almost always involves finding inappropriate metaphors. For example, it may not be appropriate to think about a drug 'war,' with guns and assaults.
An adaptive agent is constantly playing a game with its environment. What exactly does that mean? Distilled to the essence, what actually has to happen for game-playing agents to survive and prosper? Two things, Holland decided: prediction and feedback.
All these complex systems have somehow acquired the ability to bring order and chaos into a special kind of balance. This balance point-often called the edge of chaos-is were the components of a system never quite lock into place, and yet never quite dissolve into turbulence, either.
In contrast to mainstream artificial intelligence, I see competition as much more essential than consistency. Consistency is a chimera, because in a complicated world there is no guarantee that experience will be consistent. But for agents playing a game against their environment, competition is forever. Despite all the work in economics and biology, we still haven't extracted what's central in competition. There's a richness there that we've only just begun to fathom. Consider the magical fact that competition can produce a very strong incentive for cooperation, as certain players spontaneously forge alliances and symbiotic relationships with each other for mutual support. It happens at every level and in every kind of complex, adaptive system, from biology to economics to politics. Competition and cooperation may seem antithetical but at some very deep level, they are two sides of the same coin.
Look at meteorology, he told them. The weather never settles down. It never repeats itself exactly. It's essentially unpredictable more than a week or so in advance. And yet we can comprehend and explain almost everything that we see up there. We can identify important features such as weather fronts, jet streams, and high-pressure systems. We can understand their dynamics. We can understand how they interact to produce weather on a local and regional scale. In short, we have a real science of weather-without full prediction. And we can do it because prediction isn't the essence of science. The essence is comprehension and explanation. And that's precisely what Santa Fe could hope to do with economics and other social sciences, he said: they could look for the analog of weather fronts-dynamical social phenomena they could understand and explain.
It will require the renunciation or sublimation or transformation of our traditional appetites: to outbreed, outconsume, and conquer our rivals, especially our rivals in other tribes. These impulses may once have been adaptive. Indeed, they may even be hard-wired into our brains. But we no longer have the luxury of tolerating them.
Humanity is gravely threatened by superstition and myth, the stubborn refusal to recognize the urgent planetary problems, and generalized tribalism in all its forms.
"Santa Fe approach": Instead of emphasizing decreasing returns, static equilibrium, and perfect rationality, as in the neoclassical view, the Santa Fe team would emphasize increasing returns, bounded rationality, and the dynamics of evolution and learning. Instead of basing their theory on assumptions that were mathematically convenient, they would try to make models that were psychologically realistic. Instead of viewing the economy as some kind of Newtonian machine, they would see it as something organic, adaptive, surprising, and alive. Instead of talking about the world as if it were a static thing buried deep in the frozen regime, as Chris Langton might have put it, they would learn how to think about the world as a dynamic, ever-changing system poised at the edge of chaos.
an autocatalytic set was a web of transformations among molecules in precisely the same way that an economy is a web of transformations among goods and services. In a very real sense, in fact, an autocatalytic set was an economy-a submicroscopic economy that extracted raw materials (the primordial “food” molecules) and converted them into useful products (more molecules in the set). Moreover, an autocatalytic set can bootstrap its own evolution in precisely the same way that an economy can, by growing more and more complex over time. This was a point that fascinated Kauffman. If innovations result from new combinations of old technologies, then the number of possible innovations would go up very rapidly as more and more technologies became available.
At the same time, Kaufmann discovered that in developing his genetic networks, he had reinvented some of the most avant-garde work in physics and applied mathematics-albeit in a totally new context. The dynamics of his genetic regulatory networks turned out to be a special case of what the physicists were calling "nonlinear dynamics." From the nonlinear point of view, in fact, it was easy to see why his sparsely connected networks could organize themselves into stable cycles so easily: mathematically, their behavior was equivalent to the way all the rain falling on the hillsides around a valley will flow into a lake at the bottom of the valley. In the space of all possible network behaviors, the stable cycles were like basins-or as the physicists put it, "attractors.”
In non-linear systems-and the economy is most certainly nonlinear-chaos theory tells you that the slightest uncertainty in your knowledge of the initial conditions will often grow inexorably. After a while, your predictions are nonsense.
This game analogy seemed to be true of any adaptive system. In economics the payoff is in money, in politics the payoff is in votes, and on and on. At some level, all these adaptive systems are fundamentally the same.
It's people who like process and pattern, as opposed to people who are comfortable with stasis and order.
To me, coming from applied mathematics, a theorem was a statement about an everlasting mathematical truth-not the dressing up of a trivial observation in a lot of formalism.
It didn’t take very long for Arthur to realize that, when it came to real-world complexities, the elegant equations and the fancy mathematics he’d spent so much time on in school were no more than tools-and limited tools at that. The crucial skill was insight, the ability to see connections.
Living systems are actually very close to this edge-of-chaos phase transition, where things are much looser and more fluid. And natural selection is not the antagonist of self-organization.
If the origin of life had really been a random event, then it had really been a miracle.
Generally treating free-market capitalism as a kind of state religion.
You observe, and observe, and observe, and occasionally stick your oar in and try to improve something for the better. It means that you try to see reality for what it is, and realize that the game you are in keeps changing, so that it’s up to you to figure out the current rules of the game as it’s being played… you stop adhering to standard theories that are built on outmoded assumptions about the rules of play, you stop saying, ‘Well, if only we could reach this equilibrium we’d be in fat city.’ You just observe. And where you can make an effective move, you make a move...The idea is to observe, to act courageously, and to pick your timing extremely well. -Brian Arthur
“The people doing math in biology were the lowest of the low,” he says. It was exactly the opposite of the situation in physics or economics, where the theorists are kings.
We call our particles ‘agents’-banks, firms, consumers, governments. And those agents react to other agents, just as particles react to other particles. However, he added, there is one big difference: “Our particles in economics are smart, whereas yours in physics are dumb.” In physics, an elementary particle has no past, no experience, no goals, no hopes or fears about the future. It just is. That’s why physicists can talk so freely about “universal laws”: their particles respond to forces blindly, with absolute obedience. But in economics, said Arthur, “Our particles have to think ahead, and try to figure out how other particles might react if they were to undertake certain actions. Our particles have to act on the basis of expectations and strategies. And regardless of how you model that, that’s what makes economics truly difficult.”
Unfortunately, the economists’ standard solution to the problem of expectations-perfect rationality-drove the physicists nuts. Perfectly rational agents do have the virtue of being perfectly predictable. That is, they know everything that can be known about the choices they will face infinitely far into the future, and they use flawless reasoning to foresee all the possible implications of their actions. So you can safely say that they will always take the most advantageous action in any given situation, based on the available information....The only problem, of course, is that real human beings are neither perfectly rational nor perfectly predictable-as the physicists pointed out at great length.
Indeed, in their own minds, physicists are the aristocracy of science. From the day they sign up for Physics 101, they absorb the culture in a thousand subtle and not-so-subtle ways: they are the heirs of Newton, Maxwell, Einstein, and Bohr. Physics is the hardest, purest, toughest science there is. And physicists have the hardest, purest, toughest minds around.

We call our particles ‘agents’-banks, firms, consumers, governments. And those agents react to other agents, just as particles react to other particles. Only we don’t usually consider the spatial dimension in economics much, so that makes economics a lot simpler.”

However, he added, there is one big difference: “Our particles in economics are smart, whereas yours in physics are dumb.” In physics, an elementary particle has no past, no experience, no goals, no hopes or fears about the future. It just is. That’s why physicists can talk so freely about “universal laws”: their particles respond to forces blindly, with absolute obedience. But in economics, said Arthur, “Our particles have to think ahead, and try to figure out how other particles might react if they were to undertake certain actions. Our particles have to act on the basis of expectations and strategies. And regardless of how you model that, that’s what makes economics truly difficult.”
Unfortunately, the economists’ standard solution to the problem of expectations-perfect rationality-drove the physicists nuts. Perfectly rational agents do have the virtue of being perfectly predictable. That is, they know everything that can be known about the choices they will face infinitely far into the future, and they use flawless reasoning to foresee all the possible implications of their actions. So you can safely say that they will always take the most advantageous action in any given situation, based on the available information.
In the natural world such systems included brains, immune systems, ecologies, cells, developing embryos, and ant colonies. In the human world they included cultural and social systems such as political parties or scientific communities....First, he said, each of these systems is a network of many “agents” acting in parallel. In a brain the agents are nerve cells, in an ecology the agents are species, in a cell the agents are organelles such as the nucleus and the mitochondria, in an embryo the agents are cells, and so on. In an economy, the agents might be individuals or households. Or if you were looking at business cycles, the agents might be firms. And if you were looking at international trade, the agents might even be whole nations....It is constantly acting and reacting to what the other agents are doing. And because of that, essentially nothing in its environment is fixed....If there is to be any coherent behavior in the system, it has to arise from competition and cooperation among the agents themselves.
Second, said Holland, a complex adaptive system has many levels of organization, with agents at any one level serving as the building blocks for agents at a higher level. A group of proteins, lipids, and nucleic acids will form a cell, a group of cells will form a tissue, a collection of tissues will form an organ, an association of organs will form a whole organism, and a group of organisms will form an ecosystem.
Complex adaptive systems are constantly revising and rearranging their building blocks as they gain experience. Succeeding generations of organisms will modify and rearrange their tissues through the process of evolution. The brain will continually strengthen or weaken myriad connections between its neurons as an individual learns from his or her encounters with the world. A firm will promote individuals who do well and (more rarely) will reshuffle its organizational chart for greater efficiency. Countries will make new trading agreements or realign themselves into whole new alliances.
Finally, said Holland, complex adaptive systems typically have many niches, each one of which can be exploited by an agent adapted to fill that niche. Thus, the economic world has a place for computer programmers, plumbers, steel mills, and pet stores, just as the rain forest has a place for tree sloths and butterflies. Moreover, the very act of filling one niche opens up more niches-for new parasites, for new predators and prey, for new symbiotic partners. So new opportunities are always being created by the system. And that, in turn, means that it’s essentially meaningless to talk about a complex adaptive system being in equilibrium: the system can never get there. It is always unfolding, always in transition. In fact, if the system ever does reach equilibrium, it isn’t just stable. It’s dead.
Trade with Japan is at least as complicated as chess. But economists will start out by saying, ‘Assume rational play.’”

The Making Of A Manager by Julie Zhuo

Fri, 26 May 2023 00:00:00 GMT

I. Brief Summary

This is a great book for those who are exploring the path to go from individual contributor (IC) to a manager. Julie shares her own experiences while she was at Facebook (former VP of Design). Julie shares practical advice with a conversational tone. The book includes day-to-day tactics on what it takes to be an effective and action-oriented manager.

II. Big Ideas

A manager's job is to build a team. If you don’t have a good handle on yourself, you won’t have a good handle on how to best support your team.
A manager is a specific role. Leadership is the particular skill of being able to guide and influence other people. While the role of a manager can be given to someone (or taken away), leadership is not something that can be bestowed. It must be earned. People must want to follow you. A leader, on the other hand, doesn’t have to be a manager.
Great managers are made, not born.
The job of a manager is to get better outcomes from a group of people working together.
The tasks of a manager can be grouped into three buckets:
- Purpose: this is the why. What outcome is your team is trying to accomplish? Everyone on the team should have a similar answer to, "why does our work matter?" A huge part of your job as a manager is to "ensure your team knows what success looks like and cares about achieving it."
- People: this is the who. Your job as a manager is to ensure that you hire the right people and create an environment where they can grow and thrive.
- Process: this is the how. When you work alone, you need no process; but when you are coordinating the work of a group of people, you do; and the more people, the more process you need.
To evaluate how a manager is performing, focus on two things:
- What results (outcomes) did the team achieve? In what ways did they make the company and its customers more successful?
- How satisfied is the team? Is the team happy, working well together, and doing a good job of hiring and developing individuals?
Key questions to ask yourself to determine if you can be a great manager:
- Do I find it more motivating to achieve a particular outcome or play a specific role? As a manager, you may have to perform a huge variety of tasks to help your team achieve a specific outcome; as an individual contributor (IC), you typically play a single role the whole time, such as writing code or doing design work.
- Do I like talking with people? If you had to spend 70% of your day in meetings, what's your reaction?
- Can I provide stability for an emotionally challenging situation? Your direct reports will bring their own experiences, motivations, hopes, fears, etc to the table. As a manager, you are going to have a lot of hard conversations: giving tough performance review feedback; letting someone go; and so on.
How to get people to do great work? A great way to think about this question is to flip it around. What gets in the way of doing good work? It really comes down to two possibilities:
- They don't know how to do good work. This is usually because the person lacks the training they need. A big part of being a manager is hiring people with the right skills; another big part is providing the environment and training where people can improve their skills.
- They know how to good work, but they aren't motivated. On possibility is that people don't know what good work looks like: defining standards of performance and providing lots of examples helps here. Another possibility is that they know exactly what good work looks like, but they aren't on board with what they are being asked to do. A huge part of management is inspiring people: if they aren't bought into the purpose, people will trudge along, and you won't get the best work from them. Note that you can't inspire people by just telling them to do something; the word "inspire" is not an accident-as a manager, you have to learn how to be inspirational.
All relationships are based on trust. If your employees don't trust you, or you don't trust them, you cannot work together effectively. Therefore, it's critical that employees know that you care about them, that you will always be honest with them, and they can always be honest with you. You know you've achieved this when the following three items are true:
- Your reports regularly bring their biggest challenges to your attention. "A hallmark of a trusting relationship is that people feel like they can share their mistakes, challenges, and fears with you."
- You and your reports regularly give each other critical feedback and it isn't taken personally. The only way you and your direct reports can get better is if you can tell each other what isn't working. This can feel a little bit awkward; that's normal.
- Your reports would gladly work for you again. This is one of the biggest indicators of the strength of your relationship: would they sign up to work for you again?
Your job as a manager is to set clear expectations for each direct report before any work begins. In particular, right up front, you should define:
- What a great job looks like, versus a mediocre or bad job.
- What advice you have to get started on the right foot.
- Common pitfalls to avoid.
Your direct reports almost always want feedback; and you're probably not giving them enough of it. Make sure to give at least two types of feedback:
- Task-specific feedback: provide detailed feedback on specific tasks as often as you can, and as soon after the task was completed as possible. This should be akin to "coaching," where your goal is to help the person get better at that specific type of task.
- Behavior feedback: provide higher-level feedback on the themes and patterns you see across many tasks regularly, but not quite as often, and do it more thoughtfully. This is feedback on the employee's skills and career trajectory, and often indicates how you evaluate their performance, so while it's incredibly important to provide (and many managers fail to do it), it can also be more sensitive. Make sure to think through what you want to say, and have plenty of examples to back up what you're saying.
It's very easy for feedback to be misheard and not have the desired effect. The employee may perceive the feedback as a threat to their career, and when you're threatened, you go into a "flight or flight" reaction, where you'll experience a variety of physiological and neurological reactions (e.g., increased heart rate and blood pressure) that make it much harder to absorb information. The key to make sure your feedback is heard is to ensure the listener feels safe. There are several ways to make this happen:
- Make it clear that you care about the person you are talking to and want them to succeed. If you show any ulterior motive (e.g., you're just annoyed), your feedback won't get through.
- Share positive feedback along with the negative feedback. Recognizing what's going well, and not only the problems, is much more likely to change behavior.
- Share feedback with a sense of curiosity. For example, state your feedback, and then ask, "Does this feedback resonate with you? Why or why not?" This shows curiosity and a desire to understand; moreover, it gets the person to reflect, rather than just become defensive.
- Repeat the message many times. Sometimes, you have to hear the same thing over and over before it has an effect. Share it in a 1:1; have others share it in 360 feedback; share it in writing; and so on.
- Follow up to see if you were heard. At the end of the conversation, ask "OK, let's make sure we're on the same page: what are your key takeaways and next steps?"
Many people work with their managers solely as authority figures. The predominant emotion is, "don't mess up" and "don't let them see weaknesses and think I'm incompetent." This rarely leads to a healthy relationship. In fact, it may be a self-fulfilling prophecy: you're struggling, but you refuse to ask for help, so you keep struggling, and as you never get better, you ultimately are judged incompetent. A better model is to work with a manager as a coach. It would be crazy for an athlete to try to hide weaknesses from their coach. The same is true with managers. Good managers are their to help you get better: treat them as a coach, not a judge.
Defining a vision:
- One way to inspire a team is to share with them an inspiring vision of what the future will look like. A key point is that this vision must be concrete. It can't be squishy or vague. It should be bold and it should be instantly clear whether you've accomplished it. For example, compare a political vision like, "America will get wealthier" to "A chicken in every pot." You know you've done a good job defining the vision if you can ask 5 team members what the vision is, and they all say the same thing.
Hiring well: look for advocates, not consensus
- When interviewing a candidate, don't use consensus to make the hiring decision; everyone saying "hire," but no one being enthusiastic, often leads to weak hires who don't perform all that well. Instead, look for one or more passionate advocates who feel strongly about hiring the candidate and are willing to go to bat for them. That's usually a stronger signal of a strong hire.
- Hiring is super critical and should be done very well. “As a manager, one of the smartest ways to multiply your team’s impact is to hire the best people and empower them to do more and more until you stretch the limits of their capabilities”
- Plan intentionally and ahead of time-think about your future org chart ahead of time.
- Hiring is a manager’s responsibility. Work closely with the recruiting team and build an awesome relationship with them. Be super clear about what you’re looking for and make sure your recruiting team knows specifically what you’re looking for.
- Be aware that interview performance is not correlated with job performance. Try to understand candidates experience especially on similar projects in a similar environment.
How to make things happen:
- Process is critical. It is not about light bulb moments - it is about trying quickly, being curious and doubling down on what is working.
- You need an ambitious, concrete, and specific vision for your team. If you ask 5 random people who have heard your vision to repeat it, would they be able to?
- Your strategy should acknowledge your team’s strengths and weaknesses.
- Prioritization is absolutely critical.
- Effort does not count; results are what matter.
- Ownership needs to be clear.
- People are biased to underestimate how long things will take-so buffer accordingly.
- Speed matters-move fast.
- Establish a culture where collective learning and resilience are critical. At the end of the day, a resilient organization is not one that never makes mistakes but rather one whose mistakes make it stronger over time.
- Describe over and over again the world you’d like to see. Try to connect every task, project, description or goal with the organization’s higher purpose.
- Codify processes into playbooks to save time - this will also ensure that you’re not a bottleneck when you are on vacation or if/when you leave.
One-On-One tips:
- I recommend no less than a weekly 1:1 with every report for thirty minutes, and more time if needed.
- One-on-ones should be focused on your report and what would help him be more successful, not on you and what you need.
- If you’re looking for a status update, use another channel.
- Rare one-on-one face time is better spent on topics that are harder to discuss in a group or over email.
- The ideal 1:1 leaves your report feeling that it was useful for her. If she thinks that the conversation was pleasant but largely unmemorable, then you can do better.
- I tell my reports that I want our time together to be valuable, so we should focus on what’s most important for them.
- Discuss top priorities: What are the one, two, or three most critical outcomes for your report and how can you help her tackle these challenges?
One-On-One questions:
- Identify:
  - What’s top of mind for you right now?
  - What priorities are you thinking about this week?
  - What’s the best use of our time today?
- Understand:
  - What does your ideal outcome look like?
  - What’s hard for you in getting to that outcome?
  - What do you really care about?
  - What do you think is the best course of action? What’s the worst-case scenario you’re worried about?
- Support:
  - How can I help you?
  - What can I do to make you more successful?
  - What was the most useful part of our conversation today?

III. Quotes

The job of a manager...is to turn one person’s particular talent into performance.
I learned then one of my first lessons of management-the best outcomes come from inspiring people to action, not telling them what to do.
At the end of the day, a resilient organization isn’t one that never makes mistakes but rather one whose mistakes make it stronger over time.
Your role as a manager is not to do the work yourself, even if you are the best at it, because that will only take you so far. Your role is to improve the purpose, people, and process of your team to get as high a multiplier effect on your collective outcome as you can.
This is the crux of management: It is the belief that a team of people can achieve more than a single person going it alone. It is the realization that you don’t have to do everything yourself, be the best at everything yourself, or even know how to do everything yourself. Your job, as a manager, is to get better outcomes from a group of people working together.
People will forget what you said, people will forget what you did, but people will never forget how you made them feel, goes the popular saying.
There is one quality that sets truly great managers apart from the rest: they discover what is unique about each person and then capitalize on it.
One day, you hear someone shouting rudely at a teammate. If you do nothing, you risk sending the message that you tolerate this kind of behavior. Instead, defuse tensions in the moment by asking the shouter to calm down or help them leave the room. Later, in private, tell them that what they did is unacceptable.
Your job, as a manager, is to get better outcomes from a group of people working together.
Remember our definition of management? A manager’s job is to get better outcomes from a group of people working together through influencing purpose, people, and process.
The first big part of your job as a manager is to ensure that your team knows what success looks like and cares about achieving it.
People’s dissatisfaction will fester beneath the surface until one day they surprise you with their resignation. And most of the time when that happens, they’re not just quitting your company, they are also quitting you.
What leads people to do great work? It feels like a complicated question but it really isn’t, as Andy Grove points out in his classic High Output Management. He flips the question around and asks: What gets in the way of good work? There are only two possibilities. The first is that people don’t know how to do good work. The second is that they know how, but they aren’t motivated.
A lot of this work is unglamorous. But because it’s important, it must be done, and if nobody else does it, then it falls to you.
Nothing worthwhile happens overnight. Every big dream is the culmination of thousands of tiny steps forward.
As the team grows in size, it matters less and less how good she is personally at doing the work herself. What matters more is how much of a multiplier effect she has on her team. So how does this work in practice?
You have to enjoy the day-to-day of management and want to do it.
What caring does mean, however, is doing your best to help your report be successful and fulfilled in her work. It means taking the time to learn what she cares about.
If the outcome you care about is getting amazing design, then a great manager’s team will consistently deliver concepts that wow. A mediocre manager’s team will produce work that gets the job done but doesn’t stand out. A bad manager’s team will regularly suggest proposals that make you think, Surely we can do better than this.
Your success managing others is dependent on how well you can manage yourself.
Imposter syndrome is what makes you feel as though you’re the only one with nothing worthwhile to say when you walk into a room full of people you admire.
My friend Mark Rabkin shared a tip with me that I love: strive for all your one-on-one meetings to feel a little awkward. Why? Because the most important and meaningful conversations have that characteristic. It isn’t easy to discuss mistakes, confront tensions, or talk about deep fears or secret hopes, but no strong relationship can be built on superficial pleasantries alone.
The most precious resource you have is your own time and energy, and when you spend it on your team, it goes a long way toward building healthy relationships. This is why one-on-one meetings (“1:1s” for short) are such an important part of management. I recommend no less than a weekly 1:1 with every report for thirty minutes, and more time if needed.
Plans are worthless, but planning is everything - Dwight D. Eisenhower

Charlie Munger by Tren Griffin

Wed, 24 May 2023 00:00:00 GMT

I. Brief Summary

A book about Charlie Munger. The originality lacks because it is a collection of Munger quotes. Tren Griffin argues his ideas aren't well understood because they aren't unified. This book attempts to do unify Munger's big ideas, so one can learn to think well like Charlie Munger.

II. Big Ideas

Munger’s ability to cut to the heart of an issue with a few well-chosen words is legendary, as is his desire to think independently.
Attain “ataraxia or perfect imperturbability” meaning becoming unshakeably calm and collected.
Graham value investing principles
- The critical point of Graham’s system is that it is simple.
- If you cannot accept investing underperformance in the short term to achieve a long term investment outperformance, you are not a candidate for graham value investing.
- Very often the shortcut to being smart, is to simply not be stupid.
- Knowing what you don’t know is more useful that being brilliant.
- If you do not understand the actual business of the company, you cannot understand the value of assets related to that business.
- Be motivated when you’re buying and selling securities by reference to intrinsic value instead of price momentum.
- When stocks are a bargain, people are fearful; when stocks are expensive, people are greedy.
- Mimicking the herd invites regression to the mean.
- If you are an investor, your focus is on what the asset is going to do, if you are a speculator, you are focusing on what the price is going to do.
- A mine is a hole in the ground, owned by a liar.
- The best way to determine the value of a business is based on the price a private investor would pay for the entire business.
- An investment objective to beat inflation by 10% is a good one.
- Munger doesn’t invest in gold because it is not an income producing asset. Gold has speculative value and commercial value, but not calculable intrinsic value.
- The idea of margin of safety, will never become obsolete. Margins of safety are achieved when stocks are purchased at prices that can accommodate for human error, bad luck or extreme volatility. In engineering, people have a big margin of safety. But in the financial world, people don’t give a damn about safety. They just let it balloon and balloon and balloon.
- Mr. Markets bipolar nature is the biggest gift to Graham investors. Occasionally he will present you with great bargains, at other times he will buy your assets at a huge premium. Do not treat him as a wise man, instead use him as your servant. If you are the crowd, then you cannot, by definition, beat the crowd. The idea of being objective and dispassionate, will never be obsolete.
Worldly wisdom
- You must know big ideas in the big disciplines, and use them routinely – all of them and not just a few.
- You can’t remember isolated facts and try to bang them back. If the facts don’t hang together on a latticework of theory, you don’t have them in a usable form.
- The nature of human psychology is that you’ll torture reality so that it fits your models.
- There are factors that are terribly important, but there is no precise numbering you can put to these factors. People overweigh the stuff that can be numbered. This is a mistake that has to be avoided.
- People calculate too much and think too little.
- People who cannot be alone with their own thoughts are terrible candidates to become successful value investors.
- Man’s imperfect, limited brain easily drifts into working with what is easily available to it.
- People who are not the smartest, not even the most diligent can continuously rise in life if they are learning machines.
- Own businesses, that given your experience and education are easy to understand.
- If you cannot explain why you failed after you made a mistake, the business was too complex for you.
Psychology of human misjudgement
- (Possibility of Gain * Amount of Gain) – (Possibility of Loss* Amount of Loss). This is an imperfect equation, but one with fantastic insights.
- The rule of nature is that you get what you reward for. If you want ants to come, put some sugar on the floor.
- It is very hard to convince a man to believe non-X, when his way of making a living requires him to believe X.
- Loaning money to friends and relatives is fraught with danger. It is usually a better idea to give away money and not expect it back.
- A year in which you don’t change your mind on some big idea that is important to you is a wasted year.
- Avoid evil, particularly if they are attractive and members of the opposite sex.
Life is too short to do business with people you don’t like.
- It is counterproductive for a prey that is threatened by predator to take a long time in deciding what to do.
- I was born innately curious. It that doesn't work for you, figure out your own damn system.
- Tolerating a little unfairness to some to get a greater fairness to all is a model that I recommend.
- Envy is really stupid because it is the one you could never possibly have any fun at. There is a lot of pain and no fun. Why would you want to get on to that trolley?
- Someone will always be getting richer faster than you. This is not a tragedy.
- It is not greed that drives the world. It is envy.
- One should recognize reality, even when one does not like it.
- Failure to handle psychological denial is a common way for people to go broke.
- What a man wishes, he will believe.
- We all feel losses 2.5x more than we feel gains.
- Good ideas tend to cause more mischief than bad ideas. It is so easy for all of us to really push up a good idea to wretched excess.
- All skills attenuate with disuse.
- Three things can ruin people: drugs, liquor and leverage.
- Addiction can happen to any of us, through a subtle process where the bonds of degradation are too light to be felt until they are too strong to be broken.
- Why play dice with something that can ruin your life forever ?
- Only seek bets with a huge upside and a limited downside.(positively optionality). Just ignore the ones with huge downsides and limited upsides.(negative optionality).
- I try to get rid of people who always confidently answer questions about which they don’t have any real knowledge.
Right stuff
- Attributes that make up the “right stuff” of a successful investor as identified by Munger:
  - Patient
  - Disciplined
  - Calm but courageous and decisive
  - Reasonably intelligent but not misled by their high IQs
  - Honest
  - Confident and nonideological
  - Long-term oriented
  - Passionate
  - Studious
  - Collegial
  - Sound temperament
  - Frugal
  - Risk averse
- We don’t feel the compassion to swing. We’re perfectly willing to wait for something decent to come along. In certain periods we have a hell of a time finding places to invest our money.
- Success is about being very patient, but aggressive when it is time.
- If you don’t get basic probability theory into your skill set, you will go through life as a one legged man in an ass-kicking contest.
- People calculate too much and think to little.
- Reading without thinking and reflecting is an absolute waste of time.
- We fret a lot earlier than other people. We left a lot of money on the table through early freeing. It is just the way we are–you just have to live with it.
- Don't do foolish things just to be active. Discipline yourself in avoiding any damn thing just because you cannot stand inactivity.
- Very high IQ people can be completely useless, and many of them are.
- Passion will more often than not beat intelligence.
- If the rascals really knew how well honor worked, they would come to it.
- I have a black belt in chutzpah. I was born with it.
- The ethos of not fooling yourself is one of the best you could possibly have. It is so powerful because it is so rare.
- It is really hard to think on a long term basis when you just get started. Getting to the first million is a bitch.
- Understanding the power of compounding is not natural state for the human race, however, it is a critical task.
- If you have missed the link between passion and success, you have not been paying attention.
- Passions tend to grow in a non-linear way after a really slow start.
- In my whole life, I have known no wise people who didn’t read all time – none, zero.
- Even Einstein didn’t work in isolation. But he never went o large conferences. Any human being needs conversational colleagues.
- Having a certain kind of temperament is more important than brains. You need to keep raw irrational emotion under control.
- Unsuccessful investors are dominated by emotion. Rather than responding holly and rationally to market fluctuations, they respond emotionally with greed and fear.
- Using stock price volatility to measure risk is nuts. The only risks are: the risk of permanent loss of capital & the risk of inadequate return.
Graham value investing variables
- Intrinsic value is terribly important, but very fuzzy.
- We look for a horse with a 50:50 win which pays 3:1. You have to know when a gamble is mispriced.
- My predictions have been a little better than other peoples because I have tried to make fewer of them.
- Business is easy. If you have a low downside and a big upside, you do it. If it is the opposite, you run away. The only time it can get confusing is if there is a big downside and a big upside.
- Investment is about quality as well as price. Just try to maximize the quality you get for price.
- We are partial to putting large amounts of money where we don’t have to make another decision.
- The difference between good businesses and bad businesses is that good businesses throw up one easy decision after another. The bad businesses throw up painful decisions time after time.
Right things in business
- Proper allocation of capital is the investor's no 1 job.
- I’d rather throw a viper down my shirt than hire a compensation consultant.
- The only duty of a corporate executive is to widen the moat.
- Hoping the negative impact of some dishonest people can be managed by mixing them with honest people are a triumph of hope over experience.
- We don’t train executives, we find them. If a mountain stands up as high as Everest, you don’t have to be a genius to figure out that it is a high mountain.
- Just as animals flourish in niches, people who specialize in some narrow niches can do very well.
- Intelligent people make decisions based on opportunity costs – in other words, it is your alternatives that matter.
- The focus at Berkshire is ROE and not EPS.
- I don’t even like to hear the word EBITDA. Talk to me about CASH and CASH only.

III. Quotes

Develop into a lifelong self-learner through voracious reading; cultivate curiosity and strive to become a little wiser every day.
I believe in the discipline of mastering the best that other people have ever figured out. I don’t believe in just sitting down and trying to dream it all up yourself. Nobody’s that smart.
Remember that reputation and integrity are your most valuable assets-and can be lost in a heartbeat.
Envy is a really stupid sin because it’s the only one you could never possibly have any fun at. There’s a lot of pain and no fun. Why would you want to get on that trolley?
Mimicking the herd invites regression to the mean (merely average performance).
Man’s imperfect, limited-capacity brain easily drifts into working with what’s easily available to it. And the brain can’t use what it can’t remember or when it’s blocked from recognizing because it’s heavily influenced by one or more psychological tendencies bearing strongly on it … the deep structure of the human mind requires that the way to full scope competency of virtually any kind is to learn it all to fluency-like it or not.
Learning from the success and failure of others is the fastest way to get smarter and wiser without a lot of pain.
We both insist on a lot of time being available almost every day to just sit and think. That is very uncommon in American business. We read and think. So Warren and I do more reading and thinking and less doing than most people in business.
Warren talks about these discounted cash flows. I’ve never seen him do one.
Buffett has said that if you cannot explain why you failed after you have made a mistake, the business was too complex for you.
In Buffett’s view, if you cannot write it down, you have not thought it through.
I observe what works and what doesn’t and why.

Range by David Epstein

Mon, 15 May 2023 00:00:00 GMT

I. Brief Summary

The underlying argument of the book is that having a broad spectrum of skills and interests is better than specializing in just one area. David Epstein encourages his readers to expand their range before becoming specializers. This allows individuals to be creative problem solvers. The book is filled with examples to support the underlying message. Perhaps too many examples which can distract readers from remembering the key lessons.

II. Big Ideas

An early sampling period is sometimes better than a focused head start.
- The core thesis of the books is captured neatly by a comparison between Tiger Woods and Roger Federer in the introduction of the book.
  - Woods started young. His father saw that the young boy was a prodigy at age two, and made it his life mission to mold Tiger into the greatest golf player the world had ever seen.
  - Federer started late. When he was younger, he dabbled in skiing, wrestling, swimming, skateboarding. He was interested in basketball, handball, tennis, table tennis, badminton, and soccer. He was also enormously talented in tennis. He eventually gave up soccer at age 12 to focus on tennis, and remains today one of the best players in the world. What is the point of this anecdote? The point is that some athletes start late and succeed. Epstein uses this story as a way of arguing for his main thesis which is to consider many ranges of possibilities.
- Often people say to “find your niche,” but life is not that simple. Laser focusing on one domain will get you to a certain point but if you want to thrive in this “wicked” world, you should have a range of skills.
- Bouncing around in life, trying different things, is mainly considered a negative trait. But you get to find your true calling and reach the desired state of success only by continuously exposing yourself to new topics, thoughts, ideas, and perspectives. You will show up late to the party but following this approach will help you find your place in the world.
Go through a sampling period to try different things until you find your one thing.
- There is no way of knowing if you would enjoy playing football if you haven’t played it before. You need to expose yourself to a variety of things, first, to find your true place in life.
- While it’s important to be an expert in a specific field, constantly exposing yourself to new experiences is the key to long-lasting success.
- Roger Federer started taking tennis seriously later in his teens after he was done exploring his options.
Having a wide range of skills is necessary for today’s times.
- If you’re a designer, for example, it will be unlikely for someone to hire you if you know only a limited amount of design trends.
- Knowing a lot about a wide range of things is the differentiating factor between winners and losers.
- David Epstein categorizes our current playground as “Martian tennis.” People kind of know how to play the game, but they are not absolutely sure about all the specifics involved. Actually, no one really knows the rules because they constantly change. That’s why you need to continuously adapt.
Relying only on skills from a single field can be a disaster.
- If you’re a sailor, for example, and if you know a lot about boats, you’ll approach every situation as if you were in the sea. But life is not only saltwater and fish. There are a lot of other things to consider when tackling a specific problem or task.
- Sometimes even overlooking a simple graph can cause a huge disaster. As it happened with the space shuttle Challenger. In 1986, NASA launched a shuttle with the intention to deploy a satellite and also to observe Halley’s comet. Unfortunately, only after 73 seconds into the flight, the space shuttle broke apart killing everybody on board. The reason? The cold temperature on the day of the lunch caused a malfunction in the two rubber O-rings holding the fuel tanks. The information was available for the NASA guys but they simply didn’t have it in front of them when deciding whether or not to lunch the rocket.
- Look at problems from different angles. Don’t limit yourself. This way you’ll make the right decisions when handling difficult situations.
Learn more tactics to expand your thinking and skills.
- In chess, to win, you need to study the most famous tactics. These short combinations of moves give players an advantage on the board. The more tactics you know, the better you will be at crushing the opponent.
- We learn who we are when we try new things. We learn in practice, not in theory.
- Don’t do the same scenario in repetition. Look for outside analogies. Find deep structural similarities to the current problem in different ones.
- The most successful problem solvers spend mental energy figuring out what type of problem they are facing before matching a strategy to it, rather than jumping in with memorized procedures.
Thinking is more important than knowledge
- With the rise of AI, a lot of people ask themselves what will happen to their jobs in the future. According to David Epstein, the broader your knowledge the less likely you are to be replaced by a machine learning algorithm.
- Computers are great at executing tasks when certain rules are set by the programmer. However, life is not linear. Leave a program to handle a problem that’s not included in their software and they’ll immediately flash with errors.
- The bigger the picture, the more unique the potential human contribution.
- We should focus on upgrading the way we think, not so much focusing on remembering facts. Instead, we can focus our mental energy to become better at finding different ways to solve the problems we face daily which happens only when we broaden our knowledge, not through narrow specialization.
Narrow specialization and broad thinking are equally important.
- Freeman Dyson, an American theoretical physicist and mathematician, imagines the skill humans need to become great at what they do as frogs and birds. At first glance, the main difference between these two creatures is obvious: birds are high in the sky and can scan the horizon. Frogs, on the other hand, are stuck on the ground, have limited world-view but are experts in the stuff they do. And while being a bird can seem like the right thing to wish for, there are advantages to acquiring the best from both. You can be a bird and have a great vision for your future life. You can set a goal to be the next president or to resolve the climate change problem, for example. However, if you lack the skills needed to transition from a regular dude to an appreciated head of the country, your statement will be just a self-delusional fantasy. “It is stupid to claim that birds are better than frogs because they see farther, or that frogs are better than birds because they see deeper,” says Freeman Dyson and later adds, “We need birds and frogs working together to explore it.”
The idea that ‘slow’ learning is what is valuable when it comes to developing foundational skills.
- Persevering through difficulty is a competitive advantage for any traveler of a long road, but he suggested that knowing when to quit is equally a big strategic advantage. The important trick is staying attuned to whether switching is simply a failure of perseverance, or astute recognition that better matches are available.
- Match quality as a counterpoint to grit.

III. Quotes

We learn who we are in practice, not in theory.
You have people walking around with all the knowledge of humanity on their phone, but they have no idea how to integrate it. We don’t train people in thinking or reasoning.
Modern work demands knowledge transfer: the ability to apply knowledge to new situations and different domains. Our most fundamental thought processes have changed to accommodate increasing complexity and the need to derive new patterns rather than rely only on familiar ones. Our conceptual classification schemes provide a scaffolding for connecting knowledge, making it accessible and flexible.
The challenge we all face is how to maintain the benefits of breadth, diverse experience, interdisciplinary thinking, and delayed concentration in a world that increasingly incentivizes, even demands, hyperspecialization.
The more confident a learner is of their wrong answer, the better the information sticks when they subsequently learn the right answer. Tolerating big mistakes can create the best learning opportunities.
Whether chemists, physicists, or political scientists, the most successful problem solvers spend mental energy figuring out what type of problem they are facing before matching a strategy to it, rather than jumping in with memorized procedures.
The sampling period is not incidental to the development of great performers-something to be excised in the interest of a head start-it is integral.
Pretending the world is like golf and chess is comforting. It makes for a tidy kind-world message, and some very compelling books.
In a wicked world, relying upon experience from a single domain is not only limiting, it can be disastrous.
...the bigger the picture, the more unique the potential human contribution.
The ultimate lesson of the question was that detailed prior knowledge was less important than a way of thinking.
I always advise my people to read outside your field, everyday something. And most people say, ‘Well, I don’t have time to read outside my field.’ I say, ‘No, you do have time, it’s far more important.’ Your world becomes a bigger world, and maybe there’s a moment in which you make connections. - Arturo Casadevall
A paradox of innovation and mastery is that breakthroughs often occur when you start down a road, but wander off for a ways and pretend as if you have just begun.
Human creativity is basically an import export business of ideas.
Learning stuff was less important than learning about oneself. Exploration is not just a whimsical luxury of education; it is a central benefit.
Struggling to retrieve information primes the brain for subsequent learning.
Career goals that once felt safe and certain can appear ludicrous, to use Darwin’s adjective, when examined in the light of more self-knowledge. Our work preferences and our life preferences do not stay the same, because we do not stay the same.
Like chess masters and firefighters, premodern villagers relied on things being the same tomorrow as they were yesterday. They were extremely well-prepared for what they had experienced before, and extremely poorly equipped for everything else. Their very thinking was highly specialized in a manner that the modern world has been telling us is increasingly obsolete. They were perfectly capable of learning from experience, but failed at learning without experience. And that is what a rapidly changing, wicked world demands-conceptual reasoning skills that can connect new ideas and work across contexts.
Everyone needs habits of mind that allow them to dance across disciplines.
It is difficult to accept that the best learning road is slow, and that doing poorly now is essential for better performance later. It is so deeply counterintuitive that it fools the learners themselves.
The same medicine should not be prescribed for every athlete. For some, less training is the right medicine.
Learning itself is best done slowly to accumulate lasting knowledge, even when that means performing poorly on tests of immediate progress. That is, the most effective learning looks inefficient; it looks like falling behind.
I propose instead that you don’t commit to anything in the future, but just look at the options available now, and choose those that will give you the most promising range of options afterward.
Desirable difficulties like testing and spacing make knowledge stick. It becomes durable. Desirable difficulties like making connections and interleaving make knowledge flexible, useful for problems that never appeared in training. All slow down learning and make performance suffer, in the short term.
The world is not golf, and most of it isn’t even tennis. As Robin Hogarth put it, much of the world is “Martian tennis.” You can see the players on a court with balls and rackets, but nobody has shared the rules. It is up to you to derive them, and they are subject to change without notice.
It’s easier for a jazz musician to learn to play classical literature than for a classical player to learn how to play jazz...The jazz musician is a creative artist, the classical musician is a re-creative artist.
Compare yourself to yourself yesterday, not to younger people who aren’t you. Everyone progresses at a different rate, so don’t let anyone else make you feel behind. You probably don’t even know where exactly you’re going, so feeling behind doesn’t help.

Fooled By Randomness by Nassim Nicholas Taleb

Tue, 02 May 2023 00:00:00 GMT

I. Brief Summary

An investigation of luck, uncertainty, probability, decision-making, and randomness in a data driven (statistics) and narrative world. Nassim Taleb is a great thinker and shares his personal and philosophical views to help us understand the world we live in which many don't understand. He is a quantitative trader by profession and learned about practical problems with decision-making, human biases and probabilistic thinking from his professional journey of taking bets (risks). Taleb is a true multidisciplinary thinker. I also enjoyed Taleb's writing style. He has a way to explain complex topics in colorful ways. On the downside, I can see why some may see this book as a personal rant. Taleb does not hide his emotions or shy away from being too opinionated. Nonetheless, this book is a must-read.

II. Big Ideas

We look back and see less randomness.
History played out the way it did because it was observed with one perspective amongst all possible alternatives. Hence, history proves to be a terrible teacher.
Use Monte Carlo simulation to generates thousands, perhaps millions, of random sample paths, and look at the prevalent characteristics of some of their features.
History is a better teacher than today’s media journalism.
Time scale is important in judging a historical event.
Life is nonlinear. Small acts can have disproportionate consequences (good or bad).
We are probability blind. We cannot make decisions without emotions. We are dominated by our emotions.
We make choices with emotions and not rationality.
We tend to generalize which lowers awareness of the randomness at play.
We often get the causality arrow wrong. Correlation does not equal causation. We leverage stories and oversimplifications to falsely show why behind something.
We experience attribution bias by assigning success to a precise reason but in reality it is randomness at play.
It takes courage to introspect and bravery to be skeptical.
Probability is the acceptance of the lack of certainty in our knowledge and a way to deal with our ignorance. Probability almost never presents itself as a mathematical problem or a brain teaser outside of textbooks.
Not all is at randomness. Chance favors the prepared! Hard work and showing up on time contributes to success but might be insufficient and do not cause success.
Bad information is worse than no information at all.
We need to take into account the costs of mistakes. A mistake is not something to be determined after the fact, but in the light of the information until that point.
We are often unaware that we’re playing a dangerous game of roulette. We often call our paths by some lower-risk name, but the truth is that we often can’t see the barrel of reality.
We look at our rich neighbors and assume they are skilled and deserved their winnings. But they may have been lucky and random.
Heroes are heroes because they are heroic in behavior, not because they won or lost.
People pay for insurance to protect themselves. When a bad event happens, we think of their decision as a smart one. When it doesn’t, it seems like they wasted money. Probabilistically, it may have been the right move to buy the insurance.
How we feel about something depends on the path to getting to the end result. And there are many ways to get to the end result.
In trading, you don’t need to maximize profits. You need to stay in the game. Don’t blow up your portfolio. Neither bulls nor bears survive long term because they are useless terms. Optimize for longevity.
It’s not about how likely an event is that matters, it’s how much you make when it happens. How frequent you profit is irrelevant; it’s the magnitude of the outcome that counts.
We miss rare events because we remove the outliers from their analysis. Instead, we focus on the average of what’s happening over time.
Loyalty to ideas is not good.
Absence of critical thinking expressed in absence of thinking.
Avoid intellectual pollution and trap of falling prey to the nice-sounding words.
The pain of losing $100 is greater than the satisfaction of earning $100. Psychologists estimate the negative effect for an average loss to be up to 2.5 the magnitude of a positive one.
Whenever there is asymmetry in outcomes, the average survival (expected outcome) has nothing to do with the median survival (50%).
We do not need to be rational and scientific when it comes to the details of our daily life-only in those that can harm us and threaten our survival.
Induction is going from plenty of particulars to the general. It is very handy, as the general takes much less room in one’s memory than a collection of particulars. The effect of such compression is the reduction in the degree of detected randomness.
Heuristics:
- The availability heuristic corresponds to the practice of estimating the frequency of an event according to the ease with which instances of the event can be recalled.
- The representativeness heuristic is when we gauge the probability that a person belongs to a particular social group by assessing how similar the person’s characteristics are to the “typical” group member’s.
- The simulation heuristic: The ease of mentally undoing an event-playing the alternative scenario.
- The affect heuristic: What emotions are elicited by events determine their probability in your mind.
The higher up the corporate ladder, the higher the compensation to the individual. This might be justified, as it makes plenty of sense to pay individuals according to their contributions. However, and in general, the higher up the corporate ladder, the lower the evidence of such contribution.
Repetitiveness is key for the revelation of skills.
Repetitiveness requires a process.

III. Quotes

Realism is punishing. Probabilistic skepticism is worse.
Reality does not have the same closed and symmetric laws and regulations as games.
When you look at the past, the past will always be deterministic, since only one single observation took place.
In other words, history teaches us to avoid the brand of naive empiricism that consists of learning from casual historical facts.
Imagine taking a test knowing the answer. While we know that history flows forward, it is difficult to realize that we envision it backward.
One cannot judge a performance in any given field (war, politics, medicine, investments) by the results, but by the costs of the alternative (i.e., if history played out in a different way).
Mathematics is principally a tool to meditate, rather than to compute.
Self-contradiction is made culturally to be shameful, a matter that can prove disastrous in science.
Heroes are heroes because they are heroic in behavior, not because they won or lost.
We favor the visible, the embedded, the personal, the narrated, and the tangible; we scorn the abstract.
Probability is not a mere computation of odds on the dice or more complicated variants; it is the acceptance of the lack of certainty in our knowledge and the development of methods for dealing with our ignorance.
Those who were unlucky in life in spite of their skills would eventually rise. The lucky fool might have benefited from some luck in life; over the longer run he would slowly converge to the state of a less-lucky idiot. Each one would revert to his long-term properties.
No matter how sophisticated our choices, how good we are at dominating the odds, randomness will have the last word.
A mistake is not something to be determined after the fact, but in light of the information available until that point.
Mild success can be explainable by skills and labor. Wild success is attributable to variance.
My lesson from Soros is to start every meeting at my boutique by convincing everyone that we are a bunch of idiots who know nothing and are mistake-prone, but happen to be endowed with the rare privilege of knowing it.
When things go our way we reject the lack of certainty.
The epiphany I had in my career in randomness came when I understood that I was not intelligent enough, nor strong enough, to even try to fight my emotions. Besides, I believe that I need my emotions to formulate my ideas and get the energy to execute them. I am just intelligent enough to understand that I have a predisposition to be fooled by randomness-and to accept the fact that I am rather emotional. I am dominated by my emotions-but as an aesthete, I am happy about that fact.
The problem with information is not that it is diverting and generally useless, but that it is toxic.
It certainly takes bravery to remain skeptical; it takes inordinate courage to introspect, to confront oneself, to accept one's limitations. Scientists are seeing more and more evidence that we are specifically designed by mother nature to fool ourselves.
Bullish or bearish are terms used by people who do not engage in practicing uncertainty, like the television commentators, or those who have no experience in handling risk. Alas, investors and businesses are not paid in probabilities; they are paid in dollars.
People do not realize that the media is paid to get your attention. For a journalist, silence rarely surpasses any word.
People often confuse complex ideas that cannot be simplified into a media-friendly statement as symptomatic of a confused mind.
This is one of the many reasons that journalism may be the greatest plague we face today-as the world becomes more and more complicated and our minds are trained for more and more simplification.
There is asymmetry. Those who die do so very early in the game, while those who live go on living very long. Whenever there is asymmetry in outcomes, the average survival has nothing to do with the median survival.
People overvalue their knowledge and underestimate the probability of their being wrong.
Clearly, an open mind is a necessity when dealing with randomness. Popper believed that any idea of Utopia is necessarily closed owing to the fact that it chokes its own refutations. The simple notion of a good model for society that cannot be left open for falsification is totalitarian. I learned from Popper, in addition to the difference between an open and a closed society, that between an open and a closed mind.
We do not need to be rational and scientific when it comes to the details of our daily life-only in those that can harm us and threaten our survival.
Too much success is the enemy, too much failure is demoralizing.
Common sense is nothing but a collection of misconceptions acquired by age eighteen. Furthermore, What sounds intelligent in a conversation or a meeting, or, particularly, in the media, is suspicious.
The quality of a decision cannot be solely judged based on its outcome.
We are not made to view things as independent from each other. When viewing two events A and B, it is hard not to assume that A causes B, B causes A, or both cause each other. Our bias is immediately to establish a causal link.
This high-yield market resembles a nap on a railway track.
The virtue of capitalism is that society can take advantage of people’s greed rather than their benevolence, but there is no need to, in addition, extol such greed as a moral (or intellectual) accomplishment (the reader can easily see that, aside from very few exceptions like George Soros, I am not impressed by people with money).
The difference between a trader and an investor lies in the duration of the bet, and the corresponding size.
There is a saying that bad traders divorce their spouse sooner than abandon their positions. Loyalty to ideas is not a good thing for traders, scientists - or anyone.
Wealth does not count so much into one’s well-being as the route one uses to get to it.
My principle activity is to tease those who take themselves and the quality of their knowledge too seriously.
Our emotional apparatus is designed for linear causality. For instance, you study every day and learn something in proportion to your studies.
Finally, I reckon that I am not immune to such an emotional defect. But I deal with it by having no access to information, except in rare circumstances. Again, I prefer to read poetry. If an event is important enough, it will find its way to my ears.
I have no large desire to sacrifice much of my personal habits, intellectual pleasures, and personal standards in order to become a billionaire like Warren Buffett, and I certainly do not see point of becoming one if I were to adopt Spartan (even miserly) habits and live in my starter house.
One of the most irritating conversations I’ve had is with people who lecture me on how I should behave. Most of us know pretty much how we should behave. It is the execution that is the problem, not the absence of knowledge. I am tired of the moralizing slow-thinkers who pound me with platitudes like I should floss daily, eat my regular apple, and visit the gym outside of the New Year’s resolution. In the markets the recommendation would be to ignore the noise component in the performance. We need tricks to get us there but before that we need to accept the fact that we are mere animals in need of lower forms of tricks, not lectures.
Probability is principally a branch of applied skepticism.
Beware the confusion between correctness and intelligibility. Part of conventional wisdom favors things that can be explained rather instantly and “in a nutshell”-in many circles it is considered law.
Of course chance favors the prepared! Hard work, showing up on time, wearing a clean (preferably white) shirt, using deodorant, and some such conventional things contribute to success-they are certainly necessary but may be insufficient as they do not cause success.
We are faulty and there is no need to bother trying to correct our flaws. We are so defective and so mismatched to our environment that we can just work around these flaws.
Life would be unbearably bland if we had no enemies on whom to waste efforts and energy.
If my brain can tell the difference between noise and signal, my heart cannot.
Our brain is not cut out for nonlinearities.
I have two ways of learning from history: from the past, by reading the elders; and from the future, thanks to my Monte Carlo toy.
The only article Lady Fortuna has no control over is your behavior. Good luck.

Conscious Snakes

Tue, 21 Mar 2023 00:00:00 GMT

How do some people navigate the world by being great problem-solvers?

Every exceptional person I have come across or read about has the ability to roll up their sleeves and dive their nose into chaos. This makes them great managers of problem-solving. This outlook is rooted in two things-being open-minded and being a good persuader.

The way they open their minds is to ask the right questions. This is essential for genuine curiosity. Asking questions allows them to learn anything. Questions allow for breaking mental traps, biases, and prejudices that are based on experiences.

They are not prisoners to their titles. They could take an easy path of arguing, but instead, they persuade. The student mentality allows them to face challenges around them instead of arguing with people. To be persuasive, they prefer a paintbrush over a sledgehammer. They boost their charisma if they are able to force influence on the majority of the group and help find a unified direction.

Observation, listening, asking questions, and persuasion are prerequisites for being a great problem-solver.

Where does this operating model come from?

It is rooted in their personal desire to find depth. What is depth? Depth is a space that denies an easy path for answers. They avoid reducing problems into flattened strokes until they understand all perspectives. They are okay grappling with nuances and contradictory truths found in depths. They do not lose their soul if they cannot quantify. Total quantification is only possible when they go deeper. They do not blink their eyes from discovering something new to find a meaningful path.

Being a conscious observer allows them to make new observations. They land a novel solution after digesting all perspectives. In the workplace, these people are referred to as charismatic coworkers. In school, such students are referred to as all-rounders. No matter the age, they all have one thing in common-they are curious about the problems they are surrounded by. This makes them both dangerous and charismatic.

Like a coral snake, it is dangerous but has nothing to prove. The milk snake, on the other hand, is not dangerous, so it has something to prove and copies the look of the coral snake to fake others out. These problem-solvers are similar in nature. They keep their minds open while asking a ton of questions. They are not in the business of dog and pony show. They react efficiently and optimally by being aware of their surroundings. It is how they achieve maximum mental versatility.

This is what separates them from milk snakes who pretend to be curious and value titles over depth.

The nature of life and business for conscious snakes is rooted in their curiosity and persuasion. They only have something healthy to add to their ecosystem instead of something to prove.

Trillions by Robin Wigglesworth

Fri, 10 Mar 2023 00:00:00 GMT

I. Brief Summary

A great deep dive into how passive and active investing such as index funds & ETFs have changed the wealth management landscape. It is written by Robin Wigglesworth who is a well known journalist at Financial Times (FT). He draws a timeline on the evolution of index funds and ETFs. Towards the end, he warns about the limitation of index investing driven both by index funds and ETFs. The industry has done more good than harm, but with a scale at this level, Wigglesworth makes a few cracks known. The book is also filled with history lessons.

II. Big Ideas

The wager between Warren Buffett and Ted Seides on favoring index funds against hedge funds sets up the plot for the book. Buffett bet that a fund that tracked the US stock market would beat any group of hedge fund managers over the decade ending in 2018. Protégé Partners chose five funds of funds, Buffett, the Vanguard 500 Index Trust. Ten years later, the Vanguard 500 Index Trust had trounced the funds of hedge funds, 125.8% to 36.3%. Not a single one of the funds bested the S&P 500.
According to Mr. Wigglesworth himself, the index fund wasn’t invented on Wall Street. It was invented on college campuses, most notably on the campus at the University of Chicago.
From its theoretical underpinnings at University of Chicago to the early attempts at Wells Fargo to the rise of Vanguard (Jack Bogle) and BlackRock (Larry Fink), this book summarizes the history of passive investment industry.
Wigglesworth looks at the origination of the idea which came from a French mathematician Louis Bachelier. It was his PhD doctoral thesis, The Theory of Speculation, published in 1900, which essentially explained why markets are hard to beat. Theory of Speculation became a seminal work in the history of finance.
With Bachelier’s work as their foundation, a number of academics, mostly at the University of Chicago, went on to perform increasingly rigorous statistical studies that reached the same conclusion-it was nearly impossible to consistently predict the performance of individual stocks. A few others like Cowles and Lorie explained and evidenced that professional active money managers could not outperform the market year over year.
The indexing revolution became possible once advanced computing allowed academics to review the performance of active managers vs. the broader market baskets, such as the S&P 500.
Students who had been exposed to these concepts eventually made fledgling efforts to launch market tracking investment funds at Wells Fargo, American National Bank and Batterymarch, but the idea didn’t really catch on until it came to the attention of a finance executive named John Bogle.
In 1974 he created the Vanguard company and an investment fund that tracked the S&P 500. The Vanguard family of funds are now among the largest investment funds in the world.
The industry is now dominated by heavyweights such as BlackRock and State Street, who compete against passive funds.
Exchange-traded funds (ETFs) have acquired a high profile in the financial markets. The idea of ETFs came from Nate Most, the head of product development at the American Stock Exchange. ETFs cross the line between passive and active investing.
The indexing revolution has likely saved investors billions of dollars in fees and has shaken up the investment industry.
The paradox is that index funds have been good for individual investors, but it may not be so good for capitalism. Various studies have shown how passive investing has outperformed active investing across cycles. But increasing presence of passive investing raises fundamental questions on corporate governance and concentration of power in the hands of a selected few.
For example, the addition of Tesla to the S&P 500 index in 2020 resulted in the purchase of $51 billion of Tesla stock by the major index funds. This large investment in the company had nothing to do with Tesla’s prospects. The investment was based merely on the fact that the company had been added to the S&P index, which triggered a massive buying spree by the index funds. Simultaneously, the major index funds dump equally large shares of stock from companies that are removed from the indices, which can pose an existential crisis for those companies, their investors and their employees.
Another pitfall of index funds serves as an example which rose from the 2018 shooting at Marjory Stoneman Douglas High School. In the wake of an incident, index fund providers, such as Vanguard and BlackRock, were unable to divest stocks of gun manufacturers, prompting calls to boycott them. Similarly, index funds that are not expressly designed for the purpose cannot divest stocks that fail to meet the environmental, social, and governance (ESG) movement’s standards.
Classification is another problem. The index constructors assign Amazon to the retail category, while Google and Facebook are deemed to be communications firms. On the other hand, financial payments companies, such as Mastercard and Visa, are classified as technology stocks. Index committees wield additional market power due to the price impact that is felt when a stock is added to or removed from an index.
Index funds are rewiring modern finance. But so did mutual funds before them, and the investment trusts before that. Despite all the concerns, the industry is highly dynamic and can withstand the downside of these limitations. There are tools available to minimize the dangers.

III. Quotes

Fred Schwed captured the soured view of his industry in a seminal book titled Where Are the Customers’ Yachts?
Over the past decade, about 80 cents of every dollar that has gone into the US investment industry has ended up at Vanguard, State Street, and BlackRock.
The best long-term results come from buying a big, well-diversified portfolio of financial securities, and trading as little as possible.
It is difficult to get someone to understand something when their salary depends on them not understanding it.
One of the most puzzling aspects of the investment industry-why most professional money managers seemed to do such an abysmal job.
Not only did this gain Sharpe his PhD, but it eventually evolved into a seminal paper on what he called the “capital asset pricing model” (CAPM), a formula that investors could use to calculate the value of financial securities. The broader, groundbreaking implication of CAPM was introducing the concept of risk-adjusted returns-one had to measure the performance of a stock or a fund manager versus the volatility of its returns-and indicated that the best overall investment for most investors is the entire market, as it reflects the optimal tradeoff between risks and returns.

The Wisdom Of Finance by Mihir Desai

Fri, 24 Feb 2023 00:00:00 GMT

I. Brief Summary

This book offers a thoughtful explanation of how money works which also recognizes how abnormal the industry can be. Desai argues that there is great value in finance. The author romanticizing a domain which is inherently rotten should raise eyebrows. Desai is a pure academician. He is a professor at Harvard Business School. Glorifying the financial industry may not sit well with everyone. Nonetheless, there are several great lessons. Desai employs literature as a device to explain the lessons of money in finance.

II. Big Ideas

He rejects the idea that finance itself is flawed, but rather it has to do with quick feedback loops on their performance which makes Wall Street greedy. Desai believes through the use of humanities finance can be humanized.
On Probability:
- Our lives are dictated by chance, but how we deal with chaos, randomness, and disorder has evolved greatly over the years as humanity developed better tools to deal with probability.
- Human intuition is not a great tool for understanding probability. But great mathematicians such as Blaise Pascal, Charles Sanders Peirce, and Pierre de Fermat developed the tools for analyzing situations probabilistically.
- Insurance which is boring, but a great tool to deal with chaos.
- Insurance is how finance intersects with the real world of issues around probability and risk
On Risk Management:
- Events cannot be predicted, one form of insurance used in finance are options.
- People in finance love options because of the asymmetric payoff. Losses are contained and gains are unlimited.
- Investors use “beta” as a measurement of risk to market fluctuations. An asset that is high beta goes up a lot when the market goes up and goes down a lot when the market goes down. And, vice-versa with low beta.
- Desai illustrates this concept using friendships. High beta friendships are your social contacts and acquaintances. Low beta friendships are friends and family.
- Desai has warning to those who overutilize options-“People in finance love options so much that they often overlearn the lessons on the value of options. They become obsessed with “optionality” and the creation and preservation of choices...I am no longer surprised to see students who end up remaining in companies – usually consulting or investment banking firms – that were initially intended as way stations that would create more optionality on the path to their actual entrepreneurial, social, or political goals. They often end up saying to themselves, “Why not stay another year and create more options for down the road?” The tool that was supposed to lead to more risk-taking ends up preventing it.”
On Value:
- Value analysis is a central task for financial professionals
- Compounding is powerful and great value compounds exponentially. Hence, reinvesting generates greater return than not reinvesting.
- Talent is distributed unequally. Talent is incredibly valuable. It is of the utmost importance to exercise our talent to its fullest extent.
- Accounting is fundamentally backward-looking: balance sheets and income statements look at what has been done. Balance sheets also give zero value to assets that can’t be valued precisely. This leaves important assets such as brand, intellectual property, and user communities out of the equation. Imagine trying to value Coca-Cola, Disney, Facebook, or Apple without including their brand in that valuation…clearly not a complete picture. In contrast, finance is ruthlessly forward-looking. Valuation is driven solely by the future. There is a discount given when translating future value into today’s dollars–and that waiting cost is valued by finance by the “weighted average cost of capital”.
- “Alpha” represents the idea of value creation–the returns you generate above and beyond expectations. Success amongst investors is overly attributed to skill and the role of luck is overlooked. Desai illustrates this illusion to coin-flipping. Attributing coin flipping skill is indistinguishable from an investor who says they’ve beaten the market ten years in a row.
On Principal Agent:
- To understand the principal-agent problem is the idea of investors and managers. Investors put their money into a company and entrust managers to manage and grow the company. These managers (usually) are paid a salary while investors make their money on company value. These differences in incentives result in decision-making differences and ultimately, conflicts.
- It often isn’t clear who is the agent and who is the principal in modern capitalism. This is true in life as well – roles are blurred and muddled.
On Leverage:
- Leverage in finance is a fancy way of saying “borrowing money”.
- The analogy is based on the idea of a lever, which enables you to move items that would otherwise be too heavy to lift. In finance, leverage enables you to buy things you would otherwise be unable to buy and amplifies returns in both directions. If things are go well, you’ll make more money with leverage than without leverage and if things go badly, you’ll lose more money.
- There are benefits to leverage which Desai calls it “the leverage bonus.” By being leveraged, you are forced to do the right thing to meet your obligations. The same thing can apply to relationships with others. By making commitments to others (being leveraged), you will take actions that you may never have been able to force yourself to do on your own. Ths accountability hold us to a higher standard and may enable us to live richer (and longer) lives.
On Risk Taking:
- Failure, in many parts of the world, is stigmatized. Not for Silicon Valley–which may be why it is a continuous wellspring of innovation.
- Risk taking and failure go hand in hand. You literally can’t have one without the other.
- Failure should not be understood or seen as a moral defect. Inevitably, risk taking will lead to failure, and failure should be viewed as a bad outcome with an abundance of lessons.
- Bankruptcy law allows for friendlier risk taking. Modern bankruptcies allow companies to walk away from crushing obligations and have a fresh start. Of course there are trade-offs because it allows for walking away from obligations for less accountable people. But Desai argues such is life.
On Spot Market vs Contracts vs Ownership:
- Spot markets are typical business arrangements–someone needs a piece of machinery and finds a vendor to build it for them.
- Contracts are things that include terms such as exclusivity, special pricing considerations, minimums, or any other specific deal items.
- Ownership is when one company decides to buy another for their capability.
Desai's Checklist:
- Due diligence is critical.
- Filling a hole in your organization is not a merger strategy
- Racing against the clock leads to bad decision-making.
- Synergies are always overstated.
- The costs of integration are always understated.
- Asymmetric mergers are easy but of limited value, and mergers of equals are horribly difficult but potentially very rewarding.
- Serial acquirers are problematic.
- Ultimately, it’s all about culture, “doing the work”, and execution.

III. Quotes

Finance has a negative reputation among the general public for being difficult to understand and full of people motivated by greed. However, understanding finance improves the ability to understand challenging situations as they arise in other areas of life.
Perhaps finance is deeply connected to our humanity.
Perhaps we can all find our way back to a more noble profession by enlivening the ideas of finance through stories that illuminate our lives and our work.
Finding narratives that allow us to stay attached to what is meaningful in finance can insulate us from the feedback loops of attribution error - and perhaps help save us from becoming caricatures.
It has become fashionable to deride the values of finance in intellectual circles and political campaigns.
It’s not finance that’s bad. It’s not the people who finance attracts who are bad. It’s just that finance fuels ego and ambition in an unusually powerful way.
Commitments to smart and demanding people keep us from doing stupid things. We gain from those commitments. Leverage is not a zero-sum game.
Failures should not be stigmatized, they are occasions for a fresh start.
In finance, we are trying to figure out how to invest our assets and manage toward the best risk-return tradeoff. In life, we are trying to figure out how to allocate our time and energies across many people. It also matches because the underlying logic of insurance is present in both settings.
This experiment is a provocative way to humble any investors who pride themselves on their success as it directly rebuts the idea that alpha is easily labeled or generated. In a room full of a hundred of your friends, ask everyone to take out a coin, flip it ten times in a row, and record their results. You’ll find that you’re almost guaranteed to have one friend who gets ten heads in a row. Here’s the key insight: that friend is indistinguishable from an investor who says they’ve beaten the market ten years in a row.
We are all fragile creatures, all teetering on the edges of bankruptcy, struggling to navigate between competing obligations that arise when we care deeply about things in our lives. The mistake is to reject uncertainty – just as philosopher Charles Sanders Peirce suggested–by not caring deeply enough to feel those competing obligations.
Randomness and order coexist in the world. The discovery of normal distribution, as in a bell curve, indicated that what appears to be random is derived from the laws of nature.
A merger, like a marriage, proceeds most smoothly when both parties are well-informed.
People recover from failure when they have the space, help, and time to learn from the experience.
Organizations that stigmatize failure actually tend to repeat failures rather than learn from them.
In financial and personal matters, people who act as principals appoint other people to act as their agents, but principals often act as agents for other people and agents are sometimes principals as well. This forms a complex web of obligations.
Creating value requires a firm not only to increase in value, but to exceed the performance of the rest of the market.
Finance experts calculate value based on how much money investments will produce in the future, the cost of the investment in the present, and how long it will take to receive the benefits.
A person can reduce risk by investing time, money, or effort into a variety of diverse opportunities.
One strategy for reducing risk is creating options that allow a person to choose the most advantageous moment to pursue what would otherwise be a risky venture.
An insurance company improves its ability to deal with randomness by learning from experience and using observations to inform future decisions.
Finance's starting point in valuation is that previous accomplishments and what you have today bear little relationship to real value. Finance is completely and ruthlessly forward-looking. The only source of value today is the future.
John Henry Newman put it more than 150 years ago, “the general principles of any study you may learn by books at home; but the detail, the color, the tone, the air, the life which makes it live in us, you must catch all these from those in whom it lives already.
We should experience as much as possible-just as insurance companies must-in order to make good decisions and understand the world with the right probabilities.
Finance, ultimately, is a set of tools for understanding how to address a risky, uncertain world.
For finance is, at its core, a way to understand the role of risk and randomness in our lives and a way to use the dominance of patterns to our advantage.
Once you embrace randomness, you are left with the task of making sense of the world and seeking out the patterns that can guide your behavior.
Pragmatism is the opposite of navel-gazing; in pragmatism, truths are only valuable to the degree they can inform actions, and actions are only valuable if they confirm a truth.
Perceiving the normal in the abnormal is precisely what insurance is built on and it is what helps us achieve the opposite of chaos amidst the chaos of the world.
The logic of a liberal arts education is not terribly different-by preventing professional specialization at too early an age, exposure to a broad set of ideas flexes different intellectual muscles and provides alternative perspectives that feed a lifetime of learning.
In short, finance has a simple recipe for value creation-1) surpass the expected returns of your capital providers; 2) surpass those expectations for as long as you can; and 3) grow, so you can keep generating returns that are higher than your cost of capital. That’s all that really matters for creating value.

Beating The Big Imposter

Fri, 10 Feb 2023 00:00:00 GMT

Can curiosity help navigate imposter syndrome?

It occurred to me in 2022 that I grew up with mild imposter syndrome. It was a strange realization because I didn't think about it much. The occurrence of this idea started to compound, which led to frequent thinking of imposter syndrome.

Researchers define imposter syndrome as a feeling of fraud. This arises from a lack of confidence because individuals with imposter syndrome never feel good enough about their skills. The work feels cheated, and the feeling of getting caught never fades away. This feeling can be rooted in many factors, but importantly, it stems from having self-esteem or self-doubt.

Personally, I view this issue as rising from your upbringing. A few families support confidence while others do a poor job of building confidence for their kids. The confidence of an individual is as strong as its tribe. A tribal leader instills in its members to build self-esteem. The confidence must be balanced with humility because having overconfidence is not good either.

There are benefits to imposter syndrome. A healthy imposter syndrome can be good because it creates an environment for growth. When imposter syndrome disappears, it might mean you stopped learning. But a few are severely paralyzed by it.

For me, reading helped beat it.

I started seeing life as an opportunity to learn instead of beating myself up for not knowing enough and feeling like a fraud. I reconciled my personal issues by spending days reading books because I saw myself as a student. Reading turned out to be richer, nobler, and larger than I thought. Reading built my self-esteem and helped me avoid self-doubt.

Being a reader allows you to see yourself as a student. This is the most important step. When you are a student, acknowledge that you don’t know everything and that you’re here to learn. If you take on this mindset, imposter syndrome can’t survive in your head because it has nothing to grab onto. You’re not trying to fake a persona or maintain a certain image-instead, you’re motivated by curiosity. Treat your work as one big experiment-an opportunity to learn. Because in the end, that is what it is-life being one big experiment and curiosity being the key ingredient.

You can substitute reading with anything.

You can write. You don’t have to wait for adults to tell you how to write things; you can write anything. Start typing.

You can build. You don’t have to wait for adults to tell you how to make things; you can build anything. Start building.

You can paint. You don’t have to wait for someone to tell you how to paint; you can pick up the paintbrush and paint your first stroke. Start painting.

The act of doing causes imagination to flourish. All you have to do is put in the work. Work day by day over many years to build self-trust. CS Lewis had a saying that modern people doubt themselves too little and doubt what they do too much. The secret of the world is that learning is naturally the consequence of doing. This is the core truth of how the world operates.

You must enter the arena, throw punches at the big imposter until you knock the imposter down. And then enter the arena again, and again, and again. Over time, the practice of fighting the big imposter becomes natural. It never disappears, but with more practice, you'll know how to face imposter syndrome.

Don't let imposter syndrome bankrupt you from doing. If in doubt, take the first step because doubt kills more dreams than failures.

Knowledge is power. Learn new things to boost experience and build self-esteem. The universe rewards the brave. This will allow you to shrink down your big imposter into a small imposter.

The Little Book That Builds Wealth by Pat Dorsey

Wed, 08 Feb 2023 00:00:00 GMT

Brief Summary

Pat Dorsey was the Director for equity research at Morningstar from 2000 to 2011. He now heads Dorsey Asset Management. Dorsey introduces his investment philosophy especially around moats that are durable. A company with a moat adds long-term value because it helps them stay valuable for a longer time. Dorsey categorizes moats into four different types-intangible assets, customer switching cost, network effect and cost advantages. This is an excellent book for anyone interested in value investing around sustainable moats.

Big Ideas

Buying a share of stock means that you own a really tiny piece of the business.
The value of a business is equal to all the cash it will generate in the future.
A business that can profitably generate cash for a long time is worth more today than a business that may be profitable only for a short time.
Return on capital is the best way to judge a company’s profitability. It measures how good a company is at taking investors’ money and generating a return on it.
Economic moats can protect companies from competition, helping them earn more money for a long time, and therefore making them more valuable to an investor.
Moats are structural characteristics inherent to a business, and the cold hard truth is that some businesses are simply better than others.
Great products, great size, great execution, and great management do not create long-term competitive advantages. They’re nice to have, but they’re not enough.
The four sources of structural competitive advantage are intangible assets, customer switching costs, the network effect, and cost advantages. If you can find a company with solid returns on capital and one of these characteristics, you’ve likely found a company with a moat.
Popular brands aren’t always profitable brands. If a brand doesn’t entice consumers to pay more, it may not create a competitive advantage.
Patents are wonderful to have, but patent lawyers are not poor. Legal challenges are the biggest risk to a patent moat.
Regulations can limit competition-isn’t it great when the government does something nice for you? The best kind of regulatory moat is one created by a number of small-scale rules, rather than one big rule that could be changed.
Companies that make it tough for customers to use a competitors’ product or service create switching costs. If customers are less likely to switch, a company can charge more, which helps maintain high returns on capital.
Switching costs come in many flavors-tight integration with a customer’s business, monetary costs, and retraining costs, to name just a few.
Your bank makes a lot of money from switching costs.
A company benefits from the network effect when the value of its product or service increases with the number of users. Credit cards, online auctions, and some financial exchanges are good examples.
The network effect is an extremely powerful type of competitive advantage, and it is most often found in businesses based on sharing information or connecting users together. You don’t see it much in businesses that deal in physical goods.
Cost advantages matter most in industries where price is a big part of the customer’s purchase decision. Thinking about whether a product or service has an easily available substitute will steer you to industries in which cost advantages can create moats.
Cheaper processes, better locations, and unique resources can all create cost advantages-but keep a close eye on process-based advantages. What one company can invent, another can copy.
Being a big fish in a small pond is much better than being a bigger fish in a bigger pond. Focus on the fish-to-pond ratio, not the absolute size of the fish.
Delivering fish more cheaply than anyone else can be pretty profitable. So can delivering other stuff.
Scale economies have nothing to do with the skin on a fish, but they can create durable competitive advantages.
Technological change can destroy competitive advantages, but this is a bigger worry for companies that are enabled by technology than it is for companies that sell technology, because the effects can be more unexpected.
If a company’s customer base becomes more concentrated, or if a competitor has goals other than making money, the moat may be in danger.
Growth is not always good. It’s better for a company to make lots of money doing what it is good at, and give the excess back to shareholders, than it is to throw the excess profits at a questionable line of business with no moat. Microsoft could get away with it, but most companies can’t.
It’s easier to create a competitive advantage in some industries than it is in others. Life is not fair.
Moats are absolute, not relative. The fourth-best company in a structurally attractive industry may very well have a wider moat than the best company in a brutally competitive industry.
Bet on the horse, not the jockey. Management matters, but far less than moats.
Investing is all about odds, and a wide-moat company managed by an average CEO will give you better odds of long-run success than a no-moat company managed by a superstar.
To see if a company has an economic moat, first check its historical track record of generating returns on capital. Strong returns indicate that the company may have a moat, while poor returns point to a lack of competitive advantage-unless the company’s business has changed substantially.
If historical returns on capital are strong, ask yourself how the company will maintain them. Apply the tools of competitive analysis, and try to identify a moat. If you can’t identify a specific reason why returns on capital will stay strong, the company likely does not have a moat.
If you can identify a moat, think about how strong it is and how long it will last. Some moats last for decades, while others are less durable.
A company’s value is equal to all the cash it will generate in the future. That’s it.
The four most important factors that affect the valuation of any company are how much cash it will generate (growth), the certainty attached to those estimated cash flows (risk), the amount of investment needed to run the business (return on capital), and the amount of time the company can keep competitors at bay (economic moat).
Buying stocks with low valuations helps insulate you from the market’s whims, because it ties your future investment returns more tightly to the financial performance of the company.
The price-to-sales ratio is most useful for companies that are temporarily unprofitable or are posting lower profit margins than they could. If a company with the potential for better margins has a very low price-to-sales ratio, you might have a cheap stock in your sights.
The price-to-book ratio is most useful for financial services firms, because the book value of these companies more closely reflects the actual tangible value of their business. Be wary of extremely low price-to-book ratios, because they can indicate that the book value may be questionable.
Always be aware of which “E” is being used for a P/E ratio, because forecasts don’t always come true. The best “E” to use is your own: Look at how the company has performed in good times and bad, think about whether the future will be a lot better or worse than the past, and come up with your own estimate of how much the company could earn in an average year.
Ratios of price to cash flow can help you spot companies that spit out lots of cash relative to earnings. It is best for companies that get cash up front, but it can overstate profitability for companies with lots of hard assets that depreciate and will need to be replaced someday.
Yield-based valuations are useful because you can compare the results directly with alternative investments, like bonds.
If you have made a mistake analyzing the company, and your original reason for buying is no longer valid, selling is likely to be your best option.
It would be great if solid companies never changed, but that’s rarely the case. If the fundamentals of a company change permanently-not temporarily-for the worse, you may want to sell.
The best investors are always looking for the best places for their money. Selling a modestly undervalued stock to fund the purchase of a super cheap stock is a smart strategy. So is selling an overvalued stock and parking the proceeds in cash if there aren’t any attractively priced stocks at the time.
Selling a stock when it becomes a huge part of your portfolio can make sense, depending on your risk tolerance.
Best way to determine a company's profitability is to look at the amount of profit the company is generating relative to the amount of money invested in the business (ROE, ROA, ROIC).
- Return on assets (ROA) of 7%+ is a good sign of a competitive advantage
- Return on equity (ROE) of 15%+ a healthy sign
- Return on invested capital (ROIC) of 15%+ is a healthy sign
Moat Process:
- Has the firm historically generated solid ROE, ROA, ROIC?
- (If step 1 is a yes) Does the firm have one or more of the competitive advantages discussed?
- (If step 2 is a yes) How strong is the company's competitive advantage? Is it likely to last a long or short time?
  - Short = narrow moat
  - Long = wide moat
A stock is worth the present value of all the cash it will generate in the future (Free Cash Flow or owner earnings).
Most important concepts behind valuation
- Risk: how likely the estimated future FCF will actually materialize
- Growth: how large those cash flows will likely be
- ROIC: how much investment will be needed to keep the business going
- Moat: how long the business can generate excess profits
Over time, only two things can push a stock's price-the investment return (earnings + dividend) and speculative return (change in P/E ratio)
Tools for valuation:
- Price-to-sales (P/S): most useful for companies that have temporarily depressed margins
- Price-to-book (P/B): compares market price with its book value, useful for financial services companies
- Be cautious about goodwill as it can distort the value
- Price-to-earnings (P/E): earnings a decent proxy for value-creating cash flow, look at how company's P/E has fared in good times and bad and think about how company's future looks
- Price-to-cash-flow (P/CF): shows how much cash is flowing in and out of a business (less manipulated than earnings)
- Cash return: FCF (cash flow from operations - capex) + net interest expense (interest expense - interest income) / enterprise value (market cap + long-term debt - cash)

Quotes

Unless a company has an economic moat protecting its business, competition will soon arrive on its doorstep and eat away at its profits. Wall Street is littered with the dead husks of companies that went from hero to zero in a heartbeat.
Even the best company will hurt your portfolio if you pay too much for it.
Thinking about moats can protect your investment capital in a number of ways. For one thing, it enforces investment discipline, making it less likely that you will overpay for a hot company with a shaky competitive advantage. High returns on capital will always be competed away eventually, and for most companies-and their investors-the regression is fast and painful
The best engineer in the world can’t build a 10-story sandcastle.
I would argue strongly that reading about companies will add infinitely more value to your investment process than will reading about short-term market movements, macroeconomic trends, or interest-rate forecasts. One annual report is worth 10 speeches by a Federal Reserve chairman.
Once you’ve made these publications part of your investment diet, move on to books about-and by-successful money managers.
When management with a reputation for brilliance tackles a business with a reputation for bad economics, it is the reputation of the business that remains intact.
The trick is to always stay focused on the future performance of the business, not the past performance of the shares.
Remember that sometimes the better place for your money may very well be cash.
If you’ve had a screaming success with an investment and its market value has grown to make up a big chunk of your portfolio, it may make sense to dial down the risk and shrink the position.
Selling just because a stock price has dropped makes absolutely no sense whatsoever, unless the value of the business has declined as well. Conversely, selling just because a stock has skyrocketed makes no sense, unless the value of the business has not increased in tandem.
Ask any professional investor what he or she thinks is the hardest part of investing, and most will tell you that knowing when to sell ranks up there near the top-if not right at the top.

The Outsiders by William N. Thorndlike, Jr.

Wed, 25 Jan 2023 00:00:00 GMT

I. Brief Summary

This book is a blueprint of what it takes to be an exceptional CEO who can perform extraordinarily over long periods of time. Jack Welch is one of the most celebrated CEOs who returned 20% over a period while S&P averaged 14% annual returns. However, Jack Welch didn't stand a chance against these 8 unconventional CEOs. They all outperformed Welch by significant margins. Each chapter may sound repetitive, but the redundancy of characteristics in each one of these CEOs highlights the underlying lessons. They all understood capital allocation is perhaps the only job the CEO is responsible for.

II. Big Ideas

The book highlights and features these CEOs:
- Capital Cities Broadcasting, Tom Murphy
- Teledyne, Henry Singleton
- General Dynamics, Bill Anders
- TCI, John Malone
- The Washington Post Company, Katharine Graham
- Ralston Purina, Bill Stiritz
- General Cinema, Dick Smith
- Berkshire Hathaway, Warren Buffet
Capital allocation is “the process of deciding how to deploy the firm’s resources to earn the best possible return for shareholders.”
Outsiders are foxes, not hedgehogs. Isaiah Berlin, in a famous essay about Leo Tolstoy, introduced the instructive contrast between the “fox,” who knows many things, and the “hedgehog,” who knows one thing but knows it very well. Most CEOs are hedgehogsß-they grow up in an industry and by the time they are tapped for the top role, have come to know it thoroughly. There are many positive attributes associated with hedgehogness, including expertise, specialization, and focus. Foxes, however, also have many attractive qualities, including an ability to make connections across fields and to innovate, and the CEOs in this book were definite foxes. They had familiarity with other companies and industries and disciplines, and this ranginess translated into new perspectives, which in turn helped them to develop new approaches that eventually translated into exceptional results.
All 8 CEOs mentioned in the book were unconventional in their own rights. Why?
- Capital allocation is a CEO’s most important job.
- What counts in the long run is the increase in per share value, not overall growth or size.
- Cash flow, not reported earnings, is what determines long-term value.
- Decentralized organizations release entrepreneurial energy and keep both costs and “rancor” down.
- Independent thinking is essential to long-term success, and interactions with outside advisers (Wall Street, the press, etc.) can be distracting and time-consuming.
- Sometimes the best investment opportunity is in your own stock.
- With acquisitions, patience is a virtue…as is occasional boldness.
They disdained dividends, made disciplined (occasionally large) acquisitions, used leverage selectively, bought back a lot of stock, minimized taxes, ran decentralized organizations, and focused on cash flow over reported net income.
Each CEO ran decentralized operations but centralized capital allocation activities. They were great delegators but took responsibility for all major capital allocation decisions. They were comfortable to act without input from outside advisers, diverge from peers and ignore institutional imperative.
Charisma is overrated. Unlike traditional CEOs, they were non-promotional and spent less time on investor relations. They did not provide earning guidance or participate in Wall Street conferences. They also possessed a great deal of humility.
These executives combined patience with occasional boldness. They were comfortable waiting long periods of time without action until the right opportunity arrived.
Denominator matters. The focus is always on maximizing value per share (not just total company value). They were careful with how they financed investment projects, opportunistic with share repurchases and avoided overpaying for acquisitions and capital projects.
Always do the basic operations of math (not to confused with complex models employed by Wall Street). Each CEO always started by asking what the return was on investment opportunities. They focused on key assumptions and relied on conservative parameters. They did not rely on detailed spreadsheets and analyzed major opportunities themselves (as opposed to relying on subordinates, advisers or consultants).
CEOs have five essential choices for deploying capital. Think of these options collectively as a tool kit. Over the long term, returns for shareholders will be determined largely by the decisions a CEO makes in choosing which tools to use (and which to avoid) among these various options. Stated simply, two companies with identical operating results and different approaches to allocating capital will derive two very different long-term outcomes for shareholders.
- Investing in existing operations
- Acquiring other businesses
- Issuing dividends
- Paying down debt
- Repurchasing stock
Three alternatives for raising capital:
- Tapping internal cash flow
- Issuing debt
- Raising equity
Characteristics of an outsider CEO:
- Frugal
- Humble
- Analytical
- Independent
- Understated
- Practical
Furthermore, there are other several characteristics that were common in all 8 CEOs:
- Devoted to their families
- Rarely appeared on covers of business publications
- Not marketers
- Lack of charisma
- First-time CEOs, most with very little prior management experience
- New to their industries
- Fresh perspective
- Worked out of barebones offices
- Actively avoided bankers and other advisers
- Prefer decentralized organizational structures that self-select for other independent thinkers
- High debt levels (except for Warren Buffet)
The Outsider's checklist:
- Your CEO should lead the process for capital allocation. It should not be delegated to business development or finance personnel.
- Determine your hurdle rate. This is the minimum acceptable return for investment projects. It should be in reference to a set of opportunities available to the company. It should exceed the blended cost of equity and debt.
- Calculate the expected returns on all internal and external investment alternatives. Rank them by return and risk. While these estimates do not need to be precise, they should impose conservative assumptions. Higher risk require higher expected returns.
- Calculate the return for stock repurchases. Returns from acquisitions must exceed this benchmark. Repurchases can destroy value if prices are exorbitant.
- Focus on after-tax returns and run all transactions by your tax counsel.
- Determine the acceptable levels for debt and cash. Run your company within this conservative range.
- Consider a decentralized organizational model. This is the ratio of corporate to total employees relative to your peer group average.
- Retain capital in the business when you have confidence that you can generate returns that exceed your hurdle rate over time.
- Consider paying a dividend when you do not have high return investment projects. Dividend decisions can be hard to reverse and sometimes tax inefficient.
- When company prices are high, it is okay to consider selling your business, divisions and/or stock. It is also okay to close-under performing business units when they can no longer generate returns at acceptable levels.

III. Quotes

The business of business is a lot of little decisions every day mixed up with a few big decisions.
The lessons of these iconoclastic CEOs suggest a new, more nuanced conception of the chief executive’s job, with less emphasis placed on charismatic leadership and more on careful deployment of firm resources.
There is a fundamental humility to decentralization, an admission that headquarters does not have all the answers and that much of the real value is created by local managers in the field.
Should you find yourself in a chronically leaking boat, energy devoted to changing vessels is likely to be more productive than energy devoted to patching leaks. - Warren Buffett
Success leaves traces. - John Templeton
You are right not because others agree with you, but because your facts and reasoning are sound. - Benjamin Graham
If you think of capital allocation more broadly as resource allocation and include the deployment of human resources, you find again that Singleton had a highly differentiated approach. Specifically, he believed in an extreme form of organizational decentralization with a wafer-thin corporate staff at headquarters and operational responsibility and authority concentrated in the general managers of the business units. This was very different from the approach of his peers, who typically had elaborate headquarters staffs replete with vice presidents and MBAs.
After orbiting the moon, mundane business problems did not faze him.
There are two basic types of resources that any CEO needs to allocate: financial and human.
The system in place corrupts you with so much autonomy and authority that you can’t imagine leaving.
What makes him a leader is precisely that he is able to think things through for himself. - William Deresiewicz
In contrast, Murphy’s goal was to make his company more valuable. As he said to me, “The goal is not to have the longest train, but to arrive at the station first using the least fuel.”
Better to pay interest than taxes.
One of the most important decisions any CEO makes is how he spends his time-specifically, how much time he spends in three essential areas: management of operations, capital allocation, and investor relations.
Independent thinking is essential to long-term success, and interactions with outside advisers (Wall Street, the press, etc.) can be distracting and time-consuming.
The heads of many companies are not skilled in capital allocation. Their inadequacy is not surprising. Most bosses rise to the top because they have excelled in an area such as marketing, production, engineering, administration, or sometimes, institutional politics. Once they become CEOs, they now must make capital allocation decisions, a critical job that they may have never tackled and that is not easily mastered. To stretch the point, it’s as if the final step for a highly talented musician was not to perform at Carnegie Hall, but instead, to be named Chairman of the Federal Reserve. - Warren Buffett
If everyone’s doing them, there must be something wrong with them.
Leadership is analysis. - Stiritz
Without it (analysis), chief executives are at the mercy of their bankers and CFOs. - Stiritz
You shape your houses and then your houses shape you. - Winston Churchill
What makes him a leader is precisely that he is able to think through things himself. - William Deresiewicz
Hire well, manage little. - Warren Buffett
Conglomerates were the Internet stocks of 1960s.
Luck is the residue of design. - Branch Rickey
Tax minimization was a central component of Malone's strategy at TCI.

Nobody Wants to Read Your Sh*t by Steven Pressfield

Mon, 14 Nov 2022 00:00:00 GMT

I. Brief Summary

A guide to the ins and out of writing, whether it’s a book, a screenplay or advertising material. Steven Pressfield is a best-selling writer who has worked in advertising, screenwriting and as an author of both fiction and nonfiction. A bit of self-help element to the book.

II. Big Ideas

Nobody wants to read anything. It isn't that people are mean or cruel. They're just busy. What's the answer?
- Streamline your message. Focus it and pare it down to it simplest, clearest, easiest-to-understand form.
- Make its expression fun. Or sexy or interesting or scary or informative. Make it so compelling that a person would have to be crazy NOT to read it.
- Apply that to all forms of writing or art or commerce.
When you understand that nobody wants to read your shit, your mind becomes powerfully concentrated. You begin to understand that writing/reading is, above all, a transaction. The reader donates his time and attention, which are supremely valuable commodities. In return, you the writer must give him something worthy of his gift to you. Principles learned in twenty-sever years working as a writer in other fields, i.e., writing ads, writing movies, writing unpublishable fiction.
- Every work must be about something. It must have a theme.
- Every work must have a concept, that is, a unique twist or slant or framing device.
- Every work must start with an Inciting Incident.
- Every work must be divided into three acts (or seven or eight or nine David Lean sequences).
- Every character must represent something greater than himself/herself.
- The protagonist embodies the theme.
- The antagonist personifies the counter-theme.
- The protagonist and antagonist clash in the climax around the issue of the theme.
- The climax resolves the clash between the theme and the counter-theme.
Storytelling principles:
- Every story must have a concept. It must put a unique and original spin, twist or framing device upon the material.
- Every story must be about something. It must have a theme.
- Every story must have a beginning, a middle, and an end. Act One, Act Two, Act Three.
- Every story must have a hero.
- Every story must have a villain.
- Every story must start with an Inciting Incident, embedded within which is the story’s climax.
- Every story must escalate through Act Two in terms of energy, stakes, complication and significance/meaning as it progresses.
- Every story must build to a climax centered around a clash between the hero and the villain that pays off everything that came before and that pays off on-theme.
What are the universal structural elements of all stories?
- Hook
- Build
- Payoff
This is the shape any story must take. That’s a novel, that’s a play, that’s a movie, that’s a joke, that’s a seduction, that’s a military campaign.
- A beginning that grabs the listener.
- A middle that escalates in tension, suspense, stakes, and excitement.
- An ending that brings it all home with a bang.

III. Quotes

A real writer (or artist or entrepreneur) has something to give. She has lived enough and suffered enough and thought deeply enough about her experience to be able to process it into something that is of value to others, even if only as entertainment. A fake writer (or artist or entrepreneur) is just trying to draw attention to himself. The word “fake” may be too unkind. Let’s say “young” or “evolving.”
At the beginning, the author's writing was like a selfie: a disposable plea for attention that was all about him and his life. But since he hadn't done much living, there wasn't much substance.
All of a sudden I understood why I was so moody, neurotic, simultaneously paranoid and megalomaniac, mistrustful, uneasy, driven by ambition but paralyzed by guilt about my ambition, horny, obsessive, compulsive, obsessive-compulsive, not to mention shy, withdrawn, and dandruff-ridden. I was creative. All creative people were like that!
Like the monk and the mystic, the artist enters a mental space. He becomes a child. She becomes a vessel. They tune in to the Cosmic Radio Station and listen to whatever song is being broadcast specifically to them.
We're believing that the universe has a gift that it is holding specifically for us and that, if we can learn to make ourselves available to it, it will deliver this gift into our hands.

Believe me, this is true.

On Writing by Stephen King

Fri, 11 Nov 2022 00:00:00 GMT

I. Brief Summary

Stephen King needs no introduction in its current era. His novels are well-read and movies are drawn upon from his writings. I'm not the biggest fan of King's books, but I really enjoyed his advice on how to write well. His advice will empower an aspiring writer.

II. Big Ideas

Write with the door closed, rewrite with the door open.
Writing is a lonely job. Having someone who believes in you makes a lot of difference.
Put your desk in the corner, and every time you sit down there to write, remind yourself why it isn’t in the middle of the room. Life isn’t a support-system for art. It’s the other way around.
One of the really bad things you can do to your writing is to dress up the vocabulary, looking for long words because you’re maybe a little bit ashamed of your short ones.
Remember that the basic rule of vocabulary is use the first word that comes to your mind, if it is appropriate and colorful.

III. Quotes

Books are a uniquely portable magic.
Grammar is not just a pain in the ass; it’s the pole you grab to get your thoughts up on their feet and walking. Besides, all those simple sentences worked for Hemingway, didn’t they? Even when he was drunk on his ass, he was a fucking genius.
It’s hard for me to believe that people who read very little (or not at all in some cases) should presume to write and expect people to like what they have written.
I believe the road to hell is paved with adverbs, and I will shout it from the rooftops.
The adverb is not your friend.
Adverbs, you will remember from your own version of Business English, are words that modify verbs, adjectives, or other adverbs.
Reading at meal is considered rude in polite society, but if you expect to succeed as a writer, rudeness should be the second-to-least of your concerns. The least of all should be polite society and what it expects. If you uintend to write as truthfully as you can, your days as a member of polite society are numbered, anyway.
It was bad, but what in high school is not? At the time we're stuck in it, like hostages locked in a Turkish bath, high school seems like the most serious business in the world to just about all of us. It's not until the second or third class reunion that we start realizing how absurd the whole thing was.
Once you know what the story is and get it right-as right as you can, anyway-it belongs to anyone who wants to read it.
Your job during or just after the first draft is to decide what something or something yours is about. Your job in the second draft- one of them, anyway-is to make that something even more clear. This may necessitate some big changes and revisions. The benefits to you and your reader will be clearer focus and a more unified story. It hardly ever fails.
It’s always easier to kill someone else’s darlings than it is to kill your own.
The truth is that most writers are needy. Especially between the first draft and the second, when the study door swings open and the light of the world shines in.
Description begins with visualization of what it is you want the reader to experience. It ends with you translating what you see in your mind into words on the page.
You can’t please all of the readers all of the time; you can’t please even some of the readers all of the time, but you really ought to try to please at least some of the readers some of the time. I think William Shakespeare said that.
If you intend to write as truthfully as you can, your days as a member of polite society are numbered, anyway.
Writing is magic, as much the water of life as any other creative art. The water is free. So drink. Drink and be filled up.
One of the really bad things you can do to your writing is to dress up the vocabulary, working for long words because you're maybe a little bit ashamed of your short ones. This is like dressing up a household pet in evening clothes. The pet is embarrassed, and the person who committed this act of premeditated cuteness should be even more embarrassed.
The most important things to remember about backstory are that (a) everyone has a history and (b) most of it isn't very interesting. Stick to the parts that are, and don't get carried away with the rest. Life stories are best received in bars, and only then an hour or so before closing time, and if you are buying.
If God gives you something you can do, why in God’s name wouldn’t you do it?
Must you write complete sentences each time, every time? Perish the thought. If your work consists only of fragments and floating clauses, the Grammar Police aren’t going to come and take you away. Even William Strunk, that Mussolini of rhetoric, recognized the delicious pliability of language. “It is an old observation,” he writes, “that the best writers sometimes disregard the rules of rhetoric.” Yet he goes on to add this thought, which I urge you to consider: “Unless he is certain of doing well, [the writer] will probably do best to follow the rules.
Plot is, I think, the good writer’s last resort and the dullard’s first choice. The story which results from it is apt to feel artificial and labored. I lean more heavily on intuition, and have been able to do that because my books tend to be based on situation rather than story.
Strunk and White don’t speculate as to why so many writers are attracted to passive verbs, but I’m willing to; I think timid writers like them for the same reason timid lovers like passive partners. The passive voice is safe.
I'm convinced that fear is at the root of most bad writing. If one is writing for one's own pleasure, that fear may be mild - timidity is the word I've used here. If, however, one is working under deadline - a school paper, a newspaper article, the SAT writing sample - that fear may be intense.
The object of fiction isn't grammatical correctness but to make the reader welcome and then tell a story. Writing is seduction. Good talk is part of seduction.
If you disapprove, I can only shrug my shoulders. It's what I have.
The rest of it - and perhaps the best of it - is a permission slip: you can, you should, and if you're brave enough to start, you will.
If you write (or paint or dance or sculpt or sing, I suppose), someone will try to make you feel lousy about it, that’s all. I’m not editorializing, just trying to give you the facts as I see them.
When you write, you want to get rid of the world, do you not? Of coarse you do. When you're writing, you're creating your own worlds.
What you need to remember is that there’s a difference between lecturing about what you know and using it to enrich the story. The latter is good. The former is not.
Hemingway and Fitzgerald didn't drink because they were creative, alienated, or morally weak. They drank because it's what alkies are wired up to do. Creative people probably do run a greater risk of alcoholism and addiction than those in some other jobs, but so what? We all look pretty much the same when we're puking in the gutter.
The key to good description begins with clear seeing and ends with clear writing, the kind of writing that employs fresh images and simple vocabulary.
When you’re still too young to shave, optimism is a perfectly legitimate response to failure.
Writing is a lonely job. Having someone who believes in you makes a lot of difference. They don't have to make speeches. Just believing is usually enough.
Don't wait for the muse. As I've said, he's a hardheaded guy who's not susceptible to a lot of creative fluttering. This isn't the Ouija board or the spirit-world we're talking about here, but just another job like laying pipe or driving long-haul trucks. Your job is to make sure the muse knows where you're going to be every day from nine 'til noon. or seven 'til three. If he does know, I assure you that sooner or later he'll start showing up.
I think we're actually talking about creative sleep. Like your bedroom, your writing room should be private, a place where you go to dream.
I want to suggest that to write to your best abilities, it behooves you to construct your own toolbox and then build up enough muscle so you can carry it with you. Then, instead of looking at a hard job and getting discouraged, you will perhaps seize the correct tool and get immediately to work.
Story is honorable and trustworthy; plot is shifty, and best kept under house arrest.
There were times...when it occurred to me that I was repeating my mother's life. Usually this thought struck me as funny. But if I happened to be tired, or if there were extra bills to pay and no money to pay them with, it seemed awful. I'd think 'This isn't the way our lives are supposed to be going.' Then I'd think 'Half the world has the same idea.
Once I start work on a project, I don’t stop and I don’t slow down unless I absolutely have to. If I don’t write every day, the characters begin to stale off in my mind – they begin to seem like characters instead of real people. The tale’s narrative cutting edge starts to rust and I begin to lose my hold on the story’s plot and pace. Worst of all, the excitement of spinning something new begins to fade. The work starts to feel like work, and for most writers that is the smooch of death.
You learn best by reading a lot and writing a lot, and the most valuable lessons of all are the ones you teach yourself.
You have to read widely, constantly refining (and redefining) your own work as you do so. It’s hard for me to believe that people who read very little (or not at all in some cases) should presume to write and expect people to like what they have written, but I know it’s true. If I had a nickel for every person who ever told me he/she wanted to become a writer but “didn’t have time to read,” I could buy myself a pretty good steak dinner. Can I be blunt on this subject? If you don’t have the time to read, you don’t have the time (or the tools) to write. Simple as that.
Reading is the creative center of a writer’s life. I take a book with me everywhere I go, and find there are all sorts of opportunities to dip in...Reading at meals is considered rude in polite society, but if you expect to succeed as a writer, rudeness should be the second-to-least of your concerns. The least of all should be polite society and what it expects. If you intend to write as truthfully as you can, your days as a member of polite society are numbered anyway.
Reading is the creative center of a writer's life.
Sometimes you have to go on when you don't feel like it, and sometimes you're doing good work when it feels like all you're managing is to shovel shit from a sitting position.
Words have weight.
The more you read, the less apt you are to make a fool of yourself with your pen or word processor.
Writing isn't about making money, getting famous, getting dates, getting laid, or making friends. In the end it's about enriching the lives of those who will read your work, and enriching your own life as well. It's about getting up, getting well, and getting over. Getting happy, okay? Getting happy. ...this book...is a permission slip: you can, you should, and if you're brave enough to start, you will. Writing is magic, as much the water of life as any other creative art. The water is free. So drink. Drink and be filled up.
Fool me once, shame on you. Fool me twice, shame on me. Fool me three times, shame on both of us.
The scariest moment is always just before you start. After that, things can only get better.
I think the best stories always end up being about the people rather than the event, which is to say character-driven.
When you write a book, you spend day after day scanning and identifying the trees. When you’re done, you have to step back and look at the forest.
I like to get ten pages a day, which amounts to 2,000 words. That’s 180,000 words over a three-month span, a goodish length for a book - something in which the reader can get happily lost, if the tale is done well and stays fresh.
Bad writing is more than a matter of shit syntax and faulty observation; bad writing usually arises from a stubborn refusal to tell stories about what people actually do―to face the fact, let us say, that murderers sometimes help old ladies cross the street.
Reading in bed can be heaven, assuming you can get just the right amount of light on the page and aren't prone to spilling your coffee or cognac on the sheets.
Writing is a lonely job. Having someone who believes in you makes a lot of difference. They don't have to make speeches. Just believing is usually enough.
I'm a slow reader, but I usually get through seventy or eighty books a year, most fiction. I don't read in order to study the craft; I read because I like to read.
If you don't have the time to read, you don't have the tools to write.
It starts with this: put your desk in the corner, and every time you sit down there to write, remind yourself why it isn't in the middle of the room. Life isn't a support system for art. It's the other way around.
It's about getting up, getting well, and getting over. Getting happy, okay? Getting happy.
Symbolism exists to adorn and enrich, not to create an artificial sense of profundity.
Description is what makes the reader a sensory participant in the story. Good description is a learned skill,one of the prime reasons you cannot succeed unless you read a lot and write a lot. It's not just a question of how-to, you see; it's a question of how much to. Reading will help you answer how much, and only reams of writing will help you with the how. You can learn only by doing.
Although deer season doesn’t start until November in Maine, the fields of October are often alive with gunshots; the locals are shooting as many peasants as they think their families will eat.
You try to tell yourself that you've been lucky, most incredibly lucky, and usually that works because it's true. Sometimes it doesn't work, that's all. Then you cry.
To write is human, to edit is divine.
Your job isn't to find these ideas but to recognize them when they show up.
If you want to be a writer, you must do two things above all others: read a lot and write a lot. There's no way around these two things that I'm aware of, no shortcut.
Amateurs sit and wait for inspiration, the rest of us just get up and go to work.

Draft No. 4 by John McPhee

Thu, 10 Nov 2022 00:00:00 GMT

I. Brief Summary

McPhee is an American writer. He is considered one of the pioneers of creative nonfiction. He is a four-time finalist for the Pulitzer Prize. A collection of linked essays that detail various aspects of McPhee's approach to "creative non-fiction." All of these essays appeared in The New Yorker. McPhee understands how to give readers enough, but not too much.

II. Big Ideas

Main takeaways:
- Start by writing a great lead.
- A thousand details add up to one impression.
- Great writing is done four times over.
- Writing is selection. Only keep the most interesting parts.
- Never market research your writing. Write about what interests you.
Readers are not supposed to notice the structure. It is meant to be about as visible as someone’s bones. And I hope this structure illustrates what I take to be a basic criterion for all structures-they should not be imposed upon the material. They should arise from within it.
Eliminate distractions. Focus on one element of the story at a time.
Writing a successful lead can illuminate the structure problem for you and cause you to see the piece whole–to see it conceptually, in various parts, to which you then assign your materials. You find your lead, you build your structure, you are now free to write.
Always write your lead (redoing it and polishing it until you are satisfied that it will serve) before you go at the big pile of raw material and sort it into a structure.
Writing is a matter strictly of developing oneself.
Don’t rely on memory.

III. Quotes

No one will ever write in just the way that you do, or in just the way that anyone else does. Because of this fact, there is no real competition between writers. What appears to be competition is actually nothing more than jealousy and gossip. Writing is a matter strictly of developing oneself. You compete only with yourself. You develop yourself by writing.
A piece of writing has to start somewhere, go somewhere, and sit down when it gets there.
It doesn’t matter that something you’ve done before worked out well. Your last piece is never going to write your next one for you.
I’d much rather watch people do what they do than talk to them across a desk.
Another mantra, which I still write in chalk on the blackboard, is “A Thousand Details Add Up to One Impression.” It’s actually a quote from Cary Grant.
Sometimes in a nervous frenzy I just fling words as if I were flinging mud at a wall. Blurt out, heave out, babble out something-anything-as a first draft.
Writers come in two principal categories - those who are overtly insecure and those who are covertly insecure.
A lead is good not because it dances, fires cannons, or whistles like a train but because it is absolute to what follows.
Writing is selection. Just to start a piece of writing you have to choose one word and only one from more than a million in the language. Now keep going. What is your next word?
For nonfiction projects, ideas are everywhere. They just go by in a ceaseless stream.
The dictionary definitions of words you are trying to replace are far more likely to help you out than a scattershot wad from a thesaurus.
If you lack confidence in setting one word after another and sense that you are stuck in a place from which you will never be set free, if you feel sure that you will never make it and were not cut out to do this, if your prose seems stillborn and you completely lack confidence, you must be a writer. If you say you see things differently and describe your efforts positively, if you tell people that you “just love to write,” you may be delusional. How could anyone ever know that something is good before it exists?” And unless you can identify what is not succeeding-unless you can see those dark clunky spots that are giving you such a low opinion of your prose as it develops-how are you going to be able to tone it up and make it work?
“Norman Maclean called A River Runs Through It fiction, and the word “fiction” appeared in the book’s front matter. A River Runs Through It was autobiographical fact in nearly all aspects but one. For private reasons, the author had shifted the site of his brother’s murder and, being Norman Maclean, considered that change and others quite enough fabrication to disqualify the text as nonfiction.”
It is possible in managing a quote - not to say manipulating a quote - to present something that is both verbatim and false.
When you have writer’s block. You write, ‘Dear Mother.’ And then you tell your mother about the block, the frustration, the ineptitude, the despair.
The way to do a piece of writing is three or four times over, never once. For me, the hardest part comes first, getting something–anything–out in front of me.
You select what goes in and you decide what stays out. At base you only have one criterion: If something interests you, it goes in–if not, it stays out.
Forget market research. Never market research your writing. Write on subjects in which you have enough interest on your own to see you through all the stops, starts, hesitations, and other impediments along the way.
In complex situations, quotations, fairly handled, can help keep judgement in the eye of the beholder.
Another way to prime the pump is to write by hand.
As a nonfiction writer, you could not change the facts of the chronology, but with verb tenses and other forms of clear guidance to the reader you were free to do a flashback if you thought one made sense in presenting the story.
The lead-like the title-should be a flashlight that shines down into the story. A lead is a promise. It promises that the piece of writing is going to be like this.
The title is an integral part of a piece of writing, and one of the most important parts, and ought not to be written by anyone but the writer of what follows the title.
I have no technique for asking questions. I just stay there and fade away as I watch people do what they do.
If you look for allusions and images that have some durability, your choices will stabilize your piece of writing. Don’t assume that everyone on earth has seen every movie you have seen.
In the making of a long piece of factual writing, errors will occur, and in ways invisible to the writer.
Blurt out, heave out, babble out something-anything-as a first draft. With that, you have achieved a sort of nucleus. Then, as you work it over and alter it, you begin to shape sentences that score higher with the ear and eye. Edit it again-top to bottom. The chances are that about now you’ll be seeing something that you are sort of eager for others to see. And all that takes time.
What is creative about nonfiction? It takes a whole semester to try to answer that, but here are a few points: The creativity lies in what you choose to write about, how you go about doing it, the arrangement through which you present things, the skill and the touch with which you describe people and succeed in developing them as characters, the rhythms of your prose, the integrity of the composition, the anatomy of the piece (does it get up and walk around on its own?), the extent to which you see and tell the story that exists in your material, and so forth. Creative nonfiction is not making something up but making the most of what you have.
Ideally, a piece of writing should grow to whatever length is sustained by its selected material-that much and no more.

On Writing Well by William Zinsser

Mon, 07 Nov 2022 00:00:00 GMT

I. Brief Summary

William Zinsser was an American writer, editor, literary critic, and teacher. It offers fundamental principles on how to write well. A lot of extremely useful advice in this book.

II. Big Ideas

The secret of good writing is to strip every sentence to its cleanest components.
Clear thinking becomes clear writing; one can’t exist without the other.
Writers must therefore constantly ask: what am I trying to say? Surprisingly often they don’t know. Then they must look at what they have written and ask: have I said it? Is it clear to someone encountering the subject for the first time?
Try to avoid all words that end in “-ly”. Avoid words like “experiencing”.
If you might add, add it. If it should be pointed out, point it out. If it is interesting to note, make it interesting; are we not all stupefied by what follows when someone says, “This will interest you”?
Simplify, simplify.
Be yourself.
To do this, you must relax, and have confidence.
If you aren’t allowed to use “I”, at least think “I” while you write, or write the first draft in the first person and then take the “I”s out. It will warm up your impersonal style.
Soon after you confront the matter of preserving your identity, another question will occur to you, “Who am I writing for?” It’s a fundamental question, and it has a fundamental answer: You are writing for yourself. Never say anything in writing that you wouldn’t comfortably say in conversation.
Most adverbs are unnecessary.
Use active verbs unless there is no comfortable way to get around using a passive verb.
Most adjectives are also unnecessary.
Prune out the small words that qualify how you feel and how you think and what you saw: “a bit”, “a little”, “sort of”, “kind of”, “rather”, “quite”, “very”, “too”, “pretty much”, “in a sense” and dozens more. They dilute your style and your persuasiveness.
Learn to alert the reader as soon as possible to any change in mood from the previous sentence.
Your style will be warmer and truer to your personality if you use contractions like “I’ll” and “won’t” and “can’t” when they fit comfortably into what you’re writing.
I only suggest avoiding one form-“I’d”, “he’d”, “we’d”, etc.-because “I’d” can mean both “I had” and “I would”, and readers can get well into a sentence before learning which meaning it is.
Always use “that” unless it makes your meaning ambiguous.
Surprisingly often a difficult problem in a sentence can be solved by simply getting rid of it.
Rewriting is the essence of writing well: it’s where the game is won or lost.
Go with your interests. No area of life is stupid to someone who takes it seriously. If you follow your affections you will write well and will engage your readers.

III. Quotes

Decide what you want to do. Then decide to do it. Then do it.
Don’t try to visualize the great mass audience. There is no such audience-every reader is a different person.
Writing is hard work. A clear sentence is no accident. Very few sentences come out right the first time, or even the third time. Remember this in moments of despair. If you find that writing is hard, it’s because it is hard.
Writing is an act of ego, and you might as well admit it.
Examine every word you put on paper. You'll find a surprising number that don't serve any purpose.
There are many good reasons for writing that have nothing to do with being published. Writing is a powerful search mechanism, and one of its satisfactions is to come to terms with your life narrative. Another is to work through some of life’s hardest knocks-loss, grief, illness, addiction, disappointment, failure-and to find understanding and solace.
Clutter is the disease of American writing. We are a society strangling in unnecessary words, circular constructions, pompous frills and meaningless jargon.
The only way to learn to write is to force yourself to produce a certain number of words on a regular basis.
The secret of good writing is to strip every sentence to its cleanest components.
Less is more.
Don't be kind of bold. Be bold.
If the nails are weak, your house will collapse. If your verbs are weak and your syntax is rickety, your sentences will fall apart.
Look for the clutter in your writing and prune it ruthlessly. Be grateful for everything you can throw away. Reexamine each sentence you put on paper. Is every word doing new work? Can any thought be expressed with more economy?
There’s not much to be said about the period except that most writers don’t reach it soon enough.
Clear thinking becomes clear writing; one can't exist without the other.
Learn to enjoy this tidying process. I don't like to write; I like to have written. But I love to rewrite. I especially like to cut: to press the DELETE key and see an unnecessary word or phrase or sentence vanish into the electricity. I like to replace a humdrum word with one that has more precision or color. I like to strengthen the transition between one sentence and another. I like to rephrase a drab sentence to give it a more pleasing rhythm or a more graceful musical line. With every small refinement I feel that I'm coming nearer to where I would like to arrive, and when I finally get there I know it was the rewriting, not the writing, that won't the game.
Don’t say you were a bit confused and sort of tired and a little depressed and somewhat annoyed. Be confused. Be tired. Be depressed. Be annoyed. Don’t hedge your prose with little timidities. Good writing is lean and confident.
Beware, then, of the long word that's no better than the short word: "assistance" (help), "numerous" (many), "facilitate" (ease), "Individual" (man or woman), "remainder" (rest), "initial" (first), "implement" (do), "sufficient" (enough), "attempt" (try), "referred to as" (called), and hundreds more. Beware of all the slippery new fad words: paradigm and parameter, prioritize and potentialize. They are all weeds that will smother what you write. Don't dialogue with someone you can talk to. Don't interface with anybody.
As a writer you must keep a tight rein on your subjective self-the traveler touched by new sights and sounds and smells-and keep an objective eye on the reader.
The reader is someone with an attention span of about 30 seconds.
The most important sentence in any article is the first one. If it doesn’t induce the reader to proceed to the second sentence, your article is dead.
Thinking clearly is a conscious act that writers must force on themselves.
Writing is a craft, not an art, and that the man who runs away from his craft because he lacks inspiration is fooling himself.
Writers are the custodians of memory.
Don't annoy your readers by over-explaining - by telling them something they already know or can figure out. Try not to use words like "surprisingly," "predictably" and "of course," which put a value on a fact before the reader encounters the fact. Trust your material.
Simplify, simplify.
Never say anything in writing that you wouldn’t comfortably say in conversation. If you’re not a person who says “indeed” or “moreover,” or who calls someone an individual (“he’s a fine individual”), please don’t write it.
But the secret of good writing is to strip every sentence to its cleanest components. Every words that serves no function, every long word that could be a short word, every adverb that carries the same meaning that's already in the verb, every passive construction that leaves the reader unsure of who is doing what - these are the thousand and one adulterants that weaken the strength of a sentence. And they usually occur in proportion to education and rank.
Most writers sow adjectives almost unconsciously into the soil of their prose to make it more lush and pretty, and the sentences become longer and longer as they fill up with stately elms and frisky kittens and hard-bitten detectives and sleepy lagoons.
Adjectives are used as nouns (“greats,” “notables”). Nouns are used as verbs (“to host”), or they are chopped off to form verbs (“enthuse,” “emote”), or they are padded to form verbs (“beef up,” “put teeth into”). This is a world where eminent people are “famed” and their associates are “staffers,” where the future is always “upcoming” and someone is forever “firing off” a note. Nobody in America has sent a note or a memo or a telegram in years. Famed diplomat Condoleezza Rice, who hosts foreign notables to beef up the morale of top State Department staffers, sits down and fires off a lot of notes. Notes that are fired off are always fired in anger and from a sitting position. What the weapon is I’ve never found out.
Nouns now turn overnight into verbs. We target goals and we access facts. Train conductors announce that the train won’t platform. A sign on an airport door tells me that the door is alarmed. Companies are downsizing. It’s part of an ongoing effort to grow the business. “Ongoing” is a jargon word whose main use is to raise morale. We face our daily job with more zest if the boss tells us it’s an ongoing project; we give more willingly to institutions if they have targeted our funds for ongoing needs. Otherwise we might fall prey to disincentivization.
Rewriting is the essence of writing well: it’s where the game is won or lost. That idea is hard to accept. We all have an emotional equity in our first draft; we can’t believe that it wasn’t born perfect. But the odds are close to 100 percent that it wasn’t. Most writers don’t initially say what they want to say, or say it as well as they could.
One man’s romantic sunrise is another man’s hangover.
It wont do to say that the reader is too dumb or too lazy to keep pace with the train of thought. If the reader is lost, it's usually because the writer hasn't be careful enough.
Writing improves in direct ratio to the number of things we can keep out of it that shouldn’t be there.
Most first drafts can be cut by 50 percent without losing any information or losing the author’s voice.
A clear sentence is no accident. Very few sentences come out right the first time, or even the third time... If you find that writing is hard, it's because it is hard.
Every writing project must be reduced before you start to write.
Most nonfiction writers have a definitiveness complex. They feel that they are under some obligation-to the subject, to their honor, to the gods of writing-to make their article the last word. It’s a commendable impulse, but there is no last word.
There are some writers who sweep us along so strongly in their current of energy - Normal mailer, Tom Wolfe, Toni Morrison, William F. Buckley, Jr., Hunter Thompson, David Foster Wallace, Dave Eggers - that we assume that when they go to work the words just flow. Nobody thinks of the effort they made every morning to turn on the switch. You also have to turn on the switch. Nobody is going to do it for you.
Today the outlandish becomes routine overnight. The humorist is trying to say that it's still outlandish.
Good writing has an aliveness that keeps the reader reading from one paragraph to the next, and it's not a question of gimmicks to "personalize" the author. It's a question of using the English language in a way that will achieve the greatest clarity and strength.
Good writing is lean and confident.
Nobody turns so quickly into a bore as a traveler home from his travels. He enjoyed his trip so much that he wants to tell us all about it-and “all” is what we don’t want to hear. We only want to hear some.
Truth needs no adornment.
Some people write by day, others by night. Some people need silence, others turn on the radio. Some write by hand, some by typewriter or word processor, some by talking into a tape recorder. Some people write their first draft in one long burst and the revise; others can't write the second paragraph until they have fiddled endlessly with the first. But all of them are vulnerable and all of them are tense.
A writer will do anything to avoid the act of writing.
Writing is an intimate transaction between two people, conducted on paper.
When I tell aspiring writers that they should think of themselves as part entertainer, they don’t like to hear it-the word smacks of carnivals and jugglers and clowns. But to succeed you must make your piece jump out of a newspaper or a magazine by being more diverting than everyone else’s piece. You must find some way to elevate your act of writing into an entertainment. Usually this means giving the reader an enjoyable surprise. Any number of devices will do the job: humor, anecdote, paradox, an unexpected quotation, a powerful fact, an outlandish detail, a circuitous approach, an elegant arrangement of words. These seeming amusements in fact become your “style.”
It requires writers to do two things that by their metabolism are impossible. They must relax, and they must have confidence.
There is no minimum length for a sentence that’s acceptable in the eyes of God.
Don’t fight such a current if it feels right. Trust your material if it’s taking you into terrain you didn’t intend to enter but where the vibrations are good. Adjust your style accordingly and proceed to whatever destination you reach. Don’t become the prisoner of a preconceived plan. Writing is no respecter of blueprints.
You won’t write well until you understand that writing is an evolving process, not a finished product. Nobody expects you to get it right the first time, or even the second time.
Writing is such a lonely work that I try to keep myself cheered up.
Writing is thinking on paper. Anyone who thinks clearly can write clearly, about anything at all.
But on the question of who you're writing for, don't be eager to please.
Don’t annoy your readers by over-explaining-by telling them something they already know or can figure out.
Clichés are the enemy of taste.
‘Myself’ is the refuge of idiots taught early that ‘me’ is a dirty word.
Every writer is starting from a different point and is bound for a different destination. Yet many writers are paralyzed by the thought that they are competing with everybody else who is trying to write and presumably doing it better. Forget the competition and go at your own pace. Your only contest is with yourself.
Remember that words are the only tools you’ve got. Learn to use them with originality and care. And also remember: somebody out there is listening.
Not every oak has to be gnarled.
Good writers are visible just behind their words.
Nobody told all the new computer writers that the essence of writing is rewriting. Just because they’re writing fluently doesn’t mean they’re writing well.
I don’t want to give somebody my input and get his feedback, though I’d be glad to offer my ideas and hear what he thinks of them.
We have become a society fearful of revealing who we are.
A generation ago our leaders told us where they stood and what they believed. Today they perform strenuous verbal feats to escape that fate.
Can (...) principles be taught? Maybe not. But most of them can be learned.
The writer, his eye on the finish line, never gave enough thought to how to run the race.
Don't start a sentence with “however”-it hangs there like a wet dishrag. And don't end with “however”-by that time it has lost its howeverness.
Ultimately the product that any writer has to sell is not the subject being written about, but who he or she is.
I urge people to write in the first person: to use "I" and “me" and “we" and “us." They put up a fight.

Bird By Bird by Anne Lamott

Sat, 05 Nov 2022 00:00:00 GMT

I. Brief Summary

Anne Lamott offers basic instructions on how to write and manage discipline around writing. She is witty which makes reading this book fun. My takeaway-to become a better writer, you have to write more and first draft is always going to be terrible. Don't judge your first draft too harshly. Do not make perfectionism your friend. Writing reveals the story because you have to write to figure out what you're writing about.

II. Big Ideas

Sit down to work at approximately the same time every day.
Perfectionism is the voice of the oppressor, the enemy of the people.
Becoming a better writer is going to help you become a better reader, and that is the real payoff.
A writer paradoxically seeks the truth and tells lies every step of the way.
Write shitty first drafts.
Writing reveals itself through writing. As you write, you uncover the hidden gems inside you that you didn't even know were there. Words come to you, characters reveals themselves, and dialogue forms that shows who these people are. It pretty much always works this way-you have to write to figure out what you're writing about.
There will be a lot of mistakes, things to edit out and other things that need to be added. You just aren’t always going to make the right decision and that’s okay.

III. Quotes

Thirty years ago my older brother, who was ten years old at the time, was trying to get a report on birds written that he'd had three months to write. It was due the next day. We were out at our family cabin in Bolinas, and he was at the kitchen table close to tears, surrounded by binder paper and pencils and unopened books on birds, immobilized by the hugeness of the task ahead. Then my father sat down beside him, put his arm around my brother's shoulder, and said-“Bird by bird, buddy. Just take it bird by bird”.
One writer I know tells me that he sits down every morning and says to himself nicely, “It’s not like you don’t have a choice, because you do-you can either type or kill yourself.”
Writing has so much to give, so much to teach, so many surprises. That thing you had to force yourself to do – the actual act of writing – turns out to be the best part. It’s like discovering that while you thought you needed the tea ceremony for the caffeine, what you really needed was the tea ceremony. The act of writing turns out to be its own reward.
For some of us, books are as important as almost anything else on earth. What a miracle it is that out of these small, flat, rigid squares of paper unfolds world after world after world, worlds that sing to you, comfort and quiet or excite you. Books help us understand who we are and how we are to behave. They show us what community and friendship mean; they show us how to live and die.
Perfectionism is the voice of the oppressor, the enemy of the people. It will keep you cramped and insane your whole life, and it is the main obstacle between you and a shitty first draft. I think perfectionism is based on the obsessive belief that if you run carefully enough, hitting each stepping-stone just right, you won't have to die. The truth is that you will die anyway and that a lot of people who aren't even looking at their feet are going to do a whole lot better than you, and have a lot more fun while they're doing it.
Perfectionism is one way our muscles cramp. In some cases we don't even know that the wounds and the cramping are there, but both limit us. They keep us moving and writing in tight, worried ways.
You own everything that happened to you. Tell your stories. If people wanted you to write warmly about them, they should have behaved better.
Remember that you own what happened to you. If your childhood was less than ideal, you may have been raised thinking that if you told the truth about what really went on in your family, a long bony white finger would emerge from a cloud and point to you, while a chilling voice thundered, “We told you not to tell.” But that was then. Just put down on paper everything you can remember now about your parents and siblings and relatives and neighbors, and we will deal with libel later on.
Writing and reading decrease our sense of isolation. They deepen and widen and expand our sense of life: they feed the soul. When writers make us shake our heads with the exactness of their prose and their truths, and even make us laugh about ourselves or life, our buoyancy is restored. We are given a shot at dancing with, or at least clapping along with, the absurdity of life, instead of being squashed by it over and over again. It's like singing on a boat during a terrible storm at sea. You can't stop the raging storm, but singing can change the hearts and spirits of the people who are together on that ship.
E.L. Doctorow said once said that 'Writing a novel is like driving a car at night. You can see only as far as your headlights, but you can make the whole trip that way.' You don't have to see where you're going, you don't have to see your destination or everything you will pass along the way. You just have to see two or three feet ahead of you. This is right up there with the best advice on writing, or life, I have ever heard.
You are lucky to be one of those people who wishes to build sand castles with words, who is willing to create a place where your imagination can wander. We build this place with the sand of memories; these castles are our memories and inventiveness made tangible. So part of us believes that when the tide starts coming in, we won't really have lost anything, because actually only a symbol of it was there in the sand. Another part of us thinks we'll figure out a way to divert the ocean. This is what separates artists from ordinary people: the belief, deep in our hearts, that if we build our castles well enough, somehow the ocean won't wash them away. I think this is a wonderful kind of person to be.
Clutter and mess show us that life is being lived...Tidiness makes me think of held breath, of suspended animation... Perfectionism is a mean, frozen form of idealism, while messes are the artist's true friend. What people somehow forgot to mention when we were children was that we need to make messes in order to find out who we are and why we are here.
If something inside of you is real, we will probably find it interesting, and it will probably be universal. So you must risk placing real emotion at the center of your work. Write straight into the emotional center of things. Write toward vulnerability. Risk being unliked. Tell the truth as you understand it. If you’re a writer you have a moral obligation to do this. And it is a revolutionary act-truth is always subversive.
Almost all good writing begins with terrible first efforts. You need to start somewhere.
I heard a preacher say recently that hope is a revolutionary patience; let me add that so is being a writer. Hope begins in the dark, the stubborn hope that if you just show up and try to do the right thing, the dawn will come. You wait and watch and work: you don't give up.
Because this business of becoming conscious, of being a writer, is ultimately about asking yourself, How alive am I willing to be?
You don't always have to chop with the sword of truth. You can point with it too.
Try looking at your mind as a wayward puppy that you are trying to paper train. You don't drop-kick a puppy into the neighbor's yard every time it piddles on the floor. You just keep bringing it back to the newspaper.
“But how?" my students ask. "How do you actually do it?"

You sit down, I say. You try to sit down at approximately the same time every day. This is how you train your unconscious to kick in for you creatively. So you sit down at, say, nine every morning, or ten every night. You put a piece of paper in the typewriter, or you turn on the computer and bring up the right file, and then you stare at it for an hour or so. You begin rocking, just a little at first, and then like a huge autistic child. You look at the ceiling, and over at the clock, yawn, and stare at the paper again. Then, with your fingers poised on the keyboard, you squint at an image that is forming in your mind - a scene, a locale, a character, whatever - and you try to quiet your mind so you can hear what that landscape or character has to say above the other voices in your mind.

If you want to make God laugh, tell her your plans.
The problem is acceptance, which is something we're taught not to do. We're taught to improve uncomfortable situations, to change things, alleviate unpleasant feelings. But if you accept the reality that you have been given- that you are not in a productive creative period- you free yourself to begin filling up again.
Don't look at your feet to see if you are doing it right. Just dance.
We all know we're going to die; what's important is the kind of men and women we are in the face of this.
My gratitude for good writing is unbounded; I’m grateful for it the way I’m grateful for the ocean.
I don't think you have time to waste not writing because you are afraid you won't be good at it.
You get your intuition back when you make space for it, when you stop the chattering of the rational mind. The rational mind doesn't nourish you. You assume that it gives you the truth, because the rational mind is the golden calf that this culture worships, but this is not true. Rationality squeezes out much that is rich and juicy and fascinating.
If you are a writer, or want to be a writer, this is how you spend your days - listening, observing, storing things away, making your isolation pay off. You take home all you've taken in, all that you've overheard, and you turn it into gold. (Or at least you try.)
The society to which we belong seems to be dying or is already dead. I don't mean to sound dramatic, but clearly the dark side is rising. Things could not have been more odd and frightening in the Middle Ages. But the tradition of artists will continue no matter what form the society takes. And this is another reason to write: people need us, to mirror for them and for each other without distortion-not to look around and say, 'Look at yourselves, you idiots!,' but to say, 'This is who we are.”
Having a baby is like suddenly getting the world's worst roommate.
I used to think that paired opposites were a given, that love was the opposite of hate, right the opposite of wrong. But now I think we sometimes buy into these concepts because it is so much easier to embrace absolutes than to suffer reality. I don't think anything is the opposite of love. Reality is unforgivingly complex.
If your wife locks you out of the house, you don't have a problem with your door.
The garden is one of the two great metaphors for humanity. The garden is about life and beauty and the impermanence of all living things. The garden is about feeding your children, providing food for the tribe. It’s part of an urgent territorial drive that we can probably trace back to animals storing food. It’s a competitive display mechanism, like having a prize bull, this greed for the best tomatoes and English tea roses. It’s about winning; about providing society with superior things; and about proving that you have taste, and good values, and you work hard. And what a wonderful relief, every so often, to know who the enemy is. Because in the garden, the enemy is everything: the aphids, the weather, time. And so you pour yourself into it, care so much, and see up close so much birth, and growth, and beauty, and danger, and triumph. And then everything dies anyway, right? But you just keep doing it.
Writing is about hypnotizing yourself into believing in yourself, getting some work done, then unhypnotizing yourself and going over the material coldly.
We write to expose the unexposed. If there is one door in the castle you have been told not to go through, you must. Otherwise, you'll just be rearranging furniture in rooms you've already been in.
Try to write in a directly emotional way, instead of being too subtle or oblique. Don't be afraid of your material or your past. Be afraid of wasting any more time obsessing about how you look and how people see you. Be afraid of not getting your writing done.
This is what separates artists from ordinary people: the belief, deep in our hearts, that if we build our castles well enough, somehow the ocean won't wash them away. I think this is a wonderful kind of person to be.
One thing I know for sure about raising children is that every single day a kid needs discipline.... But also every single day a kid needs a break.
Some people wanted to get rich or famous, but my friends and I wanted to get real. We wanted to get deep.
I took notes on the people around me, in my town, in my family, in my memory. I took notes on my own state of mind, my grandiosity, the low self-esteem. I wrote down the funny stuff I overheard. I learned to be like a ship's rat, veined ears trembling, and I learned to scribble it all down.
When people shine a little light on their monster, we find out how similar most of our monsters are.
and you try to quiet your mind so you can hear...
Being a writer guarantees that you will spend too much time alone - and that as a result, your mind will begin to warp.
Plot grows out of character. If you focus on who the people in your story are, if you sit and write about two people you are getting to know better every day, something is bound to happen.
If you are writing the clearest, truest words you can find and doing the best you can to understand and communicate, this will shine on paper like its own little lighthouse. Lighthouses don’t go running all over an island looking for boats to save; they just stand there shining.
A writer paradoxically seeks the truth and tells lies every step of the way.
If you’re not enough before the gold medal, you won’t be enough with it.
I am learning slowly to bring my crazy pinball-machine mind back to this place.
But it is fantasy to think that successful writers do not have these bored, defeated hours, these hours of deep insecurity when one feels as small and jumpy as a water bug. They do. But they also often feel a great sense of amazement that they get to write, and they know that this is what they want to do for the rest of their lives.
The way I dance is by writing.
Writing can be a pretty desperate endeavor, because it is about some of our deepest needs: our need to be visible, to be heard, our need to make sense of our lives, to wake up and grow and belong. It is no wonder if we sometimes tend to take ourselves perhaps a bit too seriously.
Throughout my childhood I believed that what I thought about was different from what other kids thought about. It was not necessarily more profound, but there was a struggle going on inside me to find some sort of creative or spiritual or aesthetic way of seeing the world and organizing it in my head.
You begin to string words together like beads to tell a story. You are desperate to communicate, to edify or entertain, to preserve moments of grace or joy or transcendence, to make real or imagined events come alive. But you cannot will this to happen. It is a matter of persistence and faith and hard work. So you might as well just go ahead and get started.
Anyone who survived childhood has enough material to write for the rest of his or her life.
If you don’t believe in what you are saying, there is no point in your saying it. You might as well call it a day and go bowling.
In this dark and wounded society, writing can give you the pleasures of the woodpecker, of hollowing out a hole in a tree where you can build your nest and say, “This is my niche, this is where I live now, this is where I belong.
I tell my students that the odds of their getting published and of it bringing them financial security, peace of mind, and even joy are probably not that great. Ruin, hysteria, bad skin, unsightly tics, ugly financial problems, maybe; but probably not peace of mind. I tell them that I think they ought to write anyway.
If you want to know how God feels about money, look at whom she gives it to.
I read more than other kids; I luxuriated in books. Books were my refuge.
I told myself that historically when people do too well too quickly, they are a Greek tragedy waiting to happen.
Good dialogue encompasses both what is said and what is not said.
You can’t stop the raging storm, but singing can change the hearts and spirits of the people who are together on that ship.

On Financial Services

Tue, 01 Nov 2022 00:00:00 GMT

I've dedicated over a decade of my life to financial services and capital markets-a vast ecosystem of public and private institutions, from investment firms to governments and endowments, all working to manage and grow wealth.

My fascination began early. As a kid, I'd watch ticker symbols cascade across the television screen, mesmerized by the constant flow of green and red. That curiosity drove me to buy my first stock at 17, just before the 2008 recession-a firestorm that taught me invaluable lessons about market volatility, greed and psychology.

This industry has been the vehicle for pursuing my ambitions. America's robust capital markets embody our nation's dynamism, enabling countless entrepreneurs and dreamers to build something meaningful. The system isn't perfect, but these imperfections have created a uniquely powerful compounding machine that drives innovation and growth.

My first real taste of the markets came during an internship at the Chicago Board of Trade, where I worked as a trading clerk experiencing the raw energy of old-school, non-electronic trading. In college, my finance professor gave me access to a Berkshire Hathaway shareholder meeting-“Woodstock for Capitalists”-despite not owning a single share. Watching Warren Buffett and Charlie Munger speak live deepened my appreciation for the craft of investing and the wisdom that comes from decades of market experience. This experience solidified my choice for lifelong professional journey.

My career has taken me through two major investment firms-Morningstar and Charles Schwab-both pivotal players in delivering capital markets solutions to clients. These experiences have only intensified my passion for the industry.

What follows is my attempt to capture the insights I've gained and lessons I've learned from building products and services in this space.

Financial products

Financial Products	Description
Stablecoins	They are a type of cryptocurrency designed to maintain a stable value by pegging to a specific asset like fiat currency (USD) or treasuries.
S&P500	A market-capitalization-weighted index tracking 500 of America's largest publicly traded companies. Often used as the benchmark for U.S. equity market performance, it represents approximately 80% of the total U.S. stock market capitalization.
Donor Advised Funds	Tax-advantaged charitable giving vehicles that function like investment accounts for philanthropy. Contributors receive immediate tax deductions while retaining advisory privileges over grant timing and recipients, making charitable giving more strategic and flexible.
Separately Managed Accounts	Personalized investment portfolios where investors directly own individual securities rather than shares in a pooled fund. SMAs offer customization benefits including tax optimization, ESG alignment, and the ability to exclude specific holdings based on personal preferences.
Robo-advisors	Algorithm-driven investment platforms that automate portfolio management through modern portfolio theory and behavioral finance principles. They democratize professional investment management by offering low-cost, accessible financial planning to a broader market segment.

Stablecoins

Stablecoins are a type of cryptocurrencies pegged to a fiat currency, treasuries, gold or basket of currencies to stabilize the price fluctuation while getting the benefits of cryptocurrencies such as instantaneous settlement and borderless transactions.
Stablecoins bridge the gap between traditional and modern finance.
Mechanics of various stablecoins
- Fiat based collateral which are the most common. They are backed 1:1 by a fiat currency such as USD or Euro or other high-quality liquid assets like U.S. Treasury bills held in reserve by a central entity.
- Crypto based collateral which are backed by a reserve of other cryptocurrencies. Because the underlying crypto collateral can be volatile, these stablecoins are typically over-collateralized. A large value of cryptocurrency, for example, $150 worth of Ethereum is locked in a smart contract for every $100 worth of stablecoin issued, providing a buffer against price drops.
- Algorithmic based stablecoins use smartcontracts to automatically manage the supply and demand to maintain the price peg. If the stablecoin's price drops below its peg, the algorithm decreases the supply by burning tokens. If the price goes above, it increases the supply by minting new tokens to bring the price back to the target. This is more complex and risky.

S&P 500

The S&P 500 stands as more than just a stock market index-it's the foundation beneath trillions of dollars in passive investments and arguably the most influential financial benchmark in the world. Its story represents one of the most profound shifts in modern finance, transforming how millions of Americans invest and democratizing access to public stock market returns.

The academic genesis

The index fund revolution began during the 1960s where the emerging Efficient Market Hypothesis challenged conventional investment wisdom. This theory suggested that market prices already reflect all available information, making it nearly impossible for active managers to consistently outperform through stock selection alone.

Edward Renshaw and Paul Feldstein, two University of Chicago students, proposed the first theoretical model for an index fund in 1960. They envisioned an "Unmanaged Investment Company" that would simply mirror market performance. Though their concept received little support at the time, it planted the intellectual seeds for what would become one of the 20th century's most transformative financial innovations.

Early pioneers and starters

The transition from theory to practice began in the early 1970s with several experimental efforts that revealed the practical challenges ahead:

Wells Fargo's Bold Beginning (1971): The bank launched one of the first index funds, initially tracking all 1,500 stocks on the New York Stock Exchange with equal weightings. This approach quickly proved unwieldy due to constant rebalancing requirements and prohibitive transaction costs.
The Dow Jones Experiment (1972): Richard A. Beach's Qualidex Fund created an early index fund tracking the Dow Jones Industrial Average, demonstrating alternative approaches to market replication.
The S&P 500 Solution (1973): Wells Fargo pivoted to a more practical market-cap weighted S&P 500 fund for institutional investors, while Rex Sinquefield at American National Bank of Chicago developed a similar product, with New York Telephone Company becoming the first major client.

These early attempts shared a critical limitation: they were restricted to institutional investors, leaving individual investors locked out of this revolutionary approach.

Bogle's vision

The true revolution arrived with John C. Bogle, whose vision would fundamentally democratize investing. After graduating from Princeton in 1951 with a thesis on “The Economic Role of the Investment Company,” Bogle founded The Vanguard Group in 1974 following his dismissal from Wellington Management.

Bogle drew inspiration from compelling academic research:

Paul Samuelson's 1974 “Challenge to Judgment”
Charles Ellis' 1975 study “The Loser's Game”
Mounting evidence that most active managers failed to outperform markets after accounting for fees

On December 31, 1975, Bogle launched the First Index Investment Trust-later renamed the Vanguard 500 Index Fund-as the first index fund available to individual investors. Designed to track S&P 500 returns at minimal cost, it eliminated the need for expensive active management.

The fund's debut was anything but victorious. It raised only $11 million in its initial public offering, falling far short of the expected $150 million. Industry veterans ridiculed the concept, with Fidelity's Edward Johnson famously declaring he “couldn't believe that the great mass of investors are going to be satisfied with receiving just average returns.” Critics dismissed it as “un-American“ and “Bogle's folly.”

Despite the skepticism, evidence gradually mounted that most active managers failed to beat their benchmarks after fees. The Vanguard 500 Index Fund crossed $100 billion in November 1999 and surpassed Fidelity's legendary Magellan Fund to become the world's largest mutual fund in 2000-a milestone Bogle had predicted eight years earlier.

The numbers tell the story of this transformation. By 2014, index funds represented 20.2% of U.S. equity mutual fund assets. From 2007 to 2014, index domestic equity funds received $1 trillion in net new investments, while actively managed funds experienced $659 billion in outflows. Currently, the index funds have accumulated trillions proving Bogle's original vision right.

S&P500 overview

The S&P 500 is a market-capitalization weighted index tracking 500 leading U.S. public companies, capturing approximately 80% of available American equity market capitalization. Unlike rigid rule-based indices, it's maintained by a committee that balances specific criteria with discretionary judgment to ensure broad market representation.

Index Mechanics: The index value equals the total market capitalization of all constituents divided by a proprietary divisor (approximately 8.3 billion). This divisor adjusts periodically to maintain continuity despite corporate actions like stock splits or composition changes.

Free-Float Weighting: The index uses free-float market capitalization weighting, meaning companies with larger publicly available market values exert proportionally greater influence on index movements.

Entry into the S&P 500 requires meeting the following criteria:

Market Capitalization: Minimum $20.5 billion (as of January 2, 2025)
Liquidity: Float-adjusted liquidity ratio exceeding 0.75
Trading Volume: Minimum 250,000 shares traded monthly for six consecutive months
Financial Viability: Positive GAAP earnings for the most recent four quarters and latest quarter
Domicile: U.S. company listed on eligible exchanges (NYSE, Nasdaq, CBOE)
Public Float: At least 50% of shares available to public investors
Security Type: Common equity only (excludes preferred stocks, partnerships, funds, etc.)

The index undergoes continuous maintenance with quarterly share count updates and periodic composition changes. While there's no scheduled reconstitution, changes responding to corporate actions or market developments can occur anytime, with at least three business days in advance notice.

The case for and against S&P500

The S&P 500's advantages have made it the cornerstone of modern portfolio construction:

Cost Efficiency: Passive tracking eliminates expensive active management fees
Tax Optimization: Low turnover reduces taxable distributions
Style Consistency: No drift from stated investment objectives
Liquidity: Deep markets ensure easy entry and exit
Performance: Beats the vast majority of active strategies over time

But it also has the following limitations:

Small-Cap Underrepresentation: High-growth smaller companies receive minimal index weight. The Russell 2000 outperformed the S&P 500 in six of ten years from 2010-2020, yet its impact on broad indices remained negligible.
Disruption Lag: The index can be slow to embrace transformative companies. For example, Tesla, despite dominating electric vehicles, remained excluded until 2020 due to inconsistent profitability requirements.
Momentum Bias: Market-cap weighting potentially over-allocates to overvalued stocks, as evidenced during the dot-com bubble when heavy tech weighting amplified sector losses.

Nonetheless, Bogle's pioneering concept has expanded far beyond the original S&P 500 fund. Today' investors can access index funds targeting virtually any market segment, from total market indices to specialized sectors, international markets, and fixed income.

This diversification of passive investing options has fundamentally altered the investment landscape, providing low-cost, diversified market exposure that has become the foundation of modern portfolio construction.

The S&P 500's evolution from academic curiosity to market cornerstone demonstrates the profound impact it has in everyday American life. This transformation has fundamentally reshaped how wealth is built and preserved across generations.

S&P 500 Methodology
Tune Out the Noise
The Problem With Index Funds by Ben Flix
Why Vanguard S&P 500 ETF Is One of the Best in Its Class
Should You Own Both QQQ and VOO?
There are several funds that replicate the S&P 500 index. Besides the fees, also account for how many times does the index fund rebalances. The S&P 500 index rebalances every quarter-four times a year. To save some money, some index funds will only rebalance once a year.

Donor Advised Funds

A Donor-Advised Fund (DAF) is a charitable giving account established at a public charity, known as the sponsoring organization, which manages and administers the fund on behalf of the donor. Eligible contributions such as cash, or appreciated securities generally allow for immediate tax deduction. The assets in the DAF can then be invested for tax-free growth. Grants can be recommended from DAF account to any eligible IRS-qualified public charity at any time.

The competitive landscape includes traditional wealth management firms, community foundations, and newer technology-focused providers, each offering different fee structures, investment options, and service levels to attract donors and their financial advisors.

DAF log

Core features
- Initial Contribution: Donors contribute cash, securities, or other assets to their DAF account and receive an immediate tax deduction for the full fair market value of the contribution.
- Investment Growth: The sponsoring organization invests the contributed funds, allowing them to potentially grow tax-free over time while awaiting distribution to charities.
- Grant Recommendations: Donors can recommend grants from their DAF to qualified charitable organizations whenever they choose. While the sponsoring organization has legal control over the funds, they typically honor the donor's recommendations.
Benefits
- Tax Benefits: Immediate tax deduction upon contribution, even if grants are made years later. This allows donors to "bunch" charitable deductions in high-income years.
- Investment Growth: Funds can be invested and grow tax-free, potentially increasing the total amount available for charitable giving.
- Flexibility: Donors can take time to research charities and make thoughtful giving decisions without time pressure.
- Simplified Administration: The sponsoring organization handles all the administrative work, tax reporting, and due diligence on recipient charities.
Charitable giving vehicles
- Financial Institutions
  - Fidelity Charitable DAF
  - Schwab Charitable DAF
  - Daffy DAF
- Community Foundations
- Qualified Charitable Distributions (QCD)
DAF is mostly the United States concept.
DAFs were originated by community foundations to boost charitable giving. The first DAF was created in 1931 by the New York Community Trust. Overtime commercial investment services got involved which boosted charitable giving further.
DAF - donor advised fund is an investment account which could be opened via a brokerage service that lets you take a tax deduction when contributions are made and give the money to a charity later.
DAF allows for maximizing granting by investing the money tax-free.
A grant can be made anytime from a DAF to a charity of your choice. Approval of a grant is at DAF sponsor's discretionary based on their internal policies.
DAF provider charges an administrative fee to invest your DAF and make donations when you recommend them. Administrative fee varies based on an account balance and contributions.
Investment options are limited to index funds unless you have a professionally managed account which requires a high account balance. There are certain players who are starting to offer ETFs but not widely adopted.
DAF is a 501(c)3 organization which needs to comply with IRS guidelines.
While there are certain charity exemption rules, IRS qualified charities need to meet eligibility requirements. More from IRS.
IRS provides The Exempt Organizations Business Master File Extract which provides information about an organization from the Internal Revenue Service's Business Master File. It has the most recent information the IRS has for these organizations.
There are IRS guidelines on charitable contributions. Contribution type varies from cash to non-cash to complex assets.
To be eligible to claim a tax deduction in a given tax year, you must complete the contribution to your DAF by the last day of the year-December 31.

Separately Managed Accounts

The investment management world is divided into retail and institutional investors. Products designed for mid-income individual investors, such as the retail classes of mutual funds, have modest initial investment requirements: $1,000 or even less. In contrast, managed accounts or funds for institutions have imposed minimum investment requirements of $25 million or more.

Between these two end of the spectrum is the growing universe of separately managed accounts (SMA) targeted toward wealthy (but not necessarily ultra-wealthy) individual investors. Whether you refer to them as “individually managed accounts,” “separate account,” or “separately managed accounts,” these individual-oriented managed accounts are going mainstream.

SMAs differ from pooled vehicles like mutual funds in that each portfolio is unique to a single account (hence the name). In other words, if you set up a separate account with Money Manager X, then Manager X has the discretion to make decisions for this account that may be different from decisions made for other accounts. Mutual funds cannot offer, due to their structure as investments shared by a group of investors, the benefit of customized portfolio management. Separate accounts overcome this barrier.

SMA log

Core features
- Direct Ownership: Investors own the underlying securities directly, rather than owning shares in a pooled fund.
- Customization: SMAs offer flexibility to tailor the portfolio to specific needs, such as excluding certain sectors or companies.
- Professional Management: SMAs are managed by professional investment firms who make investment decisions on the investor's behalf.
- Tax Advantages: SMAs can offer tax-efficient strategies like tax-loss harvesting and can avoid embedded capital gains that mutual funds may have.
- Higher Minimums and Fees: SMAs typically require higher minimum investment amounts and come with higher management fees compared to mutual funds or ETFs.
Benefits
- Personalization: Investors can tailor their portfolios to their specific needs, values, and risk tolerance.
- Tax Efficiency: Tax-loss harvesting and avoidance of embedded capital gains can lead to tax savings.
- Transparency: Investors have direct access to their portfolio and holdings, unlike mutual funds.
- Control: Investors can work with their financial advisor to set parameters and guidelines for managing their investments.
Major players
- Charles Schwab
- Fidelity
- Blackrock
- JP Morgan Chase
- Goldman Sachs
Suitable for individuals with significant assets who want to customize their investment strategies.
Ideal for investors who want to align their portfolios with their values, goals, and tax situation.
Provide investors with more direct control over their investments and a clear view of their holdings.
They have higher minimum investment requirements and management fees compared to mutual funds and ETFs.
The level of customization and detail in SMAs can be more complex than traditional investment vehicles.
Limited diversification for smaller accounts.
It can be challenging to achieve optimal diversification with smaller balances in SMAs.

Robo-advisors

Robo-advisors are digital platforms that automatically create and manage investment portfolios based on your financial goals, risk tolerance, and time horizon. They use modern portfolio theory and algorithms to build diversified portfolios primarily composed of low-cost exchange-traded funds (ETFs). A risk assessment is required during account open based on investor's suitability and willingness amongst other criteria.

Robo-advisors work well for investors who want professional portfolio management at low cost, prefer hands-off investing, are comfortable with technology, have straightforward financial situations, and are focused on long-term wealth building rather than active trading. They're particularly suitable for young professionals, new investors, busy individuals who don't want to manage investments themselves, and cost-conscious investors seeking diversified portfolios. Below is an overview of the offering.

Robo log

Core features
- Portfolio Management: Automatic asset allocation, rebalancing, and tax-loss harvesting based on your profile and goals.
- Financial Planning: Goal-based investing for retirement, home purchases, education, or general wealth building.
- Account Types: Support for taxable accounts, IRAs, Roth IRAs, and sometimes 401(k) rollovers.
- Monitoring and Adjustments: Continuous portfolio oversight with automatic rebalancing when allocations drift from targets.
Benefits
- Low Fees: Typically charge 0.25-0.50% annually, significantly lower than traditional financial advisors (usually 1-2%).
- Low Minimums: Many platforms have no minimum investment requirements, making investing accessible to beginners.
- Tax Optimization: Advanced tax-loss harvesting to minimize tax liability on gains.
- Automatic Rebalancing: Maintains target asset allocation without manual intervention.
- Goal-Based Investing: Separate portfolios for different financial objectives with appropriate risk levels and time horizons.
Major players
- Schwab Intelligent Portfolios: No advisory fees but higher cash allocations.
- Betterment: One of the pioneers, known for goal-based investing and user-friendly interface.
- Wealthfront: Strong tax-loss harvesting capabilities and financial planning tools.
- Vanguard Personal Advisor Services: Hybrid model combining robo-advisory with human advisors.
- Fidelity Go: No fees for accounts under $25,000, then 0.35% annually.
Lower fees than traditional advisors make professional portfolio management accessible to smaller investors.
24/7 account access, automatic investing, and hands-off management.
Removes emotional decision-making from investing by automating the process.
Clear fee structures and investment strategies.
Low barriers to entry for new investors.
Less flexibility for complex financial situations or specific investment preferences.
Limited access to human financial advisors for personalized guidance.
May not address complex estate planning, tax strategies, or business financial needs.
Still subject to market volatility and downturns like any investment.

Lessons from capital allocators

My fascination for financial services started because of great legends who do investing well. Capital allocation is a psychology game as much as it is technical. I'd like to study great capital allocators and learn from them. Below is a quick overview on capital allocation.

The defining characteristic of America is its capitalist system. While it is not without flaws, it has consistently rewarded those who have actively participated in its economy. Capitalism rewards agency over intelligence. It operates based on risk and leverage, and capital allocators are compensated for their ownership stake.

Let's start with a short history lesson on equity ownership and stock market.

In the 1600s, the Dutch East India Company employed hundreds of ships to trade gold, spices, and silk around the globe. But running this massive operation wasn’t cheap. In order to fund their expensive voyages, the company turned to private citizens–individuals who could invest money to support the trip in exchange for a share of the ship’s profits. This practice allowed the company to afford even grander voyages, increasing profits for both themselves and their savvy investors. Selling these shares in coffee houses and shipping ports across the continent, the Dutch East India Company unknowingly invented the world’s first stock market.

This was the first version of stock market. Companies have been collecting money from prospective investors to support all kinds of businesses since then.

What is capital allocation?

Investing is responsible capital allocation. Responsible investing leads to sustainable wealth accumulation. Though it requires every investor to deal with trade-offs–money, time, attention and energy. Capital allocation is the function of taking finite resources, allocating it and maximizing for ideal outcome.

Both story and numbers are equally important in capital allocation.

Stories (ideas) require beliefs. So naturally capital allocation is about conviction and acting on that conviction. This is why investing falls within the field of social science. The limitation of any story is the size of our beliefs.

In other words, capital allocation (investing) is both art and science.

Tenfold investment returns require a lot of luck, but also patience.

A patient investor deploys a series of good and hard decisions. A patient investor knows how to stay rich, not just how to get rich.

A patient investor is also not ideologically driven. He or she is open to change. But this requires one to balance out the foundational principles of human behavior such as greed, envy and motivation.

If you think the world is all art, you’ll miss how much stuff is too complicated to think about intuitively. But if you think the world is all science, you’ll miss how much people like to take shortcuts, believe only what they want to believe, and have to deal with stuff that is too complicated for them to summarize in a statistic. Another way to think about this: Investing is not physics, which is guided by cold, immutable laws. It’s like biology, guided by the messy mutations and accidents of evolution, constantly adapting and sometimes defying logic. - Morgan Housel

Below are a few capital allocator legends that I deeply admire. Their lessons are worth digesting.

Capital Allocator	Bio
Howard Marks	Marks is an American investor and writer. He is the co-founder and co-chairman of Oaktree Capital Management, the largest investor in distressed securities worldwide.
John C Bogle	Bogle was an American investor and founder of Vanguard which is credited with creating the first index fund.
Morgan Housel	Housel is a partner at The Collaborative Fund. He wrote a best selling book The Psychology of Money.
Michael Mauboussin	Michael heads research at Morgan Stanley. He is also an adjunct professor of finance at Columbia Business School.
Bill Gurley	Gurley is a general partner at Benchmark, a venture capital firm. He has invested in many successful startups. He is listed on the Forbes Midas.
Stanley Druckenmiller	Druckenmiller is a hedge fund manager. He managed money for George Soros (who famously shorted the British pound in 1992) as the lead portfolio manager of the Quantum Fund.
Charlie Munger	He is vice chairman of Berkshire Hathaway, the conglomerate controlled by Warren Buffett. Buffett calls him the smartest man he knows.

Howard Marks

To achieve superior investment results, your insight into value has to be superior. Thus you must learn things others don't, see things differently or do a better job of analyzing them-ideally, all three.
Your view of value has to be based on a solid factual and analytical foundation, and it has to be held firmly. Only then will you know when to buy and sell. Only a strong sense of value will give you the discipline needed to take profits on a highly appreciated asset that everyone thinks will rise nonstop, or the guts to hold and average down in a crisis even as prices go lower every day. Of course, for your efforts in these regards to be profitable, your estimate of value has to be on target.
The relationship between price and value holds the ultimate key to investment success. Buying below value is the most dependable route to profit. Paying above value rarely works out as well.
What causes an asset to sell below its value? Outstanding buying opportunities exist primarily because perception understates reality. Whereas high quality can be readily apparent, it takes keen insight to detect cheapness. For this reason, investors often mistake objective merit for investment opportunity. The superior investor never forgets that the goal is to find good buys, not good assets.
In addition to giving rise to profit potential, buying when price is below value is a key element in limiting risk. Neither paying up for high growth nor participating in a "hot" momentum market can do the same.
The relationship between price and value is influenced by psychology and technicals, forces that can dominate fundamentals in the short run. Extreme swings in price due to those two factors provide opportunities for big profits or big mistakes. To have it be the former rather than the latter, you must stick with the concept of value and cope with psychology and technicals.
Economies and markets cycle up and down. Whichever direction they're going at the moment, most people come to believe that they'll go that way forever. This thinking is a source of great danger since it poisons the markets, sends valuations to extremes, and ignites bubbles and panics that most investors find hard to resist.
Likewise, the psychology of the investing herd moves in a regular, pendulum like pattern from optimism to pessimism; from credulousness to skepticism; from fear of missing opportunity to fear of losing money, and thus from eagerness to buy to urgency to sell. The swing of the pendulum causes the herd to buy at high prices and sell at low prices. Thus, being part of the herd is a formula for disaster, whereas contrarianism at the extremes will help to avert losses and lead eventually to success.
In particular, risk aversion- an appropriate amount of which is the essential ingredient in a rational market is sometimes in short supply and sometimes excessive. The fluctuation of investor psychology in this regard plays a very important part in the creation of market bubbles and crashes.
The power of psychological influences must never be underestimated. Greed, fear, suspension of disbelief, conformism, envy, ego and capitulation are all part of human nature, and their ability to compel action is profound, especially when they're at extremes and shared by the herd. They'll influence others, and the thoughtful investor will feel them as well. None of us should expect to be immune and insulated from them. Although we will feel them, we must not succumb; rather, we must recognize them for what they are and stand against them. Reason must overcome emotion.
Most trends-both bullish and bearish-eventually become overdone, profiting those who recognize them early but penalizing the last to join. That's the reasoning behind my number one investment adage: "What the Wise man does in the beginning, the fool does in the end." The ability to resist excesses is rare, but it's an important attribute of the most successful investors.
It's impossible to know when an overheated market will turn down, or when a downturn will cease and appreciation will lake its place. But while we never know where we're going, we ought to know where we are. We can infer where markets stand in their cycle from the behavior of those around us. When other investors are unworried, we should be cautious; when investors are panicked, we should turn aggressive.
Not even contrarianism, however, will produce profits all the time. The great opportunities to buy and sell are associated with valuation extremes, and by definition they don't occur every day. Were bound to also buy and sell at less compelling points in the cycle, since few of us can be content to act only once every few years. We must recognize when the odds are less in our favor and tread more carefully.
Buying based on strong value, low price relative to value, and depressed general psychology is likely to provide the best results. Even then, however, things can go against us for a long time before turning as we think they should. Underpriced is far from synonymous with going up soon. Thus the importance of my second key adage: "Being too far ahead of your time is indistinguishable from being wrong." It can require patience and fortitude to hold positions long enough to be proved right.
In addition to being able to quantify value and pursue it when it's priced right, successful investors must have a sound approach to the subject of risk. They have to go well beyond the academics' singular definition of risk as volatility and understand that the risk that matters most is the risk of permanent loss. They have to reject increased risk bearing as a surefire formula for investment success and know that riskier investments entail a wider range of possible outcomes and a higher probability of loss. They have to have a sense for the loss potential that's present in each investment and be willing to bear it only when the reward is more than adequate.
Most investors are simplistic, preoccupied with the chance for return. Some gain further insight and learn that it's as important to understand risk as it is return. But it's the rare investor who achieves the sophistication required to appreciate correlation, a key element in controlling the riskiness of an overall portfolio. Because of differences in correlation, individual investments of the same absolute riskiness can be combined in different ways to form portfolios with widely varying total risk levels. Most investors think diversification consists of holding many different things; few understand that diversification is effective only if portfolio holdings can be counted on to respond differently to a given development in the environment.
While aggressive investing can produce exciting results when it goes right-especially in good times-it's unlikely to generate gains as reliably as defensive investing. Thus, a low incidence and severity of loss is part of most outstanding investment records. Oaktree's motto, "If we avoid the losers, the winners will take care of themselves," has served well over the years. A diversified portfolio of investments, each of which is unlikely to produce significant loss, is a good start toward investment success.
Risk control lies at the core of defensive investing. Rather than just trying to do the right thing, the defensive investor places a heavy emphasis on not doing the wrong thing. Because ensuring the ability to survive under ad- verse circumstances is incompatible with maximizing returns in good times, investors must decide what balance to strike between the two. The defensive investor chooses to emphasize the former.
Margin for error is a critical element in defensive investing. Whereas most investments will be successful if the future unfolds as hoped, it takes margin for error to render outcomes tolerable when the future doesn't oblige. An investor can obtain margin for error by insisting on tangible, lasting value in the here and now, buying only when price is well below value; eschewing leverage; and diversifying. Emphasizing these elements can limit your gains in good times, but it will also maximize your chances of coming through intact when things don't go well. My third favorite adage is "Never forget the six-foot-tall man who drowned crossing the stream that was five feet deep on average. * Margin for error gives you staying power and gets you through the low spots.
Risk control and margin for error should be present in your portfolio at all times. But you must remember that they're "hidden assets. " Most years in the markets are good years, but it's only in the bad years-when the tide goes out-that the value of defense becomes evident. Thus, in the good years, defensive investors have to be content with the knowledge that their gains, although perhaps less than maximal, were achieved with risk protection in place...even though it turned out not to be needed.
One of the essential requirements for investment success- and thus part of most great investors' psychological equipment- is the realization that we don't know what lies ahead in terms of the macro future. Few people if any know more than the consensus about what's going to happen to the economy, interest rates and market aggregates. Thus, the investor's time is better spent trying to gain a knowledge advantage regarding "the know- able": industries, companies and securities. The more micro your focus, the greater the likelihood you can learn things others don't.
Many more investors assume they have knowledge of the future direction of economies and markets- and act that way-than actually do. They take aggressive actions predicated on knowing what's coming, and that rarely produces the desired results. Investing on the basis of strongly held but incorrect forecasts is a source of significant potential loss. Many investors, amateurs and professionals alike- assume the world runs on orderly processes that can be mastered and predicted. They ignore the randomness of things and the probability distribution that underlies future developments. Thus, they opt to base their actions on the one scenario they predict will unfold. This works sometimes-winning kudos for the investor-but not consistently enough to produce long term success. In both economic forecasting and investment management, it's worth noting that there's usually someone who gets it exactly right...but it's rarely the same person twice. The most successful investors get things "about right" most of the time, and that's much better than the rest.
An important part of getting it right consists of avoiding the pitfalls that are frequently presented by economic fluctuations, companies' travails, the markets' manic swings, and other investors' gullibility. There's no surefire way to accomplish this, but awareness of these potential dangers certainly represents the best starting point for an effort to avoid being victimized by them.
Neither defensive investors who limit their losses in a decline nor aggressive investors with substantial gains in a rising market have proved they possess skill. For us to conclude that investors truly add value, we have to see how they perform in environments to which their style isn't particularly well suited. Can the aggressive investor keep from giving back gains when the market turns down? Will the defensive investor participate substantially when the market rises? This kind of asymmetry is the expression of real skill. Does an investor have more winners than losers? Are the gains on the winners bigger than the losses on the losers? Are the good years more beneficial than the bad years are painful? And are the long- term results better than the investor's style alone would suggest? These things are the mark of the superior investor. Without them, returns may be the result of little more than market movement and beta.
Only investors with unusual insight can regularly divine the probability distribution that governs future events and sense when the potential re. turns compensate for the risks that lurk in the distribution's negative left-hand tail. This simple description of the requirements for successful investing-based on understanding the range of possible gains and the risk of untoward developments-captures the elements that should receive your attention. I commend the task to you. It'll take you on a challenging, exciting and thought-provoking journey.
I like to say, “Experience is what you got when you didn’t get what you wanted.
There are old investors, and there are bold investors, but there are no old bold investors.
Prices are too high” is far from synonymous with “the next move will be downward.” Things can be overpriced and stay that way for a long time...or become far more so.
Investment success doesn’t come from “buying good things,” but rather from “buying things well.”
There’s a big difference between probability and outcome. Probable things fail to happen-and improbable things happen-all the time.” That’s one of the most important things you can know about investment risk.
We have to practice defensive investing, since many of the outcomes are likely to go against us. It’s more important to ensure survival under negative outcomes than it is to guarantee maximum returns under favorable ones.
Here’s the key to understanding risk: it’s largely a matter of opinion.
Investing is a popularity contest, and the most dangerous thing is to buy something at the peak of its popularity. At that point, all favorable facts and opinions are already factored into its price, and no new buyers are left to emerge.
Every once in a while, an up-or-down-leg goes on for a long time and/or to a great extreme and people start to say "this time it's different." They cite the changes in geopolitics, institutions, technology or behavior that have rendered the "old rules" obsolete. They make investment decisions that extrapolate the recent trend. And then it turns out that the old rules still apply and the cycle resumes. In the end, trees don't grow to the sky, and few things go to zero.
There’s only one way to describe most investors: trend followers. Superior investors are the exact opposite. Superior investing, as I hope I’ve convinced you by now, requires second-level thinking-a way of thinking that’s different from that of others, more complex and more insightful.
Selling for more than your asset’s worth. Everyone hopes a buyer will come along who’s willing to overpay for what they have for sale. But certainly the hoped-for arrival of this sucker can’t be counted on. Unlike having an underpriced asset move to its fair value, expecting appreciation on the part of a fairly priced or overpriced asset requires irrationality on the part of buyers that absolutely cannot be considered dependable.
The most dangerous thing is to buy something at the peak of its popularity. At that point, all favorable facts and opinions are already factored into its price and no new buyers are left to emerge.
Once in a while, however, the future turns out to be very different from the past. It’s at these times that accurate forecasts would be of great value. It’s also at these times that forecasts are least likely to be correct. Some forecasters may turn out to be correct at these pivotal moments, suggesting that it’s possible to correctly.
People should like something less when its price rises, but in investing they often like it more.
The biggest investing errors come not from factors that are informational or analytical, but from those that are psychological.
Risk means uncertainty about which outcome will occur and about the possibility of loss when the unfavorable ones do.
Everything you needed to know in the years leading up to the crash could be discerned through awareness of what was going on in the present.
If everyone likes it, it's probably because it has been doing well. Most people seem to think that outstanding performance to dates presages outstanding future performance. Actually, it's more likely that outstanding future performance to date has borrowed from the future and thus presages subpar performance from her on out.
Buying something for less than its value. In my opinion, this is what it’s all about-the most dependable way to make money. Buying at a discount from intrinsic value and having the asset’s price move toward its value doesn’t require serendipity; it just requires that market participants wake up to reality. When the market’s functioning properly, value exerts a magnetic pull on price.
An accurate estimate of intrinsic value is the essential foundation for steady, unemotional and potentially profitable investing.
Most people strive to adjust their portfolios based on what they think lies ahead. At the same time, however, most people would admit forward visibility just isn't that great. That's why I make the case for responding to the current realities and their implications, as opposed to expecting the future to be made clear.
Charlie Munger gave me a great quotation on this subject, from Demosthenes: “Nothing is easier than self-deceit. For what each man wishes, that he also believes to be true.” The belief that some fundamental limiter is no longer valid-and thus historic notions of fair value no longer matter-is invariably at the core of every bubble and consequent crash. In fiction, willing suspension of disbelief adds to our enjoyment.
Skepticism and pessimism aren’t synonymous. Skepticism calls for pessimism when optimism is excessive. But it also calls for optimism when pessimism is excessive.
Prosperity brings expanded lending, which leads to unwise lending, which produces large losses, which makes lenders stop lending, which ends prosperity, and on and on. Look around the next time there’s a crisis; you’ll probably find a lender.
When risk bearing doesn’t work, it really doesn’t work, and people are reminded what risk’s all about.
The correctness of a decision can’t be judged from the outcome. Nevertheless, that's how people assess it. A good decision is one that’s optimal at the time it’s made, when the future is by definition unknown. Thus, correct decisions are often unsuccessful, and vice versa.
If your behavior is conventional, you’re likely to get conventional results-either good or bad. Only if your behavior is unconventional is your performance likely to be unconventional, and only if your judgments are superior is your performance likely to be above average.
It ain’t what you don’t know that gets you into trouble. It’s what you know for sure that just ain’t so.
If you've settled on the value approach to investing and come up with an intrinsic value for a security or asset, the next important thing is to hold it firmly. That's because in the world of investing, being correct about something isn't at all synonymous with being proved correct right away.
The desire for more, the fear of missing out, the tendency to compare against others, the influence of the crowd and the dream of the sure thing-these factors are near universal. Thus they have a profound collective impact on most investors and most markets. The result is mistakes, and those mistakes are frequent, widespread and recurring.
This paradox exists because most investors think quality, as opposed to price, is the determinant of whether something's risky. But high quality assets can be risky, and low quality assets can be safe. It's just a matter of the price paid for them... Elevated popular opinion, then, isn't just the source of low return potential, but also of high risk.
In good years, defensive investors have to be content with the knowledge that their gains, although perhaps less than maximal, were achieved with risk protection in place, even though it turned out not to be needed.
Patient opportunism, buttressed by a contrarian attitude and a strong balance sheet, can yield amazing profits during meltdowns.
It’s frightening to think that you might not know something, but more frightening to think that, by and large, the world is run by people who have faith that they know exactly what’s going on.
Good builder is able to avoid construction flaws, while a poor builder incorporates construction flaws. When there are no earthquakes, you can’t tell the difference.
The market can remain irrational longer than you can remain solvent.
The physicist Richard Feynman once said that physics would be much harder if electrons had feelings. That is to say, you turn on the light switch, the light always goes on because the electrons always flow from the light switch to the fixture. They never forget their assignment and swim in the opposite direction. They never go on strike and fail to flow or forget what they're supposed to do. They always flow in the right direction. But investing is made up of people.
Unconventionality is required for superior investment results, especially in asset allocation. As I mentioned above, you can’t do the same things others do and expect to outperform. Unconventionality shouldn’t be a goal in itself, but rather a way of thinking. In order to distinguish yourself from others, it helps to have ideas that are different and to process those ideas differently...Only if the behavior is unconventional is your performance going to be unconventional…and only if the judgments are superior is your performance likely to be above average.

Think for yourself, be skeptical and be aware of the good ideas that are overdone.

Non-consensus ideas have to be lonely. By definition, non-consensus ideas that are popular, widely held or intuitively obvious are an oxymoron. Thus, such ideas are uncomfortable; non-conformists don’t enjoy the warmth that comes with being at the center of the herd.
The truth is, discord sells (how often does your daily newspaper lead with a positive headline?).
What’s the word for that? My answer is “politics,” which is, in part, defined by Oxford as “the debate or conflict among individuals or parties having or hoping to achieve power.”
While my examples describe extreme hypothetical outcomes, these are not imaginary concerns.
I was struck 30-40 years ago to learn that whereas a million dollars is $10 a second for 28 hours, a billion

dollars is $10 a second for 38 months. Now let’s think about a trillion: $10 a second for more than 3,000 years. As I said, almost incomprehensible.

All I have to add to that is my usual observation regarding the future: We’ll see.
The willing suspension of disbelief. “Contributing to euphoria are two further factors little noted in our time or in past times. The first is the extreme brevity of the financial memory. In consequence, financial disaster is quickly forgotten. In further consequence, when the same or closely similar circumstances occur again, sometimes in only a few years, they are hailed by a new, often youthful, and always supremely self-confident generation as a brilliantly innovative discovery in the financial and larger economic world. There can be few fields of human endeavor in which history counts for so little as in the world of finance. Past experience, to the extent that it is part of memory at all, is dismissed as the primitive refuge of those who do not have the insight to appreciate the incredible wonders of the present.” (John Kenneth Galbraith, A Short History of Financial Euphoria, 1990 emphasis added)-I've shared that quote with readers many times over the last 30 years - since I think it so beautifully sums up a number of important points - but I haven't previously shared my explanation for the behavior it describes. I don't think investors are actually forgetful. Rather, knowledge of history and the appropriateness of prudence sit on one side of the balance, and the dream of getting rich sits on the other. The latter always wins. Memory, prudence, realism, and risk aversion would only get in the way of that dream. For this reason, reasonable concerns are regularly dismissed when bull markets get going.
Knowing what we don't know is better than thinking we know what we don't. It ain't what you don't know that gets you into trouble. It's what you know for sure that just ain't so.
Don’t believe in forecasting but believe in cycles. Taking temperature of the market (optimism and pessimism). People raising money for whatever at whatever price and terms is a signal for trouble. You can’t analyze the future because future is unknown, but you look to past for analogies.
If you have something new, you get flight to an imagination. Internet will change the world so it’s worth infinity. But not all companies survived because they had bad business models. This cycle repeats every time: SPAC, Bitcoin, SASS, Bitcoin, NFTs. With everything new, there is no history to look at, so you look at narrative around you.
It’s not what you buy, but how well you pay. If you don’t understand this, you are in the wrong business. It’s a combination of excellent company with fair price or declining business with a bargain price. There are tradeoffs need to be made.
The news is same for all of us to in order to outperform but you have to depart from the crowd. You have to have resolve to do it but it can’t be easy. Emotions are universal.
A warrior is someone who is afraid on a battlefield but still does his job. Uncomfortable idiosyncratic has always been relevant to investment professional. Dare to be great can only be done when you dare to be different. You have to dare to be wrong. It’s really easy to be an average go buy an index fund, but to be above average, you have to dare to be willing to be wrong.
What is risk? It is a probability of negative event in the future. What does past tell us about that? The past has relevance but it is not absolute. Risk cannot be quantified that is why I don’t believe in models. And what is quantification, it is a measurement. And future events cannot be measured.
Risk cannot be quantified. Was it lucky that you doubled your dollar? The possibility of future cannot be synthesized as an input to quantify.
Experience is what you get when you get something you don’t want. The best way to learn lessons is inexpensively.
One of the important part of investing is being a skeptic. If someone comes tell you, you made 11% for the last 25 years and never had a bad year, you say, it is too good to be true, Mr. Madoff. But very few people did.
It is hard for most people to be humble. There are these defenses, overlook their flaws and their limitations. When you look at human endeavor, I believe strongly that success carries within itself with seeds of failure and failure carries the seeds of success. What do you learn from success? I can do it, I can do it again, it’s easy, I can do it in other fields, I can do it with more money, I can do it alone, it was me, it wasn’t a team. these are horrible lessons, success teaches terrible lessons because it plays to our ego. You learn more from failures which allows you to learn humility. When do you balance incomplete of knowledge? An investor needs to balance incomplete of knowledge with confidence with overconfidence. Humility vs non-humility.
Relevant information about the present will not make you a superior investor or it is not sufficient. Everyone has it, the quantitative information is not the key to be a successful investor. So what can it be?
Fixed income is a negative art.
In order to produce something useful-be it in manufacturing, academia, or even the arts–you must have a reliable process capable of converting the required inputs into the desired output.
Forecasters have no choice but to base their judgments on models, be they complex or informal, mathematical or intuitive. Models, by definition, consist of assumptions: “If A happens, then B will happen.” In other words, relationships and responses. But for us to willingly employ a model’s output, we have to believe the model is reliable. When I think about modeling an economy, my first reaction is to think about how incredibly complicated it is...this level of complexity necessitates the frequent use of simplifying assumptions. How can a model of an economy be comprehensive enough to deal with things that haven’t been seen before, or haven’t been seen in modern times (meaning under comparable circumstances)? This is yet another example of why a model simply can’t replicate something as complex as an economy. Of course, a prime example of this is the Covid-19 pandemic. It caused much of the world’s economy to be shut down, turned consumer behavior on its head, and inspired massive government largesse. What aspect of a pre-existing model would have enabled it to anticipate the pandemic’s impact? Yes, we had a pandemic in 1918, but the circumstances were so different (no iPhones, Zoom calls, etc. ad infinitum) as to render economic events during that time of little or no relevance to 2020. The unpredictability of behavior is a favorite topic of mine. Noted physicist Richard Feynman once said, “Imagine how much harder physics would be if electrons had feelings.” The rules of physics are reliable precisely because electrons always do what they’re supposed to do. They never forget to perform. They never rebel. They never go on strike. They never innovate. They never behave in a contrary manner. But none of these things is true of the participants in an economy, and for that reason their behavior is unpredictable. And if the participants’ behavior is unpredictable, how can the workings of an economy be modeled? Thus, for me, the bottom line is that the output from a model may point in the right direction much of the time, when the assumptions aren’t violated. But it can’t always be accurate, especially at critical moments such as inflection points...and that’s when accurate predictions would be most valuable. No one can invest intelligently without considering (a) the other possible outcomes for each element, (b) the likelihood of these alternative scenarios, (c) what would have to happen for one of them to be the actual outcome, and (d) what the impact on E would be. Doesn’t this question indicate an insoluble feedback loop: To predict the overall performance of the economy, we need to make assumptions about, for example, consumer behavior. But to predict consumer behavior, don’t we need to make assumptions regarding the overall economic environment? We can’t consider the reasonableness of forecasting without first deciding whether we think our world is one of order or of randomness. Put simply, is it entirely predictable, entirely unpredictable, or something in between? The bottom line for me is that it’s in between, but unpredictable enough that most forecasts are unhelpful.
Are you a consumer of forecasts? The rule in this case is that macro forecasts rarely lead to exceptional performance. For me, the exceptionalness of the success stories proves the general truth of that assertion. As Buffett said-forecasts usually tell us more of the forecaster than of the future. The mechanisms that people generally employ when responding to evidence that throws their beliefs into doubt include these (paraphrasing the authors’ words):
- an unwillingness to heed dissonant information;
- selectively remembering parts of their lives, focusing on those parts that support their own points of view; and
- operating under cognitive biases that ensure people see what they want to see and seek confirmation of what they already believe.
- Most people–even honest people with good intentions–take positions or actions that are in their own interests, sometimes at the expense of others or of objective truth. They don’t know they’re doing it; they think it’s the right thing; and they have tons of justification. As Charlie Munger often says, quoting Demosthenes, “Nothing is easier than self-deceit. For what every man wishes, that he also believes to be true.”
- I don’t think of forecasters as crooks or charlatans. Most are bright, educated people who think they’re doing something useful. But self-interest causes them to act in a certain way, and self-justification enables them to stick with it in the face of evidence to the contrary.
- It’s easy to identify members of the “I know” school:
  - They think knowledge of the future direction of economies, interest rates, markets and widely followed mainstream stocks is essential for investment success.
  - They’re confident it can be achieved.
  - They know they can do it.
  - They are aware that lots of other people are trying to do it too, but they figure either (a) everyone can be successful at the same time, or (b) only a few can be, but they’re among them.
  - They are comfortable investing based on their opinions regarding the future.
  - They are also glad to share their views with others, even though correct forecasts should be of such great value that no one would give them away gratis.
  - They rarely look back to rigorously assess their record as forecasters.
- “Confident” is the key word for describing members of this school. For the “I don’t know” school, on the other hand, the word – especially when dealing with the macro-future – is “guarded.” Its adherents generally believe you can’t know the future; you don’t have to know the future; and the proper goal is to do the best possible job of investing in the absence of that knowledge.
First-level thinking is simplistic and superficial, and just about everyone can do it (a bad sign for anything involving an attempt at superiority). All the first-level thinker needs is an opinion about the future, as in “The outlook for the company is favorable, meaning the stock will go up.” Second-level thinking is deep, complex and convoluted.

John C Bogle

Investing is simple, but not easy. Bogle, the creator of Vanguard which created the first index mutual fund in 1974 was lonely in the fight at first. But as time passed on, the idea caught on fire.
- Paul A Samuelson, Nobel laureate in economic sciences and professor at MIT once said: Bogle's reasoned percepts can enable a few millions of us savers to become in twenty years the envy of our suburban neighbors-while at the same time we have slept well in these eventful times.
- The record of an investor in the first index mutual fund: $15,000 invested in 1976 would be valued at $913,000 in 2016.
In the book, Bogle shares commentary provided by legendary investors and industry experts on the value of investing in low cost index funds. To my surprise, I was baffled, but not surprised on the spirit of investing in these funds. Even the great investors and market commentors such as Jim Cramer have bowed down to Bogle's wisdom.
- “It’s bad enough that you have to take market risk. Only a fool takes on the additional risk of doing yet more damage by failing to diversify properly with his or her nest egg. Avoid the problem-buy a well-run index fund and own the whole market.” - William Bernstein
Investing in low cost, broad index funds eliminates the risk of picking individual stocks, the risk of emphasizing certain market sectors, and the risk of manager selection.
Long-term investing serves you far better than short-term speculation, about the value of diversification, about the powerful role of investments costs, about the perils of relying on a fund's past performance and ignoring the principle of reversion (or regression) to the mean (RTM) in investing. Wall Street will never teach you this or want you to learn these things.
The average annual total return on stocks was 9.5 percent from 1900 to 2016. The investment return alone was 9.0 percent (actual returns made by corporate America)-4.4 percent from dividend yield and 4.6 percent from earnings growth. That difference of 0.5 percentage points per year was from speculative return. Each dollar initially invested in stocks in 1900 grew to $43,650 by 2015. Combining investment return and speculative return yields to total stock market returns.
- An astounding revelation on dividends. Excluding dividend income, an initial investment of $10,000 in the S&P 500 on January 1 1036, would have grown to more than $1.7 million as 2017 began. But dividends reinvested, that investment would've grown to some $59.1 million. This is the magic of free compounding-an astounding gap of $57.5 million.
  - Dividends per share on the 500 Index fell from $28.39 in 2008 to $22.41 in 2009, but reached a new high of $45.70 in 2016 (60% above the 2008 peak).
In the long run, stock returns depend almost entirely on the reality of the investment returns earned by corporations. It is economics that controls long-term equity returns; the impact of emotions, so dominant in the short term, dissolves.
The arithmetic of investment return is so basic: earnings and dividends generated by American businesses that are responsible for the returns in the long-term. While the price illusion in short-term loses touch. It is reality that rules in the long run.
- “One game is the real market, where giant publicly held companies compete. Where real companies spend real money to make and sell real products and services, and, if they play with skill, earn real profits and pay real dividends. This game also requires real strategy, determination, and expertise; real innovation and real foresight. Another game is expectations market. Here prices are not set by real things like sales margins or profits. In the short-term stock prices go up only when the expectations of investors rise, not necessarily when sales, margins, or profits rise.” - Roger Martin, dean of the Rotman School of Management of the University of Toronto.
Past returns do not foretell the future.
- “It is dangerous to apply to the future inductive arguments based on past experience, unless one can distinguish the broad reasons why past experience was what it was.” - John Maynard Keynes
Occam's razor: when there are multiple solutions to a problem, choose the simplest one. As applicable to investing as to the scientific world.
- Choose the simplest of all solutions-buy and hold a diversified, low-cost portfolio that tracks the stock market.
On average, an astonishing 90 percent of actively managed mutual funds underperformed their benchmark indexes over the preceding 15 years. Why? After subtracting all costs, an average investor is left with disappointing returns that does not meet the low-cost provider returns. Those costs are the relentless rules/factors of humble arithmetic. Following costs make the difference between investment success and failure:
- Investment expenses:
  - Management fees
  - Portfolio turnover
  - Brokerage commissions (ask/bid spread)
  - Sales loads
  - Advertising costs
  - Operating costs
  - Legal fees
- Inflation
- Counterproductive investor behavior
  - Bad timing (investing at peak or vice-versa)
  - Adverse fund selections
  - Factor investing
  - Tax liabilities on high turnover
- Taxes
  - Federal
  - State
  - Local
Wall Street is in the business of generating revenue for itself so as long as something is making money, they will sell you. And if a fund that has failed to meet its success, they will merge it into a larger fund eliminating historical track records or liquidate. Morgan Stanley is a great example of that.
As they say it, ETFs are a great substitution of traditional index funds. Then there are factor funds, smart beta and so on. Wall Street will continue to create alternative products that will want the piece of your pie by interrupting your compounding. But the best returns lie when you are not interrupting compounding. The more the managers and brokers take, the less the investors take.
Money flows into most funds after good performance, and goes out when bad performance follows. The dual penalty of faulty timing and adverse selection is very costly. These penalties add up. And don't forget inflation. The value of all those dollars take a huge tumble.
The beauty of index fund lies not only in its low expenses, but in its elimination of all those tempting fund choices that promises so much and deliver so little. Emotions need never enter the equation.
Past returns do not signal future returns. Last few decades have been exceptionally great in generating market returns, but the good times will not roll forever. Investors need to readjust their expectations for future returns.
- Reversion to the mean impacts mutual fund performance
- Yesterday's winners are tomorrow's losers.
Risk tolerance = risk capacity + risk willingness
Your index fund should not be your manager's cash cow. It should be your own cash cow.
Low cost also applies to bonds. Three types of bond funds:
- Short-term
- Intermediate
- Long-term
The magic of compounding investment returns. The tyranny of compounding investment costs.
Before the deduction of the costs of investing, beating the stock market is a zero-sum game. After the deduction of the costs of investing beating the stock market is a loser's game.
Weak managements ultimately fall victim to the creative destruction that is the hallmark of competitive capitalism.
Simply buy a Standard & Poor's 500 Index fun or a total stock market index fund. Then, once you have bought your stocks, get out of the casino and stay out.
You don't need to participate in its expensive foolishness.
Get rid of all your Helpers. Then your family will again reap 100 percent of the pie that corporate America bakes for you.
When greed hold sway, very high P/Es are likely. When hope prevails, P/Es are moderate. When fear is in the saddle, P/Es are typically very low.
Stock returns are so volatile is largely because of the emotions of investing, reflected in those changing P/E ratios.
The stock market is a giant distraction to the business of investing.
It is a take told by an idiot, full of sound and fury, signifying nothing. - William Shakespeare
Owning the stock market over the long term is a winner's game, but attempting to beat the stock market is a loser's game.
We investors as a group get precisely what we don't pay for. If we pay nothing, we get everything.
Where returns are concerned, time is your friend. But whose costs are concerned, time is your enemy.
Fund performance comes and goes. Costs go on forever.
The average fund owner is designed not for precision, but for direction.
Inflamed by heady optimism and greed, and enticed by wiles of mutual fund marketers, investors poured their savings into equity funds at the bull market peak.
When counterproductive investor emotions are magnified by counterproductive fund industry promotions, little good is apt to result.
Fund investors have been chasing past performance since time immemorial, allowing their emotions, perhaps, even their greed, to overwhelm their reason.
Investor emotions plus fund industry promotions equals trouble.
The beauty of passive low-cost broad market index fund is if the managers take nothing, the investors receive everything (market's return).
Don't look for the needle, buy the haystack.
Whatever you decide, please don't ignore one of the least understood factors that shape mutual fund performance: reversion to the mean (RTM).
Picking winning funds based on past performance is hazardous duty.
The old saying that “past performance is no guide to the future” is not a piece of compliance jargon. It is the math. - Buttonwood
Buying funds based purely on their past performance is on the of the stupidest things an investor can do.
The temptation to chase past returns.
ETFs are a dream come true for entrepreneurs and brokers.
Simplicity beats complexity.
The greatest enemy of a good plan is the dream of a perfect plan. Stick to a good plan.
Investors should be satisfied with the reasonably good return obtainable from a defensive portfolio.
I was selling nutritious bagels, but everybody wanted donuts.
On Bogle–“I think they were pivotal. I think a couple of things maybe later were equally as pivotal. But obviously, your childhood is major. First of all, he was always working. He was a scholarship kid. He had a taste or a sniff of the Great Depression. I always tell people, like especially my mom and my family, I would say, “Visiting Jack Bogle was like hanging out with my grandfather, not my father.” He was not a boomer. He was a World War II-type guy. He had the same sense of humor. The office had like pictures of warships and stuff, just like my grandfather. And that generation was very thrifty generally. They had just seen things that the rest of us haven't. And I think he had enough of that that was a nice core for him. And obviously, working off of scholarships, he had to work, doing all kinds of jobs, including setting bowling pins. And in my life, as I've met people who had to work through college, they tend to be the most successful people. That's a really good ethic to begin with. So, I think thriftiness was important. Obviously, that paid dividends later. And in fact, I do think there was some genetics at work though. His great grandfather was a populist fighter of insurance companies. And Bogle lists some of his great grandfather's speeches in one of his books. And it's fascinating how similar their language is. His great grandfather was the one who said, “Gentlemen, cut your costs.” He just copied it. So, there was some genetics at play, I believe, and of course, obviously, the environmental aspects that I said as well. And I think his father was not a great achiever; he didn't achieve a lot and had trouble holding down a job. And I think that also probably sparked Bogle to want to make something of himself.”

Morgan Housel

Everyone has their own unique experiences with how the world works. Risk and reward is quite different for a child in poverty than a child of a wealthy banker. Those who were scarred during the Great Recession of 2008 would not look at the stock market the same as someone who started investing in 2012 (investment returns have been enormous since then). Both of these are unique experiences led by random events, but no one is crazy. It is just we make decisions based on our own unique experiences.
Luck and risk are siblings. There is effort and then there is risk and luck that an outcome should be attributed to. The latter two are hard to measure and hard to accept. Someone else's failure is usually attributed to bad decisions, while your own failures are usually attributed to risk. Take for example, Facebook turned down Yahoo's offer to acquire Facebook and we credit Mark Zuckerberg for a wise decision. But we criticize Yahoo with passion to reject Microsoft's offer. Luck and risk are indeed siblings! Let's recognize them as well when crediting or criticizing an outcome. There is more to than just efforts and IQ.
There is no reason to risk what you have and need for what you don’t have and don’t need. Americans often get in trouble for having too many houses by stretching out their debt limits. That is what happened in 2008. The hardest financial skill is getting the goalpost to stop moving. After achieving financial success, money has no utility. With rise in income, expectations rises, but striving for more money has no utility. In that case one step forward pushes the goalpost two steps ahead that the ceiling of social comparison is so high that virtually no one will ever hit it. Which means it’s a battle that can never be won, or that the only way to win is to not fight to begin with-to accept that you might have enough, even if it’s less than those around you.
A small starting base can yield to little growth which then fuels for future growth. This can lead to results so extraordinary they seem to defy logic. Warren Buffett’s net worth is $84.5 billion. Of that, $84.2 billion was accumulated after his 50th birthday. $81.5 billion came in his mid-60s. His skill is investing, but his secret is time. We call that compounding.
There’s only one way to stay wealthy-combination of frugality and paranoia. Getting money is one thing. Keeping it is another. Getting money requires taking risks, being optimistic, and putting yourself out there. But keeping money requires the opposite of taking risk. Not “growth” or “brains” or “insight.” The ability to stick around for a long time, without wiping out or being forced to give up, is what makes the biggest difference. This should be the cornerstone of your strategy, whether it’s in investing or your career or a business you own.
Anything that is huge, profitable, famous, or influential is the result of a tail event-an outlying one-in-thousands or millions event. Most of our attention goes to things that are huge, profitable, famous, or influential. When most of what we pay attention to is the result of a tail, it’s easy to underestimate how rare and powerful they are. Apple was responsible for almost 7% of the S&P 500 index’s returns in 2018. And it is driven overwhelmingly by the iPhone, which is another tail event amongst the technology products. Tails drive everything.
Freedom is the highest form of capital return. Control over doing what you want, when you want to, with the people you want to, is what makes people happy. Money's greatest intrinsic value is time. Six months’ emergency expenses means not being terrified of your boss, short commute, taking on a satisfying job with lower salary, and on, and on. Using your money to buy time and options has a lifestyle benefit few luxury goods can compete with. United States is the richest nation in the world, but when we look at time for 99% of the population, it tells you a different story. People lose their time due to jobs and upgrading their lifestyle.
People don't want expensive car; they want respect and admiration from other people. People think expensive stuff will bring that admiration which it almost never does.
We should be careful to define the difference between wealthy and rich. Rich means having expensive stuff financed by debt. We rely on outward appearances to gauge financial success. But the truth is that wealth is what you don’t see. The only way to be wealthy is to not spend the money that you do have. It’s not just the only way to accumulate wealth; it’s the very definition of wealth. It’s not hard to spot rich people. They often go out of their way to make themselves known. But wealth is hidden. Its value lies in offering you options, flexibility, and growth to one day purchase more stuff than you could right now.
Save. Period. Savings can be created by spending less. You can spend less if you desire less. And you will desire less if you care less about what others think of you. Saving is a hedge against life’s inevitable ability to surprise the hell out of you at the worst possible moment. Savings without a spending goal gives you options and flexibility, the ability to wait and the opportunity to pounce. It gives you time to think. It lets you change course on your own terms. What is the return on cash in the bank that gives you the option of changing careers, or retiring early, or freedom from worry? I’d say it’s incalculable. When you don’t have control over your time, you’re forced to accept whatever bad luck is thrown your way. But if you have flexibility you have the time to wait for no-brainer opportunities to fall in your lap. This is a hidden return on your savings. Savings in the bank that earn 0% interest might actually generate an extraordinary return if they give you the flexibility to take a job with a lower salary but more purpose, or wait for investment opportunities that come when those without flexibility turn desperate. Having more control over your time and options is becoming one of the most valuable currencies in the world.
Do not aim to be coldly rational when making financial decisions. Aim to just be pretty reasonable. Reasonable is more realistic and you have a better chance of sticking with it for the long run, which is what matters most when managing money. Academic finance is devoted to finding the mathematically optimal investment strategies.
History is mostly the study of surprising events. But it is often used by investors and economists as an unassailable guide to the future. It is not a map of the future. If you view investing as a hard science, history should be a perfect guide to the future but finance is not like studying geology or medicine. Investing is not a hard science. It’s a massive group of people making imperfect decisions with limited information about things that will have a massive impact on their wellbeing, which can make even smart people nervous, greedy and paranoid. The most important events in historical data are the big outliers, the record-breaking events. They are what move the needle in the economy and the stock market. The Great Depression. World War II. The dot-com bubble. September 11th. The housing crash of the mid-2000s. That doesn’t mean we should ignore history when thinking about money. The further back in history you look, the more general your takeaways should be. General things like people’s relationship to greed and fear, how they behave under stress, and how they respond to incentives tend to be stable in time. The history of money is useful for that kind of stuff.
The wisdom in having room for error is acknowledging that uncertainty, randomness, and chance-“unknowns”-are an ever-present part of life. Margin of safety-you can also call it room for error or redundancy-is the only effective way to safely navigate a world that is governed by odds, not certainties. The best we can do is think about odds. Room for error lets you endure a range of potential outcomes, and endurance lets you stick around long enough to let the odds of benefiting from a low-probability outcome fall in your favor. So the person with enough room for error in part of their strategy (cash) to let them endure hardship in another (stocks) has an edge over the person who gets wiped out, game over, insert more tokens, when they’re wrong. Leverage-taking on debt to make your money go further-pushes routine risks into something capable of producing ruin.
An underpinning of psychology is that people are poor forecasters of their future selves. Imagining a goal is easy and fun, but goals evolve and change with age, which makes those goals irrelevant. Keep this in mind when planning for long-term financial goals.
We’re not good at identifying what the price of success is, which prevents us from being able to pay it. Every job looks easy when you’re not the one doing it because the challenges faced by someone in the arena are often invisible to those in the crowd. Like everything else worthwhile, successful investing demands a price. But its currency is not dollars and cents. It’s volatility, fear, doubt, uncertainty, and regret-all of which are easy to overlook until you’re dealing with them in real time. Netflix stock returned more than 35,000% from 2002 to 2018, but traded below its previous all-time high on 94% of days. The price of investing success is not immediately obvious. It’s not a price tag you can see, so when the bill comes due it doesn’t feel like a fee for getting something good. It feels like a fine for doing something wrong. It sounds trivial, but thinking of market volatility as a fee rather than a fine is an important part of developing the kind of mindset that lets you stick around long enough for investing gains to work in your favor.
Understand which game you are playing. An idea exists in finance that seems innocent but has done incalculable damage. It’s the notion that assets have one rational price in a world where investors have different goals and time horizons. When investors have different goals and time horizons-and they do in every asset class-prices that look ridiculous to one person can make sense to another, because the factors those investors pay attention to are different. You can say a lot about these investors. You can call them speculators. You can call them irresponsible. The formation of bubbles isn’t so much about people irrationally participating in long-term investing. They’re about people somewhat rationally moving toward short-term trading to capture momentum that had been feeding on itself. Identifying which game you are playing is critical.
Pessimism holds a special place in our hearts than its sibling optimism. Kahneman says the asymmetric aversion to loss is an evolutionary shield. It’s easier to create a narrative around pessimism because the story pieces tend to be fresher and more recent. Optimistic narratives require looking at a long stretch of history and developments, which people tend to forget and take more effort to piece together. Pessimism sounds smarter. It’s intellectually captivating, and it’s paid more attention than optimism, which is often viewed as being oblivious to risk. Real optimists don’t believe that everything will be great. That’s complacency. Optimism is a belief that the odds of a good outcome are in your favor over time, even when there will be setbacks along the way. The simple idea that most people wake up in the morning trying to make things a little better and more productive than wake up looking to cause trouble is the foundation of optimism. It’s not complicated. It’s not guaranteed, either. It’s just the most reasonable bet for most people, most of the time. Tell someone that everything will be great and they’re likely to either shrug you off or offer a skeptical eye. Tell someone they’re in danger and you have their undivided attention. When you realize how much progress humans can make during a lifetime in everything from economic growth to medical breakthroughs to stock market gains to social equality, you would think optimism would gain more attention than pessimism.
We are storytellers and we control the narrative based on what we want to hear. If you want a certain stock to rise 10-fold, that’s your tribe. If you think a certain economic policy will spark hyperinflation, that’s your side. Or take Bernie Madoff. In hindsight his Ponzi scheme should have been obvious. He told a good story, and people wanted to believe it. The bigger the gap between what you want to be true and what you need to be true to have an acceptable outcome, the more you are protecting yourself from falling victim to an appealing financial fiction. But the biggest risk is that you want something to be true so badly that the range of your forecast isn’t even in the same ballpark as reality.
American culture stretches itself thin by consuming more than what it needs. How did we get here? What gave rise to consumerism? Morgan does a great job by taking us back to WWII. A must read chapter.
“A genius is the man who can do the average thing when everyone else around him is losing his mind.” - Napoleon
“The world is full of obvious things which nobody by any chance ever observes.” - Sherlock Holmes
A genius who loses control of their emotions can be a financial disaster. The opposite is also true. Ordinary folks with no financial education can be wealthy if they have a handful of behavioral skills that have nothing to do with formal measures of intelligence.
Most of the reason why, I believe, is that we think about and are taught about money in ways that are too much like physics (with rules and laws) and not enough like psychology (with emotions and nuance).
To grasp why people bury themselves in debt you don’t need to study interest rates; you need to study the history of greed, insecurity, and optimism.
“Our findings suggest that individual investors’ willingness to bear risk depends on personal history.”
When judging others, attributing success to luck makes you look jealous and mean, even if we know it exists. And when judging yourself, attributing success to luck can be too demoralizing to accept.
Failure can be a lousy teacher, because it seduces smart people into thinking their decisions were terrible when sometimes they just reflect the unforgiving realities of risk.
But more important is that as much as we recognize the role of luck in success, the role of risk means we should forgive ourselves and leave room for understanding when judging failures.
“Yes, but I have something he will never have … enough.” - Joseph Heller
The only way to know how much food you can eat is to eat until you’re sick. Few try this because vomiting hurts more than any meal is good. For some reason the same logic doesn’t translate to business and investing, and many will only stop reaching for more when they break and are forced to.
If I had to summarize money success in a single word it would be “survival.”
Capitalism is hard. But part of the reason this happens is because getting money and keeping money are two different skills.
Compounding only works if you can give an asset years and years to grow. It’s like planting oak trees: A year of growth will never show much progress, 10 years can make a meaningful difference, and 50 years can create something absolutely extraordinary.
way: “Having an ‘edge’ and surviving are two different things: the first requires the second. You need to avoid ruin. At all costs.” - Nassim Taleb
A mindset that can be paranoid and optimistic at the same time is hard to maintain, because seeing things as black or white takes less effort than accepting nuance. But you need short-term paranoia to keep you alive long enough to exploit long-term optimism.
“I’ve been banging away at this thing for 30 years. I think the simple math is, some projects work and some don’t. There’s no reason to belabor either one. Just get on to the next.” - Brad Pitt
Stock goes to zero, have a nice day.
There are 100 billion planets in our galaxy and only one, as far as we know, with intelligent life. The fact that you are reading this book is the result of the longest tail you can imagine.
It was my dream to have one of these cars of my own, because (I thought) they sent such a strong signal to others that you made it. You’re smart. You’re rich. You have taste. You’re important. Look at me. When you see someone driving a nice car, you rarely think, “Wow, the guy driving that car is cool.” Instead, you think, “Wow, if I had that car people would think I’m cool.” Subconscious or not, this is how people think.
When material appearance took precedence over everything but oxygen.
People are good at learning by imitation. But the hidden nature of wealth makes it hard to imitate others and learn from their ways.
Learning to be happy with less money creates a gap between what you have and what you want-similar to the gap you get from growing your paycheck, but easier and more in your control.
People with enduring personal finance success-not necessarily those with high incomes-tend to have a propensity to not give a damn what others think about them.
You’re not a spreadsheet. You’re a person. A screwed up, emotional person.
History is the study of change, ironically used as a map of the future.
This is not a failure of analysis. It’s a failure of imagination.
The correct lesson to learn from surprises is that the world is surprising.
The most important economic events of the future-things that will move the needle the most-are things that history gives us little to no guide about.
History can be a misleading guide to the future of the economy and stock market because it doesn’t account for structural changes that are relevant to today’s world.
The Intelligent Investor is one of the greatest investing books of all time. But I don’t know a single investor who has done well implementing Graham’s published formulas. The book is full of wisdom-perhaps more than any other investment book ever published. But as a how-to guide, it’s questionable at best.
Historians are not prophets.
The most important part of every plan is

planning on your plan not going according to the plan.

A good rule of thumb for a lot of things in life is that everything that can break will eventually break.
The biggest single point of failure with money is a sole reliance on a paycheck to fund short-term spending needs, with no savings to create a gap between what you think your expenses are and what they might be in the future.
... the hardest-working guy I knew. These people have a lot to teach because they have an unfiltered understanding of every inch of the road to success.
Compounding works best when you can give a plan years or decades to grow. This is true for not only savings but careers and relationships. Endurance is key.
Sunk costs-anchoring decisions to past efforts that can’t be refunded-are a devil in a world where people change over time. They make our future selves prisoners to our past, different, selves. It’s the equivalent of a stranger making major life decisions for you.
“Every job looks easy when you’re not the one doing it.” - Jeff Immelt
Pessimism just sounds smarter and more plausible than optimism.
Growth is driven by compounding, which always takes time. Destruction is driven by single points of failure, which can happen in seconds, and loss of confidence, which can happen in an instant.
In 2007, we told a story about the stability of housing prices, the prudence of bankers, and the ability of financial markets to accurately price risk. In 2009 we stopped believing that story. In 2009 we inflicted narrative damage on ourselves, and it was vicious. It’s one of the most potent economic forces that exists.
The more you want something to be true, the more likely you are to believe a story that overestimates the odds of it being true.
Everyone has an incomplete view of the world. But we form a complete narrative to fill in the gaps.
Incentives are a powerful motivator, and we should always remember how they influence our own financial goals and outlooks. It can’t be overstated: there is no greater force in finance than room for error, and the higher the stakes, the wider it should be.
Coming to terms with how much you don’t know means coming to terms with how much of what happens in the world is out of your control. And that can be hard to accept.
Risk is what's left over when you think you've thought of everything. - Carl Richards
Investing has a social component that’s often ignored when viewed through a strictly financial lens.
The reason surprises occur is not because our models are wrong or our intelligence is low. It’s because the odds that Adolf Hitler’s parents argued on the evening nine months before he was born were the same as them conceiving a child.
The world is never that nice. There’s a price tag, a bill that must be paid. This is the price of market returns. The fee. It is the cost of admission.
Keeping money is harder than making money, because you can get rich by luck, but staying rich is almost always due to a series a good, hard decisions. The skills needed for getting rich and staying rich are often opposites-be bold and brave, then diversify and remain paranoid. Then there’s the mental momentum that getting rich creates that staying rich has to step in and try to block. It goes like this: The more successful you are at something, the more convinced you become that you’re doing it right. The more convinced you are that you’re doing it right, the less open you are to change. The less open you are to change, the more likely you are to trip in a world that changes all the time. I’d be more impressed with a Forbes list of billionaires ranked by longevity vs amount.
Why Americans get into financial trouble? Americans get into financial trouble because we buy more house than we need or should. The American dream of owning house is pushed buy both the political parties to support U.S. economy and jobs, especially since the manufacturing jobs have been outsourced. With nearly 48% of Americans in the service industry. The average yearly wage for Service Occupations was $27,602 in 2016. Based on wage index published by The Social Security Index, about 67.5 percent of wage earners had net compensation less than or equal to the $51,916.27. 50 percent of wage earners had net compensation less than or equal to the median wage, which is estimated to be $34,248.45 for 2019. However, the real estate tax deduction and incentives have lured Americans to over invest in housing leaving them cash poor as large portions of their net worth is tied up in home leaving little to support children’s education and retirement savings. The real estate industry has enjoyed the most lucrative tax breaks for decades enticing Americans to overindulge in home ownership leaving them financially vulnerable in their retirement. 3 in 10 Americans haven’t recovered from 2008 housing bust. The current boom in the housing is definitely a precursor to the future bust!
There’s an art and a science to investing. Part of good investing is just arbitraging other peoples’ future behaviors, and those people-all people-make decisions with some facts and some dopamine. Figuring out what’s likely to happen next, to the extent it can be done, is the intersection of, “X is factually true, but people pay more attention to Y and respond by doing Z.” It’s a mix of the science of finance (earnings, discount rates, credit spreads) and the art of how people behave with that science (FOMO, extrapolation, embarrassment, career risk). If you think the world is all art, you’ll miss how much stuff is too complicated to think about intuitively. But if you think the world is all science, you’ll miss how much people like to take shortcuts, believe only what they want to believe, and have to deal with stuff that is too complicated for them to summarize in a statistic. Another way to think about this: Investing is not physics, which is guided by cold, immutable laws. It’s like biology, guided by the messy mutations and accidents of evolution, constantly adapting and sometimes defying logic.
The noted fund manager and author Ralph Wagner once described the relationship between the economy and the stock market thusly. There's an excitable dog on a very long leash in New York City, darting randomly in every direction. The dog's owner is walking from Columbus Circle, through Central Park, to the Metropolitan Museum. At any one moment, there is no predicting which way the pooch will lurch. But in the long run, you know he's heading northeast at an average speed of three miles per hour. What is astonishing is that almost all of the dog watchers, big and small, seem to have their eye on the dog, and not the owner. I use this analogy all the time to help people understand how the economy and stock market play off of each other. One of the hardest things to do as an investor is to entertain two opposing thoughts in our minds at once, and find a way to keep them despite the cognitive dissonance this can produce. One of the most ironic aspects of investing is that the greatest gains lie ahead at times when things are bad, but not quite as bad as everyone suspects, and slowly, almost imperceptibly getting better. This is the moment when assets are selling at discounted values and the opportunities are laying at our feet, there for the taking. Conversely, the worst time to invest is once everyone agrees that the environment is terrific and that the gains will continue as far as the eye can see. It is at this moment we find ourselves paying up for assets and competing with lots of other buyers.

Michael Mauboussin

Some thoughts on recent results in the stock market. If you are an investor (as opposed to a speculator) remember that you are buying partial stakes in businesses. Would you be comfortable owning the business for years to come if there were no stock price?
Being a thoughtful business analyst requires understanding the basic unit of analysis. You want the operations to create value, which means that investments (tangible or intangible) earn a return > the cost of capital. Profits per se are not the key, it's unit economics.
Be mindful to separate fundamentals (how the business is likely to perform) from expectations (what's priced into the stock). This is very hard to do when stocks move up or down a lot in a short period. Assess where expectations are mispriced.
Recognize that lower asset prices, all things being equal, imply higher expected returns. Real yields are up. Important for the marginal dollar to invest.
It's easy to get drawn into focusing intently on macro. And there is no shortage of pundits telling you what will happen next. But there's a large literature that shows that experts are poor predictors. Be macro aware and macro agnostic. Think probabilistically. No one knows.
COVID was an exogenous shock that made it really hard to manage companies and investment portfolios. We are now seeing the impact of management actions during COVID, some of it good and some of it not so good. But the shock was a real management challenge.
Warren Buffett recommends reading 3 chapters on investing, and this is not a bad time to revisit them. Chapter 8 (Mr. Market metaphor) and Chapter 20 (Margin of Safety) in Graham's The Intelligent Investor, and Chapter 20 (Expectations/behavioral) in Keynes's General Theory.
Robert Sapolsky is one of the world's experts on stress. He notes that the stress response is "generally shortsighted, inefficient, and penny-wise and dollar-foolish." Stress shortens your time horizon, which can be deleterious to long-term thinking.

Bill Gurley

All Revenue is Not Created Equal: The Keys to the 10X Revenue Club
Previous "all-time" highs are completely irrelevant. It's not "cheap" because it is down 70%. Forget those prices happened.
Valuation multiples are always a hack proxy. Dangerous to use. If you insist, 10X should be considered AMAZING and an upper limit. Over that silly.
You may be shocked to learn that people want to value your company on FCF and earnings. Facebook trades at 14X GAAP EPS, & is growing 23%. What earnings multiple are you assuming?
Revenue & earnings QUALITY matter.
P/E is still my favorite metric...the only problem is that few growth companies have an "E" that is useful, so you're forced to go up the income statement to find a useful number.
- P/S
- P/GP
- P/EBITDA
- P/EBIT
- P/EBT
- P/E

Stanley Druckenmiller

Earnings don't move the overall market; it's the Federal Reserve Board, focus on the central banks, and focus on the movement of liquidity, most people in the market are looking for earnings and conventional measures. It's liquidity that moves markets.
Druckenmiller's 3 signals:
- Oil
- Dollar
- Interest rates
Oil is up, dollar is up, interest rates are up-this is a recipe for a market disaster. It happened in dot com bubble, happening now (2022).
I wouldn’t short Dogecoin because I don’t like putting campfires out with my face.
There are a lot of bull market geniuses around, it's not that they love the game or love winning, but they were surfing with hurricane behind their back that was giving them nice waves, but they might be discouraged soon. I don't embrace this. It's not going to end well (2022).
No Hedge, only Edge! I don't really like hedging. To me, if something needs to be hedged, you shouldn't have a position in it.
The way to build superior long-term returns is through preservation of capital and home runs... When you have tremendous conviction on a trade, you have to go for the jugular. It takes courage to be a pig.
The best way to understand an industry is to look at every company in it.
We are 6 months into a bear market that has more room to run. It’s highly probable that the bear market has a ways to run.
On Economy:
- Probability of a soft landing are pretty remote, you are going against decades of history.
- Once inflation gets above 5%, it’s never come down without Fed Funds got above the CPI (note: today Fed Funds is 83bps and priced to peak at 3.3% Q2 2023). Don’t think fed funds gets there, but tells you something.
- Once inflation is above 5%, it’s never been tamed without a recession. If you are predicting a soft landing, you are going against decades of history. Could happen, anything is possible, but odds stacked against you.
- Depending on who you listen to, we have $1.5T-$2T of excess savings now, it may take some times to work through those savings, but given the extent of the asset bubble, destruction of markets, what’s going on in Ukraine, China 0 Covid, I don’t take a lot of comfort from that.
- I assume we have a recession in 2023, I just don’t know if it’s in the 1H or 2H, but again this is a guess, not a fact.
On inflation:
- Fed says food and energy inflation don’t count since they aren’t core. Well go tell that to a labor union. You think the labor union won’t negotiate higher wages (which in turn drive further inflation)?
- Every deflation has followed an asset bubble bursting. Since the Fed has created an asset bubble, even with a lot of air let out, it’s so big, have to be open minded to the consequences.
On positioning:
- Was net short equities until 2-3 weeks ago. My anticipation is I will be going back to the short equity position if the market affords me. If not, I will just sidestep a decline, not the worst thing in the world.
- A lot of very good companies have derated 60-70% without a whole lot of change in fundamentals. Not yet ready to buy though, I’m too bearish on the world to go there yet. Some of these may be too cheap to be my shorts anymore though.
- I’ve lived through so many bears markets where if you get aggressive on the short side, you can get your head ripped off on rallies.
- If market rallies 15-20% from here, I will take a short equities because 6 month bear markets preceded by asset bubbles don’t exist, and I still think we have a lot of wood to chop.
- My go to recession hedge (long treasuries) is more complicated because inflation is 8% (bonds don’t do as well in a high inflationary environment).
- Things are a lot harder now. We are now getting definitive signals that the economy is weakening, particularly at the front end. While I’m not comfortable owning bonds, I’m much less comfortable being short fixed income vs. 3-6 months ago when it looked like a much better risk reward.
- If you think we will have irresponsible monetary policy with too high inflation going forward, if it’s in a bull phase you want to own bitcoin, but if it’s in a bear phase, you want to own gold.
- In a bear market stagflation type of thing, I would want to own gold.
On process:
- Best economist is inside of the stock market (cyclicals vs. defensives), it’s allowed us to outperform Fed economic forecasts for 20-30 years. Second best economist is the bond market, though this has been distorted by QE last 10 years.
- Stocks tend to lead the fundamentals by somewhere between 6-12 months, and certain industries tend to lead the economy. The obvious one everyone knows about is housing. Housing is traditionally looked as a leading indicator. Retail has a slight lead, capital goods has a lag.
- Today homebuilders are down 50% despite supposedly good fundamentals, trucking down 40% despite record earnings, retailers down – there are signs that there is economic trouble ahead.
On stocks:
- Last 1 year was one of best short selling period. There was never more obvious over-earners, particularly in brick & mortar retail. You see companies that don’t grow for 15 years, and then all of a sudden stocks have quadrupled. It didn’t take a rocket science to figure out 2-3 years from now people will start traveling again, companies will overspend, all the stuff that typically happens.
- Today’s over-earners are the shipping companies that have massive margins. Can envision a world where world trade isn’t booming in 2 years.
On energy/energy stocks:
- Still there, very nervous, no longer a unique thesis.
- Reason we are still there is we think this thing is more sustainable because of ESG and that doesn’t seem priced into stocks. But not a classic play because it is widely recognized. But we don’t sell things just because it is widely recognized, still cheap, I don’t care about pain trades.
- The risk is if you get a worldwide recession. We are looking for demand destruction in energy, but don’t yet see it.
45 years as a CIO, I’ve never seen such a constellation where there is no historic analogue. Right now I have more humility in terms of my views going forward than maybe ever. Very important to be open minded – the ending is not predictable. 2008 was a no brainer. This isn’t.
Will be surprised if I’m not short the dollar in the next 6 months as $14T has come into the US as we were the first to tighten and a story of American exceptionalism
Best advice from my mentor: he made me focus on what moves the stock price. You can’t just say Stan this is a great company, tell me how people will think differently in 18-24 months from what they think now. Do not invest in the present. The present does not move stock prices, change does.

Charlie Munger

He is a master in decision-making and critical thinking which are critical in investment management business.

Knowing what you don’t know is more useful than being brilliant.
A majority of life’s errors are caused by forgetting what one is really trying to do.
Mimicking the herd invites regression to the mean.
To get what you want, you have to deserve what you want.
The fundamental algorithm of life–repeat what works.
Those who keep learning, will keep rising.
You don’t have to be brilliant, only a little bit wiser than the other guys, on average, for a long time.
The best thing a human being can do is help another human being know more.
We insist on a lot of time being available almost every day to just sit and think.
You must know the big ideas in the big disciplines and use them routinely.

Economic concepts

Economic Concepts	Description
Inflation	Inflation occurs when the quantity of money increases faster than the quantity of goods.
Deficit vs Debt	A deficit occurs when the federal government’s spending exceeds its revenues. Debt is the accumulation of past deficits.
Money & Interest Rates	Money is a tool for exchange of goods and services. Interest rates are the cost of borrowing money.

Inflation

The U.S. budget is at a concerning state as deficits and national debt are out of control. A deficit occurs when the federal government’s spending exceeds its revenues. As of this writing (July 2024), the federal government has spent $1.27 trillion more than it has collected resulting in a deficit. And, as of this writing US has approximately $35 trillion in debt. Majority of the tax revenue is eaten up by the interest payment which is not sustainable.

A deeper investigation is required in understanding how inflation can ruin society.

We all have a personal responsibility to investigate whether it is a political phenomenon, central banking phenomenon, or both? To what extent are interest payments eating up the national income? What major factors are contributing towards inflation? Which political party has caused the most deficit? What major events caused further inflation? What must be done to fix inflation? Why does a government operate this way when no household or a business would operate this way?

To answer these questions, we need to understand the basics and operating model of U.S. finances. Let's review them.

Who can print money? Federal Reserve Board which is the Central Bank of U.S. who has an authority to control money supply and interest rates.

What can they do with money? To purchase financial assets such as bonds.

Why do they do that? To support federal budget and the economic policies for U.S. Government.

The U.S. Government buy goods and services which then puts money in the hands of people. But when the government is in deficit, the U.S. Treasury can create bonds to borrow money which is then purchased by the Central Bank to fund the spending needs of U.S. government.

This is how both institutions work out their monetary (the Central Bank) and fiscal policy (the US government) out. More in detail below.

How does inflation come into picture?

Inflation occurs when the quantity of money increases faster than the quantity of goods.

Why does the money supply (print) increase? It does to enable the government to pay its bills without raising taxes. This causes psychological effect on people making them feel richer while the government debt grows. This is why it is difficult for government to reduce spending and print less money because this can cause recession.

The Central Bank has another tool in its arsenal which is managing interest rates to control the cost of money. The Central Bank can increase interest rates when the demand is high and reduce interest rates when the demand is low. This in turn would control prices and production of goods and services. If people feel the burden of prices they would consider reducing their spending which will result in less demand for goods and services.

The US government continues to finance its deficits by inflation which causes great prosperity for acting government but a great distress on its people. Inflation is a tax on its people. The purchasing power of each dollar will always be eaten up by inflation. No matter what the cause of inflation, it is not good for its people.

A deeper dive is required to understand the entire phenomenon. We'll review different types of cycles, policies, and how inflation has trended over time under each presidency.

Rather go to bed without dinner than to rise in debt. - Benjamin Franklin

The necessity for borrowing in particular emergencies cannot be doubted, so on the other, it is equally evident that, to be able to borrow upon good terms, it is essential that the credit of the nation should be well established. - Alexander Hamilton, 1st U.S. Treasury Secretary

Debt defines your future, and when your future is defined, hope begins to die.’ ... I’m not an anti-debt zealot. There’s a time and place, and used responsibly it’s a wonderful tool. But once you view debt as narrowing what you can endure in a volatile world, you start to see it as a constraint on the asset that matters most: having options and flexibility. - Kent Nerburn

As debt increases, you narrow the range of outcomes you can endure in life. - Morgan Housel

This is a great trap of the twentieth century: on one side is the logic of the market, where we like to imagine we all start out as individuals who don't owe each other anything. On the other is the logic of the state, where we all begin with a debt we can never truly pay. We are constantly told that they are opposites, and that between them they contain the only real human possibilities. But it's a false dichotomy. States created markets. Markets require states. Neither could continue without the other, at least, in anything like the forms we would recognize today. - David Graeber

Deficit vs Debt

The terms deficit and debt are frequently used when discussing the nation’s finances and are often confused with one another.

The national debt is the amount of money the federal government has borrowed to cover the outstanding balance of expenses incurred over time. In a given fiscal year (FY), when spending (ex. money for roadways) exceeds revenue (ex. money from federal income tax), a budget deficit results.

To pay for a deficit, the federal government borrows money by selling Treasury bonds, bills, and other securities. The national debt is the accumulation of this borrowing along with interest owed to the investors who purchased these securities.

The debt ceiling, or debt limit, is a restriction imposed by Congress on the amount of outstanding national debt that the federal government can have. The debt ceiling is the amount that the Treasury can borrow to pay the bills that have become due and pay for future investments. Once the debt ceiling is reached, the federal government cannot increase the amount of outstanding debt, losing the ability to pay bills and fund programs and services. However, the Treasury can use extraordinary measures authorized by Congress to temporarily suspend certain inter governmental debt allowing it to borrow to fund programs or services for a limited amount of time after it has reached the ceiling.

Since the United States has never defaulted on its obligations, the scope of the negative consequence related to a default are unknown but would likely have catastrophic consequences in the United States and all around the world.

Cycles

Economy goes through cycles. The deflationary cycle needs to be balanced with the inflationary cycle in order to maintain economic and social stability.

I. Inflationary cycle

When prices rise, we call this inflation.

As economic activity increases, we see an expansion cycle. Spending continues to increase and prices of goods and services start to rise. Prices rise when the amount of spending grow faster than the production of goods. Increase in spending can be fueled by credit which is created out of thin air (for example, in 2007 anyone could afford more than 1 house without enough income because banks lent too much money).

Increase in price causes a wealth gap making affordability a challenge for middle and lower class. People start working multiple jobs to meet their basic needs. They lose trust in acting government. Society runs into all sorts of crisis.

II. Deflationary cycle

The opposite is deflation. It occurs when prices fall.

If economic activity is decreasing rapidly, inflation is no longer a threat. Deflation can happen due to several reasons-exports (for example, goods from China), innovation (for example, computer prices overtime), lower wages or credit crunch (for example, the Great Recession of 2008 from mortgage lending).

Manufacturers slow down production. Lower production means unemployment. As prices fall and jobs are lost, people put off purchases. The stock market crashes. As economic crisis loom, government lose tax revenue.

A severe decrease in economic activity for a few or several consecutive quarters will cause a recession or a depression. For example, deflation helped turn the 1929 recession into the Great Depression.

Money & Interest Rates

Now we understand the cycles, let's review the purpose of money in brief as it drives both monetary and fiscal policies.

Money fulfills three important functions:

It acts as a medium of exchange.
It provides individuals with a way of storing wealth.
It provides society with a convenient unit of account.

The amount of wealth that the citizens of an economy choose to hold in the form of money as opposed to bonds or equities is known as the demand for money.

There are 3 basic motives for holding money-daily transactions, savings, and investing (speculation).

Through the Central Bank of Federal Reserve, the banking system creates reserves and money supply in an economy.

Policies

Government policies are responsible for spending behavior.

Government policy is expressed through its borrowing and spending activities. The two types of government policy that contributes towards economy activity are-fiscal policy and monetary policy.

The primary goal of both monetary and fiscal policy is the creation of a well-balanced economic environment where growth is stable and positive and inflation is stable and low. Both are used to regulate economic activity over time.

Both sets of policies are not interchangeable. They need to work together to meet their policy objectives.

I. Fiscal policy

Fiscal policy refers to the government’s decisions about taxation and spending to influence the economy. Fiscal policy drives the federal budget. The U.S. government consider its current economic cycle its in to drive spending and full employment.

The government has two tools while implementing fiscal policy. The first is collecting taxes on businesses, personal income, capital gains, property and sales transactions. This provides revenue for the government. The second is government spending which includes welfare programs, military spending, infrastructure programs, government jobs and other public projects. This puts money back into the economy which increases demand for goods and services while supporting employment.

Until the Great Depression of 1929, U.S. has followed the laissez-faire economic policies which is to not interfere with in a free market economy. Franklin D. Roosevelt (FDR) changed that by promising a New Deal to end the Great Depression. Roosevelt implemented expansionary fiscal policies by allocating government spending on infrastructure projects such as roads, bridges, and dams. The federal government hired millions of workers for these projects which put money back into the economy. In 1934 the economy grew by 10.8% which is shortly after the Great Depression of 1929.

There have been several laws passed since then to support the economic growth by cutting taxes or increasing spending to stimulate economy. Most recently, the CARES (Coronavirus Aid, Relief, and Economic Security) Act to provide emergency funding for small businesses and workers impacted by the COVID-19 pandemic.

Not so much of laissez-faire economic policies as U.S. government has played an active role in stimulating the economy. And, rightfully so as the government's primary responsibility is to maintain order in its society.

Every year the President of the United States kicks off the budgetary process, but Congress has the authority to approve the government spending. Revenue is generated by personal and corporate taxes paid each year. If the spending outpaces revenues, a budget deficit is created and added to the national debt. As of this writing US has approximately $35 trillion in debt.

II. Monetary policy

Monetary policy is set by Federal Reserve Bank. The Federal Reserve System is the central banking system of the United States of America.

The Board of Governors of the Federal Reserve System is responsible for setting up the monetary policies. One of the biggest parts of monetary policy is interest rates controlled by the Federal Reserve.

The primary objective of monetary policy is to control inflation to stabilize prices. The secondary objective is to stimulate the economy. Additionally, it is charged with the smooth functioning of the banking system. They are the lender of last resort to the banking center and the government. Hence, the Fed chair (currently Jerome Powell) is called the most powerful person on the planet.

To objectively implement monetary policy, the Central Bank should maintain a degree of independence from government. Furthermore, it needs to be credible and transparent in its goals and objectives.

The Central Bank doesn't want too much inflation because it causes problems. It raises interest rates when prices rise. With higher interest rates, fewer people can afford to borrow money. And the cost of debts rises.

Interest rates

The Central Bank sets federal funds rate to control inflation, money supply and use of credit. The banking system is guided by the Federal Reserve Chair.

The federal funds rate is the target interest rate range set by Federal Open Market Committee (FOMC) which commercial banks borrow and lend their excess reserves. Commercial banks cannot lend their entire reserve as there are regulatory requirements on minimum reserves.

When the economy slows down, the Fed has a tendency to cut rates as a way to make it more enticing to borrow money or invest. Businesses are encouraged to add jobs or invest more, and individuals may spend more or even borrow more money. Those things can spur economic growth. The downside is when the rate is too low, economic expansion can grow too quickly, causing inflation. This is when the Fed will raise rates to force you to not spend as freely, thus slowing down the rapid growth.

The fed rates also determine the interest rates of U.S. public debt. Just like with any personal loan, the lower the interest rate, the less the payment on the debt is. Lower interest rates mean lower debt service. The debt is basically an accumulation of budget deficits. That debt is currently around $35 trillion. Lower interest rate can reduce the interest payments for the U.S. government.

Additionally, interest rates influence purchasing power. As we know by now that interest rate is the cost of borrowing or return from lending. As the economy grows with inflation, the purchasing power of each dollar declines over time. This is the underlying principle of time value of money. You should always ask-how much of the interest’s purchasing power might be lost to inflation when investing or lending? If a bank charges 5% on a loan but does not consider inflation premium, the real return on the loan will be a lot less.

Lenders and investors can estimate the real rate of return by comparing the difference between a Treasury bond yield and a Treasury Inflation-Protected Securities (TIPS). Another way to determine inflation rate is by analyzing trend in Consumer Price Index (CPI), which measures the average change in prices paid for goods and services. This allows Fed to assess if there is an asset bubble. The CPI includes speculative things like commodities and food prices so the Federal Reserve uses a core inflation rate to measure it.

Money supply

Another tool on hand is quantitative easing (QE). It is a type of monetary policy by which the Central Bank tries to increase the liquidity in its financial system by purchasing long-term government bonds from that nation's largest banks and stimulating economic growth by encouraging banks to lend or invest more freely.

This needs to be deployed cautiously as it can have ripple effect on inflation due to increase supply of money in economic system. Most recently, inflation caused during the COVID-19 pandemic.

The central bank prints new money out of thin air to buy financial assets and government bonds. It happened in the United States during the Great Depression, the Great Recession of 2008, and again during the COVID-19 pandemic when the United States' central bank-the Federal Reserve-printed trillion of dollars to fix credit crunch. The central bank can print money, but it can only buy financial assets.

Can printing money cause inflation to rise? It won't if it offsets credit. Remember, spending is what matters. It doesn't matter whether you spend with credit or your money. Remember, inflation occurs when the quantity of money increases faster than the quantity of goods. By printing money, the Central Bank can make up for the disappearance of credit with an increase in the amount of money.

But money supply alone won't fix it. Income needs to grow faster than the debt growth to offset the balance and enter the surplus territory. If monthly income is $90.00, but the monthly debt is growing at $100.00, you are constantly running into deficit. Deficit is manageable if GDP is growing on a faster pace. If the debt-to-GDP ratio exceeds for an extended period of time, the deficit will begin to drag the economy down.

If income begin to rise, borrowers begin to appear more creditworthy. When borrowers appear more creditworthy, lenders begin to lend money again. Debt burden begins to fall. The economy begins to grow again, getting the economy back to the right trajectory of the long term debt cycle.

This is why balancing growth rate and interest rate is critical for policymakers.

The Elements of Style by William Strunk Jr. and E.B. White

Tue, 01 Nov 2022 00:00:00 GMT

I. Brief Summary

An essential manual which offers practical advice on improving writing skills and writing style. The Elements of Style is short, precise, and to the point-keeping it with the rules of brevity and clarity it promotes. According to Strunk, students learn better through their own work and tailored instruction, as opposed to wading through large textbooks.

II. Big Ideas

A sentence should contain no unnecessary words, a paragraph no unnecessary sentences, for the same reason that a drawing should have no unnecessary lines and a machine no unnecessary parts.
Use the active voice where possible.
- Instead of: The cat was chased by the dog. (passive)
- Write: The dog chased the cat. (active)
Write statements in the positive form.
- Instead of: He was not telling the truth.
- Write: He was lying.
Avoid modals of uncertainty
- Instead of: Proper dieting and exercise could help you lose weight.
- Write: Proper dieting and exercise will help you lose weight.
Avoid overstating your argument.
- Instead of: I’m completely certain that the current economic climate is definitely going to lead to a recession.
- Write: Evidence shows that the current economic climate will likely lead to a recession, as evident in the fact that…
Place the key point at the end.
- Instead of: He would never forgive such betrayal.
- Write: Such betrayal he would never forgive.
Create an outline and stick to it.
- Everything that needs to be said must be said.
- Each part of the text should serve a purpose.
- The structure of the text should be logical.
Use the paragraph as the basic unit of composition.
Use transitions to connect different parts of the text. These transitions include, for example, the following:
- Sequence words: first, second, next, finally.
- Examples: for example, for instance, such as, specifically, namely.
- Additional evidence: furthermore, in addition, moreover, additionally.
- Summary: in conclusion, in summary, overall.
The order of the text should reflect the order of the actions.
- Instead of: I incubated the samples at room temperature, after I centrifuged them for 10 minutes.
- Write: I centrifuged the samples for 10 minutes, and then incubated them at room temperature.
Keep related words together and unrelated words apart.
- Instead of: John came over while I was working on my proposal with a box of pizza.
- Write: John came over with a box of pizza while I was working on my proposal.
Split long sentences.
Use definite language.
- Instead of: I like dogs more than most people.
- Write: I like dogs more than I like most people.
In dialogue, ensure that the reader knows who is speaking.
Maintain consistency in verb tenses.
- Instead of: During each session, we observed the fluid levels, and record them in the lab journal.
- Write: During each session, we observed the fluid levels, and recorded them in the lab journal.
Convey connected ideas using a similar form.
- nstead of: Richard’s favorite food was pizza, and he liked to drink soda, while Karen’s favorite drinkwas lemonade, and her favorite food was stir-fry.
- Write: Richard’s favorite food was pizza, and he liked to drink soda, while Karen’s favorite food was stir-fry, and she liked to drink lemonade.
Omit unnecessary text.
Avoid repetition.
Avoid the use of qualifiers-very, really, etc.
Use the active voice and positive form.
Revise and rewrite.
Conciseness must not come at the cost of clarity.
Be cautious in the use of idioms and slang.
Use figures of speech sparingly.
Avoid “fancy” vocabulary.
Avoid using foreign-language terms.
Be sparing in your use of adverbs.
Avoid repeating the same sentence structure.

III. Quotes

Vigorous writing is concise. A sentence should contain no unnecessary words, a paragraph no unnecessary sentences, for the same reason that a drawing should have no unnecessary lines and a machine no unnecessary parts. This requires not that the writer make all his sentences short, or that he avoid all detail and treat his subjects only in outline, but that every word tell.
To achieve style, begin by affecting none.
The mind travels faster than the pen; consequently, writing becomes a question of learning to make occasional wing shots, bringing down the bird of thought as it flashes by. A writer is a gunner, sometimes waiting in the blind for something to come in, sometimes roaming the countryside hoping to scare something up.
If you don't know how to pronounce a word, say it loud...Why compound ignorance with inaudibility?
When a sentence is made stronger, it usually becomes shorter. Thus, brevity is a by-product of vigor.
Never call a stomach a tummy without good reason.
A single overstatement, wherever or however it occurs, diminishes the whole, and a carefree superlative has the power to destroy, for the reader, the object of the writer's enthusiasm.
Consciously or unconsciously, the reader is dissatisfied with being told only what is not; the reader wishes to be told what is... If your every sentence admits a doubt, your writing will lack authority.
It is an old observation that the best writers sometimes disregard the rules of rhetoric. When they do so, however, the reader will usually find in the sentence some compensating merit, attained at the cost of the violation. Unless he is certain of doing as well, he will probably do best to follow the rules. After he has learned, by their guidance, to write plain English adequate for everyday uses, let him look, for the secrets of style, to the study of the masters of literature.
Make the paragraph the unit of composition: one paragraph to each topic.
A sentence should contain no unnecessary words, a paragraph no unnecessary sentences, for the same reason that a drawing should have no unnecessary lines and a machine no unnecessary parts.
A careful and honest writer does not need to worry about style. As you become proficient in the use of language, your style will emerge, because you yourself will emerge, and when this happens you will find it increasingly easy to breakthrough the barriers that separate you from other minds, other hearts - which is, of course, the purpose of writing, as well as its principal reward.

Boyd by Robert Coram

Tue, 25 Oct 2022 00:00:00 GMT

I. Brief Summary

John Boyd was a pilot fighter who codified the art of aerial attack and created the concept of energy maneuverability. He was a thinking fighter pilot. Boyd had an outsized effect on military tactics and equipment design throughout all branches of the military by challenging old paradigms.

I. Big Ideas

There is some tragedy in in Boyd’s life. He came from a family of 5 children. They were not poor when he was born in 1927, in Erie, Pennsylvania. Sadly, Boyd’s father passed away early and that left them in serious trouble and poverty.
What never changed was his late-night or even early-morning (for him, very late night) phone calls. He had an idea, a “breakthrough” and he called his “Acolytes”, his faithful followers-no matter when. Probably he didn’t even realize it was 1 AM or even 4 AM. Or he just didn’t care. These late-night phone calls were often not discussions, but monologues. He shared his thoughts, he listened to himself and then he found the missing points and went on working. Essentially he used the others to brainstorm his ideas and discover shortcomings in his solutions.
The OODA loop (Boyd Cycle):
- Observe
- Orient
- Decide
- Act
Boyd applied the concept to the combat operations process, often at the operational level during military campaigns. It is now also often applied to understand commercial operations and learning processes. The approach explains how agility can overcome raw power in dealing with human opponents. The technique is now also widely used in the business world and technology teams (scrum teams).
Whoever can handle the quickest rate of change is the one who survives.
Knowing your most important goal at a time and concentrate your resources on that can make the difference between average and success.
Boyd kept telling his associates that one has to choose between being someone and doing something. It was his famous “to be or to do” speech. He never became a general, but his results, his legacy are still with us, not even in the military but in the business world too. He decided “to do.”
Boyd, borrowing from Sun Tzu, said the best commander is the one who wins while avoiding battle. The intent is to shatter cohesion, produce paralysis, and bring about collapse of the adversary by generating confusion, disorder, panic, and chaos.
Boyd, like Sun Tzu and Napoléon, believed in attacking with “moral conflict”-using actions that increase menace, uncertainty, and mistrust in the enemy while increasing initiative, adaptability, and harmony within friendly forces.

III. Quotes

If you want to understand something, take it to the extremes or examine its opposites.
If our mental processes become focused on our internal dogmas and isolated from the unfolding, constantly dynamic outside world, we experience mismatches between our mental images and reality. Then confusion and disorder and uncertainty not only result but continue to increase. Ultimately, as disorder increases, chaos can result. Boyd showed why this is a natural process and why the only alternative is to do a destructive deduction and rebuild one’s mental image to correspond to the new reality.
If a man can reduce his needs to zero, he is truly free: there is nothing that can be taken from him and nothing anyone can do to hurt him.
Boyd dove deeper and deeper into the study of war. He realized that while wars take place between nations, every person experiences some form of war; conflict is a fundamental part of human nature. To prevail in personal and business relations, and especially war, we must understand what takes place in a person’s mind.
Judge people by what they do and not what they say they will do.
Thinking about operating at a quicker tempo - not just moving faster - than the adversary was a new concept in waging war. Generating a rapidly changing environment - that is, engaging in activity that is quick it is disorienting and appears uncertain or ambiguous to the enemy - inhibits the adversary's ability to adapt and causes confusion and disorder that, in turn, causes an adversary to overreact or underreact. Boyd closed the briefing by saying the message is that whoever can handle the quickest rate of change is the one who survives.
Often, when a man is young and idealistic, he believes that if he works hard and does the right thing, success will follow.
The OODA Loop is often seen as a simple one-dimensional cycle, where one observes what the enemy is doing, becomes oriented to the enemy action, makes a decision, and then takes an action. This “dumbing down” of a highly complex concept is especially prevalent in the military, where only the explicit part of the Loop is understood. The military believes speed is the most important element of the cycle, that whoever can go through the cycle the fastest will prevail. It is true that speed is crucial, but not the speed of simply cycling through the Loop. By simplifying the cycle in this way, the military can make computer models. But computer models do not take into account the single most important part of the cycle-the orientation phase, especially the implicit part of the orientation phase.
Here Boyd says that to shape the environment, one must manifest four qualities: variety, rapidity, harmony, and initiative. A commander must have a series of responses that can be applied rapidly; he must harmonize his efforts and never be passive. To understand the briefing, one must keep these four qualities in mind.
Generating a rapidly changing environment - that is, engaging in actively that is so quick it is disorienting and appears uncertain or ambiguous to the enemy - inhibits the adversary's ability to adapt and causes confusion and disorder that, in turn, causes an adversary to overreact or underreact. Boyd closed the briefing by saying the message is that whoever can handle the quickest rate of change is the one who survives.

Elements Of Design by Gail Greet Hannah

Thu, 20 Oct 2022 00:00:00 GMT

I. Brief Summary

Rowena Reed Kostellow taught industrial design at Pratt Institute for more than fifty years. She deeply studied and analyzed abstract visual relationships between volumes in 3D space. For her form truly mattered. She calls out learning institutions that don't do enough on dedicating to developing an eye and hand for form, but over-indexing on learning tools. She had a huge influence on her students. This book is a tribute by her students so is filled with reflections on learning memories from her. This book taught me to see shapes and its relationship to its environment (space) more broadly.

II. Big Ideas

With the development of advanced mass production in the early 20th century the need for industrial design education became apparent.
Theory:
- Miss Reed believed any serious students can be taught how to make good forms.
- Subjective vs Objective feedback:
  - By reducing the basics to objective principals, critiques are about making the elements “work,” not about what they “say.” Personal value judgements about what the content “feels like,” are reserved for other discussions, thus separating subjective or political arguments from objective critique about developing the form. The goal is to teach designers to take advantage of the way people “read” objects.
- Most people have an easier time reading the symbolic signs and literal messages but don’t consciously see the abstract relationships of forms, colors, and textures–the media and structure of the communication–that carry the meaning and convey real sensual feelings.
- The founders of America’s design education said Industrial design is concerned with 3 things: form, function, and production. They understood that the 3 were interdependent. They believed that they could be more detached and scientific about design, instead of invoking traditional rules or personal taste. Visual experience could be analyzed through seeing abstract relationships. In one of her classes, Miss Reed spoke about how “the abstract relationships express the relation of the parts to the whole apart from any concrete or material embodiment. They reflect the direct visual experience of the thing, how forms and spaces and movements “speak” to one another.”
- Learning the exercises is like practicing scales on the piano; it helps you express yourself better. Although they made many
connections to music, they acknowledge that most of a human beings sense of their environment is through sight. Miss Reed said it is “the designer’s first responsibility–to find and develop the visual solutions for living in our environment.” - Learning how to see and manipulate abstract forms can be applied to any design situation. She said, “The goal was to supply students not with disjointed bits of information but rather with an organized approach to the mechanics of design and the necessary inner discipline to carry out assigned problems.... to develop an understanding of the elements of design, of structure, of the organizational forces which control them, and an ability to apply this knowledge to a variety of situations in designing for self-expression or for industry.” Graphics, product design, furniture, interior design, exhibition, architecture, planning and even fashion designers could benefit from the program.
Program:
- Part 1: Foundation
  - Exercises:
    - Problem 1: Rectilinear volumes
    - Problem 2: Curvilinear volumes
    - Problem 3 Rectilinear and Curvilinear
    - Problem 4: Composition of Fragments
    - Problem 5: Planar Construction
    - Problem 6: Lines in Space
  - Beginning on the first day of school, students work with the simplest forms arranging three gray plastilene clay rectangular forms in space, then they use curved volumes, move on to mixing up curved and rectilinear, rearrange fragments of plutonic forms, build spaces from curved planes, and finally exercises with curved lines in space.
  - There are only a couple of rules. Symmetry should be avoided in the exercises because the solutions are too easy. Good 3-D design objects “read” equally from every angle. Compositions are based on organizing 3 relationships between the DOMINANT, SUBDOMINANT, and SUBORDINATE parts. Students learn to see the implied axis of forms and to work the relationships.
- Part 2: Advanced Studies in Form
  - Exercises:
    - Problem 1: Construction
    - Problem 2: Convexity
    - Problem 3: Concavity
  - Later in the second year, students construct compositions from planes, carve concave shapes, and build convex forms. Projects begin as 3-D sketches made from cardboard or clay, but may be transformed and scaled into small sculptural projects carved from salt blocks (from agriculture suppliers) or cast in plaster or fabricated from lead or plastic.
  - Advanced studies in form starts with basic exercises to combine primitive shapes into three-dimensional designs, which slowly build up into more complex tasks.
- Part 3: Studies in Space
  - Exercises:
    - Problem 1: Abstract Analysis
    - Problem 2: Space Design
  - The maturing student has gained the skills to address abstract analysis of complex relationships and space design, first arranging plans inside foamcore boxes to activate the space in the box. The in the second problem, they design more evocative spaces and places. Although some students push these exercises toward more functional objects, the goal is to excise their eyes and their hands with abstract vision. By expanding their talent and creativity, when they are confronted by real problems and practical restrictions, they step back, analyze the situation and create beautiful and powerful 3-D visual relationships.
  - For a balanced relationship, volumes have to complete each other. And while small forms come together with more dramatic larger shapes, each of them has its weight and is important.
- Part 4: Development
  - Now problems begin to mix in practical conditions with abstract form studies. Students learn to apply expressive skills to real world needs–like ergonomic or production requirements–without having the restraints dominate decisions and the creative process (they do that in other classes). They make models from appropriate materials and colors. Problems can become student’s senior thesis projects. The resulting libraries, music shops, radios, power tools, vehicles, and sanctuaries are always less than practical but very beautiful!

III. Quotes

Pure, unadulterated beauty should be the goal of civilization!
Industrial design is about exactly what is there. The forms of industrial design are direct support for experience: they shape the conduct of our days: they structure the experience of being alive now.
Our goal is the training of a designer so familiar with the principles of abstraction that he automatically thinks of a visual problem in terms of organized relationships and then feels free to study other aspects of the problem, or to confer with specialists in related fields. He is a designer who can, visually, cross boundaries and suggest new forms for new materials or new techniques.
Miss Reed always told us that “Unity is the visual glue that holds everything together. You know that you have achieved it when all the visual relationships within the design are organized in such exquisite dependent relationship that every element supports and strengthens every other and any minor change would upset the perfect balance and tension.
She had a gift for friendship and nurtured long-term, personal relationships with many of her former students. They phoned at all hours, and came and went from her apartment, driving her to and from Pratt, taking her to lunch and dinner. They escorted her on her travels and slept on her couch when they came to town. They ran errands, helped her sort through piles of papers and slides, and brought her out to the country for weekends after she gave up her own country home.
Teaching is a marvelous adventure-like having a huge laboratory in which to carry out experiments.
Of course, a product is no good to anyone unless the function is properly worked out. The object should express what it is very directly, but it is possible for a design to express what it is and also be a beautiful object in its own right. We introduce the student to an ordered sequence of purely visual experiences by which an artist may develop his understanding and his recognition of the abstract elements in any design situation. Our goal is the training of a designer so familiar with the principles of abstraction that he automatically thinks of a visual problem in terms of organized relationships and then feels free to study other aspects of the problem or to confer with specialists in related fields. He is a designer who can visually cross boundaries and suggest new forms for new materials or new techniques.
Like a piano teacher, she made you do the exercises over and over so many times that you lost all your tricks. - Tucker Viemeister

Geometry Of Design by Kimberly Elam

Sat, 15 Oct 2022 00:00:00 GMT

I. Brief Summary

A visual analysis of how design works based on mathematical foundations- golden section, root rectangles, ratios, proportions and Fibonacci Series. Kimberly takes her readers on geometrical journey by exploring visual relationships such as proportions and compositions. A short little book on how design process encompasses these geometric systems.

II. Big Ideas

It has technical information such as all the diagrams of golden rectangles, circles, and then there are the ratios and analysis of artworks, and even furniture and architecture and other things.
The numbers 8 and 13 as found in the pine cone spiral and 21 and 34 as found in the sunflower spiral are very familiar to mathematicians. They are adjacent pairs in the mathematical sequence called the Fibonacci sequence. Each number in the sequence is determined by adding together the previous two: 0, 1, 1, 2, 3, 5, 8, 13, 21, 34, 55....The ratio of adjacent numbers in the sequence progressively approaches golden section proportions of 1:1.618.
- Many fish also show relationships with the golden section. And so does human body and old architectural buildings including Cathedral churches.
The golden section rectangle is a ratio of the Divine Proportion. The Divine Proportion is derived from the division of a line segment into two segments such that the ratio of the whole segment, AB, to the longer part, AC, is the same as the ratio of the longer part, AC, to the shorter part, CB. This gives a ratio of approximately 1.61803 to 1.
The special proportioning properties of the golden section have a close relationship to a sequence of numbers called the Fibonacci sequence, named for Leonardo of Pisa who introduced it to Europe about eight hundred years ago along with the decimal system. This sequence of numbers, 1, 1, 2, 3, 5, 8, 13, 21, 34... is calculated by adding the two previous numbers to produce the third.

III. Quotes

The purpose of Geometry of Design is not to quantify aesthetics through geometry but rather to reveal visual relationships that have foundations in the essential qualities of life such as proportion and growth patterns as well as mathematics. Its purpose is to lend insight into the design process and give visual coherence to design through visual structure. It is through this insight that the artist or designer may find worth and value for themselves and their own work.
The power of the golden section to create harmony arises from its unique capacity to unite different parts of a whole so that each preserves its own identity, and yet blends into the greater pattern of a single whole. - Doczi
Le Corbusier's revelation is one that is of value for all artists, designers, and architects. The understanding of the underlying organizational principles of geometry brings to a creative work a sense of compositional cohesiveness, whereby each element of the work has a visual sense of belonging. By revealing some of the geometry, systems, and proportions it is possible to understand better the intent and reasoning of a number of designers and architects. It gives insight into the process of realization and a rational explanation for many decisions, whether the use of organizational geometry is intuitive or deliberate, rigidly applied or casually considered.

Design Of Everyday Things by Donald A. Norman

Fri, 07 Oct 2022 00:00:00 GMT

I. Brief Summary

This is a must-read for problem solvers and anyone who wants to design products that are both environmental and human friendly. Design is misunderstood for beautifying products, but Donald Norman makes a case for Human Centered Design and describes how designers should operate and think. Design is how humans experience and interact with everyday products. Good design also takes human psychology and habits into consideration. Norman provides lots of everyday examples, such as doors and switches which are difficult to operate. Norman goes through human-centered design and design thinking, going into specific techniques like idea convergence and divergence. I loved this book and plan on coming to this several times.

II. Big Ideas

Principles of design:
- Use both knowledge in the world and knowledge in the head.
- Simplify the structure of tasks.
- Make things visible: bridge gulfs between Execution and Evaluation.
- Get the mappings right.
- Exploit the power of constraints.
- Design for error.
- When all else fails, standardize.
Major design fields:
- Industrial design: Creation, development and specification of products and systems for the benefit of user and manufacturer.
- Interaction design: Focus on how people interact with technology. “Enhance people’s understanding of what can be done, what is happening, and what has just occurred.”
- Experience design: Designing products, processes, services, events and environments with a focus on quality and enjoyment of the experience.
Human-centered design (HCD): “The process that ensures that the designs match the needs and capabilities of the people for whom they are intended.”
- This approach is complementary to the industrial, interaction and experience design fields.
- HCD is a philosophy.
Experience: The quality of a user-interaction.
- The result can run the spectrum from enjoyably productive to failed outcomes that are frustrating and confusing.
- Cognition and emotion are strongly intertwined.
Terminologies described by Norman:
- Affordance: Affordances describe the relationship between a person and an object. They signal to the person exactly how the object might be used. Affordances describe RELATIONSHIPS, not a property. They determine what actions are possible.
- Signifier: Signifiers communicate HOW something should be used; e.g. the purpose/structure/operation of something. Norman makes the point that designers should focus on signifiers, but be aware of affordances.
Mapping: Mapping describes the relationship between a control and its results. The best mappings are intuitive.
- Conceptual Models: We all know what conceptual models are. Good ones are derived from affordances and signifiers and allow us to predict the effect of our actions. They give us mental models for how we can think about using a product.
  - Conceptual models are explanations, often simplified, of how something works. Example: The computer “desktop” with its attendant files, folders and icons helps users create a conceptual model of documents within the computer.
  - A good conceptual model allows us to predict the effects of our actions.
  - Mental models are the conceptual models in the end-users mind that represent their understanding of how things work. A person may have multiple, often conflicting, models for the same item.
  - The major clues for how tings work comes from the signifiers, affordances, constraints and mappings for the thing.
  - Poorly presented conceptual models (or incorrect ones) can create end-user frustration. Example: Digital wristwatches with small buttons that must be used individually or in combination to set the time and operate other functions.
Two of the most important characteristics of good design are discoverability and understanding.
- Discoverability: Is it possible to figure out what actions are possible?
- Understanding: What does it all mean? How should this device be used? What do the controls and settings mean?
Norman also explores humans emotions, and how we feel when things go right vs. when things go wrong. Big takeaways:
- Root cause analysis: keep asking the user “why?” and don’t assume anything. This will help you get to the bottom of a user’s true pain points, which may be very different from what they might originally say.
- Don’t blame the user for errors.
The Seven Fundamental Questions of Action:
- What do I want to accomplish?
- What are the alternative action sequences?
- What action can I do now?
- How do I do it?
- What happened?
- What does it mean?
- Is this okay? Have I accomplished my goal?
The action cycle (7-stages of action, goal, 3 execution steps, 3 evaluation steps)
- Goal (form the goal)
- Plan (the action)
- Specify (an action sequence)
- Perform (the action sequence)
- Perceive (the state of the world)
- Interpret (the perception)
- Compare (the outcome with the goal)
Types of behaviors:
- Goal-driven behavior: Starts at the top of the action cycle and work down.
- Event-driven behavior or data-driven behavior can start from the bottom, triggered by the environment or world. In this situation, the cycle starts in the evaluation stage first.
Two major classes of memory:
- Short-term memory or working memory (STM)
  - Retains the most recent information being thought about.
  - STM storage capacity is limited.
  - Interruptions and distractions can result in loss of thoughts.
  - Many techniques can aid or prevent STM loss: writing things down, use of mnemonics, use of different modalities (e.g. audio and touch feedback to prevent distracting visual activities).
- Long-term memory (LTM)
  - Memory for the past.
  - LTM storage capacity is massive.
  - Retrieval is the challenge for LTM. “Top of the tongue” phenomenon.
  - Knowledge in the head is actually memory:
    - Memory for arbitrary things.
    - Memory for meaningful things.
Knowledge in our heads vs knowledge in the world:
- Have good, intuitive mappings that make sense.
- Go out and observe how users are actually doing things.
- Don’t let cost be a reason to have a bad user experience (surprisingly common).
- Understanding how people think is key to understanding how people solve their problems, which in turn, is key to understanding how to be a good designer.
Four types of constraints:
- Physical constraints:
  - Physical limitations that constrain the range of operations.
  - Example: A square peg cannot be used with a round hole.
- Cultural constraints:
  - Culturally accepted range of actions for a given situation. Example: Red as a the culturally accepted color for “stop.”
  - Conventions are a kind of cultural constraint. For instance some cultures eat with forks, some with chopsticks and some with their hands.
- Semantic constraints:
  - Rely on the meaning of a situation to control the range of actions.
  - Example: A windshield is meant to block wind from a rider’s face and therefore must be placed in front of the rider.
- Logical constraints:
  - Using reason to determine the range of actions.
  - Example: Two switches to control two lights. Logically the left switch should operate the left light and the right-side switch the right light.
Reduce the amount of learning and change for people. Consistency = key!
Errors shouldn’t ever be blamed on the user. Rather, errors are the result of bad designs. Norman provides some tips on how to design for error, which include:
- Understand the causes of error and design to minimize those causes.
- Do sensibility checks. Does the action pass the “common sense” test?
- Make it possible to reverse actions - to “undo” them - or make it harder to do what cannot be reversed.
- Make it easier for people to discover the errors that do occur, and make them easier to correct.
- Don’t treat the action as an error; rather, try to help the person complete the action properly. Think of the action as an approximation to what is desired.
There are two components of design:
- Solving the right problem
- Meeting human needs and capabilities
The Double-Diamond Model of Design
- Two phases:
  - (1) Find the right problem and
  - (2) Find the right solution.
- In each phase, initial research results in expanded thinking about the underlying issues. Once a wide range of ideas and solutions are explored, only then does the individual converge back upon a single problem or solution.
The Iterative Cycle of Human-Centered Design (sometimes called the “spiral method”)
- Observation: Research to understand the nature of a problem. It requires both design research and market research.
- Idea generation (ideation): Identifying potential solutions for the design requirements posed from the preceding phase (observation).
- Prototyping: Vetting and testing ideas requires a working example or facsimile (no matter how crude or even partially functional).
- Testing: Have a test group that reflects your target audience interact, experience, and use the prototype.
- Iteration: In HCD, iteration is the repetition of observe-generate-prototype-test cycle in order to refine and enhance a product or service.
Two forms of product innovation:
- Incremental innovation: Less glamorous, but more common.
- Radical innovation: More glamorous, but rarely successful. Upends existing paradigms when successful.
Basic competitive dimensions (by real-world importance):
- Price
- Features
- Quality
Featuritis (aka “feature creep”): The phenomenon whereby a successful product keeps adding new features and capabilities to the point that it overcomplicates and obfuscates what was once a simple, elegant, straight-forward solution. Factors that contribute to feature creep:
- Existing customers want more features, functionality and capabilities.
- Competing companies add new features that create pressures to match those offerings.
- Market is saturated or stagnant. Adding new enhancements will boost the upgrade cycle.
Design Research vs Market Research: they are two different endpoints and methods of the query.
- Design wants to know what people really need and how do they use the products or services in reality.
- Marketing wants to work on the analysis of what people will buy, and also build inferences on how does that make their buying decisions.
  - Digital channels: the way in which websites make it possible to observe the behavior of people online. This tends to be focused exclusively on the task of shopping and purchasing, and yields no insight to whether the product is actually valued though this can be inferred from repeat purchases (or lack thereof).
  - In a similar mode, big data is the recent fad in aggregating data from various information systems to form a picture of the user's buying behavior. It's good observation, but limited in its scope, generally to transactions directly between the user and the firm.

III. Quotes

Design is beyond window dressing products.
Design is really an act of communication, which means having a deep understanding of the person with whom the designer is communicating.
Good design is actually a lot harder to notice than poor design, in part because good designs fit our needs so well that the design is invisible, serving us without drawing attention to itself. Bad design, on the other hand, screams out its inadequacies, making itself very noticeable.
Rule of thumb: if you think something is clever and sophisticated beware-it is probably self-indulgence.
The idea that a person is at fault when something goes wrong is deeply entrenched in society. That’s why we blame others and even ourselves. Unfortunately, the idea that a person is at fault is embedded in the legal system. When major accidents occur, official courts of inquiry are set up to assess the blame. More and more often the blame is attributed to “human error.” The person involved can be fined, punished, or fired. Maybe training procedures are revised. The law rests comfortably. But in my experience, human error usually is a result of poor design: it should be called system error. Humans err continually; it is an intrinsic part of our nature. System design should take this into account. Pinning the blame on the person may be a comfortable way to proceed, but why was the system ever designed so that a single act by a single person could cause calamity? Worse, blaming the person without fixing the root, underlying cause does not fix the problem: the same error is likely to be repeated by someone else.
A brilliant solution to the wrong problem can be worse than no solution at all: solve the correct problem.
Cognition attempts to make sense of the world: emotion assigns value.
The problem with the designs of most engineers is that they are too logical. We have to accept human behavior the way it is, not the way we would wish it to be.
The vicious cycle starts: if you fail at something, you think it is your fault. Therefore you think you can’t do that task. As a result, next time you have to do the task, you believe you can’t, so you don’t even try. The result is that you can’t, just as you thought. You’re trapped in a self-fulfilling prophecy.
It is easy to design devices that work well when everything goes as planned. The hard and necessary part of design is to make things work well even when things do not go as planned.
One way of overcoming the fear of the new is to make it look like the old.
Norman’s Law: The day the product team is announced, it is behind schedule and over its budget.
When things go right, people credit their own abilities and intelligence. The onlookers do the reverse. When they see things go well for someone else, they sometimes credit the environment, or luck.
Finally, people have to actually purchase it. It doesn’t matter how good a product is if, in the end, nobody uses it.
In the university, professors make up artificial problems. In the real world, the problems do not come in nice, neat packages. They have to be discovered.
The design of everyday things is in great danger of becoming the design of superfluous, overloaded, unnecessary things.
Poor feedback can be worse than no feedback at all, because it is distracting, uninformative, and in many cases irritating and anxiety-provoking.
It is the duty of machines and those who design them to understand people. It is not our duty to understand the arbitrary, meaningless dictates of machines.
Original ideas are the easy part. Actually producing the idea as a successful product is what is hard.
Affordances define what actions are possible. Signifiers specify how people discover those possibilities: signifiers are signs, perceptible signals of what can be done. Signifiers are of far more importance to designers than are affordances.
Don't criticize unless you can do better. Try to understand how the faulty design might have occurred: try to determine how it could have been done otherwise.
In design, one of the most difficult activities is to get the specifications right.
Why do we need to know about the human mind? Because things are designed to be used by people, and without a deep understanding of people, the designs are apt to be faulty, difficult to use, difficult to understand.
The meanings of today may not be the meanings of the future.
Cognition and emotion cannot be separated. Cognitive thoughts lead to emotions: emotions drive cognitive thoughts. The brain is structured to act upon the world, and every action carries with it expectations, and these expectations drive emotions. That is why much of language is based on physical metaphors, why the body and its interaction with the environment are essential components of human thought. Emotion is highly underrated. In fact, the emotional system is a powerful information processing system that works in tandem with cognition. Cognition attempts to make sense of the world: emotion assigns value. It is the emotional system that determines whether a situation is safe or threatening, whether something that is happening is good or bad, desirable or not. Cognition provides understanding: emotion provides value judgments. A human without a working emotional system has difficulty making choices. A human without a cognitive system is dysfunctional.
When people fail to follow these bizarre, secret rules, and the machine does the wrong thing, its operators are blamed for not understanding the machine, for not following its rigid specifications. With everyday objects, the result is frustration. With complex devices and commercial and industrial processes, the resulting difficulties can lead to accidents, injuries, and even deaths. It is time to reverse the situation: to cast the blame upon the machines and their design. It is the machine and its design that are at fault. It is the duty of machines and those who design them to understand people. It is not our duty to understand the arbitrary, meaningless dictates of machines.
If the system lets you make the error, it is badly designed.
With the passage of time, the psychology of people stays the same, but the tools and objects in the world change.
Design is successful only if the final product is successful-if people buy it, use it, and enjoy it, thus spreading the word. A design that people do not purchase is a failed design, no matter how great the design team might consider it.
Procedural knowledge is difficult or impossible to write down and difficult to teach. It is best taught by demonstration and best learned through practice.
A device is easy to use when the set of possible actions is visible, when the controls and displays exploit natural mappings.
Alas, sometimes clever people are too clever for our good. Some well-meaning plumbing designers have decided that consistency should be ignored in favor of their own, private brand of psychology.
Because retrieval is a reconstructive process, it can be erroneous. We may reconstruct events the way we would prefer to remember them, rather than the way we experienced them. It is relatively easy to bias people so that they form false memories, “remembering” events in their lives with great clarity, even though they never occurred. This is one reason that eyewitness testimony in courts of law is so problematic: eyewitnesses are notoriously unreliable. A huge number of psychological experiments show how easy it is to implant false memories into people’s minds so convincingly that people refuse to admit that the memory is of an event that never happened.
We are creative and imaginative, not mechanical and precise. Machines require precision and accuracy; people don’t. And we are particularly bad at providing precise and accurate inputs.
Some things can only be solved by massive cultural changes, which probably means they will never be solved.
Recognize that most of our interactions with products are actually interactions with a complex system: good design requires consideration of the entire system to ensure that the requirements, intentions, and desires at each stage are faithfully understood and respected at all the other stages.
Question everything. I am particularly fond of “stupid” questions. A stupid question asks about things so fundamental that everyone assumes the answer is obvious.
If the skill is easily automated, it wasn't essential.
We only need to remember sufficient knowledge to let us get our tasks done. Because so much knowledge is available in the environment, it is surprising how little we need to learn. This is one reason people can function well in their environment and still be unable to describe what they do.
Yet surprisingly in this era of screen-based devices, paper tools are still enormously popular and effective, as the number of paper-based diaries and reminders indicates.
Good design is actually a lot harder to notice than poor design, in part because good designs fit our needs so well that the design is invisible, serving us without drawing attention to itself.
Human intelligence is highly flexible and adaptive, superb at inventing procedures and objects that overcome its own limits. The real powers come from devising external aids that enhance cognitive abilities.
Design is concerned with how things work, how they are controlled, and the nature of the interaction between people and technology.
Creeping featurism is the tendency to add to the number of features of a product, often extending the number beyond all reason. There is no way that a product can remain usable and understandable by the time it has all of those special-purpose features that have been added in over time.
Root cause analysis is the name of the game: investigate the accident until the single, underlying cause is found. What this ought to mean is that when people have indeed made erroneous decisions or actions, we should determine what caused them to err. This is what root cause analysis ought to be about. Alas, all too often it stops once a person is found to have acted inappropriately. Basically, it means that when searching for the reason, even after you have found one, do not stop: ask why that was the case. And then ask why again. Keep asking until you have uncovered the true underlying causes.
When companies try to increase sales by matching every feature of their competitors, they end up hurting themselves. After all, when products from two companies match feature by feature, there is no longer any reason for a customer to prefer one over another.
Often people will use their own conceptual models of the world to determine the perceived causal relationship between the thing being blamed and the result. The word perceived is critical: the causal relationship does not have to exist; the person simply has to think it is there.
So the hierarchy of goals is roughly: satisfy hunger; eat; cook; read cookbook; get more light. This is called a root cause analysis: asking “Why?” until the ultimate, fundamental cause of the activity is reached.
A conceptual model is an explanation, usually highly simplified, of how something works. It doesn’t have to be complete or even accurate as long as it is useful.
It is amazing how often people solve the problem before them without bothering to question it.
Market-driven pressures plus an engineering-driven company yield ever-increasing features, complexity, and confusion. But even companies that do intend to search for human needs are thwarted by the severe challenges of the product development process, in particular, the challenges of insufficient time and insufficient money.
The most effective way of helping people remember is to make it unnecessary.
Technology does not make us smarter. People do not make technology smart. It is the combination of the two, the person plus the artifact, that is smart. Together, with our tools, we are a powerful combination. On the other hand, if we are suddenly without these external devices, then we don’t do very well. In many ways, we do become less smart.
Once again, the designer should assume that people will be interrupted during their activities and that they may need assistance in resuming their operations.
Never underestimate the power of social pressures on behavior, causing otherwise sensible people to do things they know are wrong and possibly dangerous.
To understand products, it is not enough to understand design or technology: it is critical to understand business.
So we must design our machines on the assumption that people will make errors.
Product development involves an incredible mix of disciplines, from designers to engineers and programmers, manufacturing, packaging, sales, marketing, and service.
Producing a good product requires a lot more than good technical skills: it requires a harmonious, smoothly functioning, cooperative and respectful organization.
When a new way of doing things is vastly superior to another, then the merits of change outweigh the difficulty of change. Just because something is different does not mean it is bad. If we only kept to the old, we could never improve.
Most of human behavior is a result of subconscious processes. We are unaware of them. As a result, many of our beliefs about how people behave-including beliefs about ourselves-are wrong. That is why we have the multiple social and behavioral sciences, with a good dash of mathematics, economics, computer science, information science, and neuroscience.
We need to remove the word failure from our vocabulary, replacing it instead with learning experience. To fail is to learn: we learn more from our failures than from our successes. With success, sure, we are pleased, but we often have no idea why we succeeded. With failure, it is often possible to figure out why, to ensure that it will never happen again.
Two of the most important characteristics of good design are discoverability and understanding.
Most radical ideas fail: large companies are not tolerant of failure. Small companies can jump in with new, exciting ideas because if they fail, well, the cost is relatively low.
Most new inventions fail. And even the few that succeed to take decades to do so.
In general, people tend to think of innovation as being radical, major changes, whereas the most common and powerful form of it is actually small and incremental.
In the real world, the problems do not come in nice, neat packages. They have to be discovered. It is all too easy to see only the surface problems and never dig deeper to address the real issues.
Good designers never start by trying to solve the problem given to them: they start by trying to understand what the real issues are. As a result, rather than converge upon a solution, they diverge, studying people and what they are trying to accomplish, generating idea after idea after idea.
Human centered design is the process of ensuring that people’s needs are met, that the resulting product is understandable and usable, that it accomplishes the desired tasks, and that the experience of use is positive and enjoyable. Effective design needs to satisfy a large number of constraints and concerns, including shape and form, cost and efficiency, reliability and effectiveness, understandability and usability, the pleasure of the appearance, the pride of ownership, and the joy of actual use. HCD is a procedure for addressing these requirements, but with an emphasis on two things: solving the right problem, and doing so in a way that meets human needs and capabilities.
The best products come from ignoring these competing voices and instead focusing on the true needs of the people who use the product.
True customer-centric and customer-driven companies (rather than competition-driven) can avoid feature-creep.

Interaction Of Color by Josef Albers

Wed, 05 Oct 2022 00:00:00 GMT

I. Brief Summary

A great book for thinking deeper about the relationship of color, and how we perceive them. It is a handbook and teaching aid for artists, instructors, and students. Josef Albers heavily indexes on experimental learning versus going into theory. After trial and error and experimenting, he uncovers theory of colors and its relationship to itself and the environment. A novel way to teach anything in my opinion. After reading this, I find colors to be heavy on both technical and psychological level. Everyone must understand colors because it'll either help you reason your own prejudices or rationalize your attraction towards it. This is an essential work on visual literacy.

II. Big Ideas

Color is the most relative medium in art.
Experience is the best teacher of color.
It is difficult to visualize specific colors. Visual memory is very poor by comparison to auditory memory.
People have strong preferences in regard to colors. In addition, people have strong associations with particular colors or color combinations-reds and greens together represent Christmas, pink is feminine, green is eco-friendly, etc.
Few people are able to distinguish tonal value in different hues within close intervals. In other words, it is more difficult to see whether a blue and an orange are of equal, greater or lesser value than it is to distinguish values within shades of the same hue (e.g., two different shades of blue). There are exercises in the book that will help you to become better at this.
When two colors have the same value, they “vibrate.” Because the eye reads value more than hue, vibrating colors compete for the eye’s attention and are uncomfortable to look at. This is especially important in typography because colored type on a colored background must retain adequate tonal contrast in order to be legible.
While there are innumerable colors, in most of the world’s languages, there are only about 30 names for different hues.
Any color can “go” or “work” with any other color, it is principally a matter of in which proportions they are used. Albers often required students to use colors that they disliked in order to have them realize this relational aspect of color. You might say there are no ugly colors, only ugly uses of color.
Colors are in a continuous state of flux and can only be understood in relation to the other colors that surround them. Albers makes the provocative statement in the book that color is the most relative medium in art.
How people see color is highly subjective and varies dramatically between individuals.

Ask a group of people to imagine Coca-Cola red and everyone will imagine a different color. While we are able to repeat a melody we’ve heard only once or twice, we have difficulty reproducing a color we’ve seen a thousand times.

Usually, we think of an apple as being red. This is not the same red as that of a cherry or tomato. A lemon is yellow and an orange like that of its name. Bricks vary from beige to yellow to orange, and from ochre to brown to deep violet. Foliage appears in innumerable shades of green. In all these cases the colors named are surface colors. In a very different was, distant mountains appear uniformly blue, no matter whether covered with green trees or consisting of earth and rocks. The sun is glaring white in daytime, but it is full red at sunset. The white ceiling of houses surrounded by lawns or the white-painted eaves of a roof on a sunny day appear in bright green, which is reflected from the grass on the ground. All these cases present film colors. They appear as a thin, transparent, translucent layer between the eye and an object, independent of the object's surface color.
All colors have two key elements – brightness (which can be understood as the color intensity) and lightness (a light’s intensity). Albers practically elaborates on this point in the second half of the book through sharing a fascinating series of exercises and optical illusions that explore brightness and lightness;
Experience is the greatest teacher of color (i.e. an artist or designer exploring color in their practice is much more important than studying color theory by itself). Albers believed that practice precedes theory in the study of color. This is to say that through doing and practically experimenting with color, theories are produced:

Naturally, practice is not preceded but followed by theory. Such study promotes a more lasting teaching and learning through experience. Its aim is development of creativeness realized in discovery and invention – the criteria of creativity, or flexibility, being imagination and fantasy. Altogether it promotes “thinking in situations,” a new educational concept unfortunately little known and less cultivated, so far.
Allow students to ‘think in situations’ can be understood as a form of experiential learning.
Albers’ discussion of progressive education teaching methods and how these can be intertwined with technical and theoretical knowledge that is specific to design. His ability to acknowledge the significance of combining technical skill with creative exploration underscores his pioneering vision for 20th-century design education.

III. Quotes

Good teaching is more a giving of right questions than a giving of right answers.
In visual perception, a thing is never seen as it really is
A strong challenge to a class is to work with 3 or 4 given colors selected by a teacher or student. This and a continued use of disliked colors will teach that preference and dislike as in life so with color usually result from prejudices, from lack of experience and insight.
Color is fooling us all the time. All the time, like women do, you see, life is interesting.
In my color book there is no new theory of color. But, in it, there is a way to learn to see.
I have not taught art. Instead of art, I have taught philosophy…I never have taught [techniques for] how to paint. All my doing was to make people to see.
We can hear a single tone but rarely do we see a single color unrelated to other colors.
Anyone who predicts the effect of colors proves that he has no experience with color.
I have said to my students ‘I am putting you into a vacuum and asking you to breathe.’
This book presents results of search, not of what is academically called research.
As it is not a compilation from books, it does not end with a list of books - either books read, or books not read. Instead, this book ends with an acknowledgement of my students who are the authors of sample studies, and whom I therefore consider my indirect but first collaborators.
I like to state that my students in color have taught me more color than have books about color.
“Action” is the noun for the verb “to act”.
The word as such [value], when unspecified, permits application in innumerable directions... Unfortunately, the careless use of “value,” particularly with regard to equal lightness-as well as false examples reproduced in books-has destroyed it as a means of measure.
As basic rules of any language must be practiced continuously, and therefore are never fixed, so exercises toward distinct color effects never are done or over. New and different cases will be discovered time and again, and should be presented to the class again and again. In this way the study will be a mutual give and take. It will also show that all thorough study is basic, and that all education is self-education. This indicates that we expect from every student several solutions to each problem. In the end, teaching is a matter not of method but of heart. Therefore, the most decisive factor is the teacher's personality. His enthusiastic concern with the student's growth counts more than how much he knows. It is well known that "the teacher is always right," but rarely does this fact elicit respect or sympathy; even less often does it prove competence and authority. But the teacher actually is right and always will gain confidence when he admits that he does not know, that he cannot decide, and, as it often is with color, that he is unable to make a choice or to give advice. Besides, good teaching is more a giving of right questions than a giving of right answers.
The results of our trial-and-error experimentation, mostly done after class, are exhibited at the beginning of the next class. These studies we call the admission tickets" to the class.)
In the previous chapters we have presented a studio course, or, if you prefer, a laboratory or workshop course which opposes an administrative attitude of "theory and practice." Naturally, practice is not preceded but followed by theory. Such study promotes a more lasting teaching and learning through experience. Its aim is development of creativeness realized in discovery and invention-the criteria of creativity, or flexibility, being imagination and fantasy. Altogether it promotes "thinking in situations," a new educational concept unfortunately little known and less cultivated, so far.
These exercises are not meant to illustrate, or to decorate or beautify something, but aim at the development of the ability to produce the desired color effects. This reiterates our disbelief in self-expression, either as a way of study or as its aim, in schools.
After too much non-teaching, non-learning, and a consequent non-seeing, in too many art "activities" -it is time to advocate again a basic step-by-step learning which promotes recognition of insight coming from experience, and evaluation resulting from comparison. This, in sum, means recognition of development and improvement, that is, of growth, growth of ability. This growth is not only a most exciting experience; it is inspiring and thus the strongest incentive for intensified action, for continued investigation (search instead of re-search), for learning through conscious practice.
Singing a tune and playing it on instruments- even more, conducting several instruments- provides more contact, more insight than merely hearing the tune. So cooking, normally and naturally, teaches more than reading recipes.
We practice first and mainly a study of ourselves.

Visual Grammar by Christian Leborg

Wed, 05 Oct 2022 00:00:00 GMT

I. Brief Summary

Visual grammar provides a way to describe and communicate the features of an image. A great handbook on all visual elements. Consider this as a visual dictionary for beginners.

II. Big Ideas

Communication requires language. The visual language of design is no exception. Design elements are like letters and words.
The first chapter deals with abstractions such as dimension, format, and volume.
The second concerns concrete objects and structures such as form, size, color, and texture.
The third part describes the activities that can take place in a composition such as repetition, mirroring, and movement.
The fourth chapter deals with the relations between several objects in a composition.
The book is divided into four parts:
- Objects – The basic elements we have to work with. Can be abstract or concrete.
  - Abstract Objects are idealized shapes that can’t physically be created. For example take a point. A point by definition has no area. It only has a position. Any point we try to draw will have some kind of area if we are to see it and once it does, it ceases to become a point. It can only exist as an abstract concept and not as a physical thing. Abstract objects include:
    - Points – A position on a coordinate system without area. Points have no dimensions.
    - Lines – A series of points adjacent to each other. Points have one dimensions.
    - Surfaces – A series of lines that are adjacent to each other and perpendicular to their direction. Surfaces have two dimensions.
    - Volumes – An empty space defined by surfaces, lines, and points. Volumes have three dimensions.
  - Concrete objects are perceived within defined limits called contours. Inside and including the contour itself is our object, our shape, our form, and outside the contour is everything else. Forms or shapes can be geometric, organic, or random (sometimes called abstract). A circle is an example of a concrete object. It’s contour being the curved line that encloses it. Concrete objects have:
    - Form – defined by a contour of surfaces and lines. A form is how a thing looks.
    - Size – Forms can be large or small. They are perceived relative to the person viewing, other forms in the composition, and the format of the design.
    - Color – we perceive different wavelengths of light as color. A form can be any color, though we are limited to seeing only those colors in the visual spectrum.
- Structures – The patterns formed from our basic elements. Can be abstract or concrete.
  - Abstract Structures when the structure lines of a structure are invisible and inactive the structure is considered to be abstract. Consider the image below. The circles are clearly arranged in a pattern. There is a structure present, but the lines defining that structure are invisible.
    - Formal – even distribution of elements and spacing (structure units) between them.
    - Informal – lacking regularity in the arrangement of objects. Even if a pattern is observed the structure is informal if the objects do not follow straight structural lines.
    - Gradation – structure units change in form or size, but at an even rate.
    - Radiation – structure units radiate from a common center.
    - Spiral – uneven distribution from a common center.
  - Concrete structures have either visible or active structure lines. Where abstract structures indirectly show the structure, concrete structures directly show the structure. Concrete structures can be visible compositions on their own such as the patterns that form into textures.
    - Visible structures do not have to include objects. As long as the structure lines are visible, the structure itself is visible.
    - Active structures are those where the structure lines influence the form of the objects within the structure.
- Activities – The processes we can represent with our basic elements and patterns.
  - Repetition – Anytime several objects share some characteristic repetition is created. When more than one characteristic is shared the dominant one is used to describe the repetition. Repetition helps create consistency and design flow.
  - Frequency/Rhythm – When the distance between repeated objects is identical we have frequency. When the distance is varied between several frequencies we have rhythm.
  - Mirroring – When light waves are reflected from the surface at the same angle they fall onto it, an object is symmetrically rendered around an axis and mirroring is created.
  - Mirroring against a volume – When the surface has several different angles of reflection it becomes a volume. Volumes distort the reflected object and the mirroring is no longer symmetrical about an axis.
  - Rotation – When an object moves around a point or axis it rotates around that point or axis. The point or axis of rotation can be inside or outside the object.
  - Upscaling/Downscaling – When objects are scaled up or down their dimensions remain in proportion to each other. Their width-to-height ratio remains constant.
  - Movement – Within a visual design movement can only be shown as a representation of movement. This representation can be shown as a sequence or some illusion of motion.
  - Path – An object showing movement travels along an imaginary line or curve, which is the object’s path.
  - Direction – A moving object has a direction defined by a line or curve that leads from start to end point.
  - Superordinate and subordinate movement – Objects can rotate, move back and forth, or swing as they travel along a path. This secondary movement is the subordinate movement, whereas movement along the path is the superordinate movement.
  - Displacement – When only part of an object moves it’s form is displaced. Displacement is define by an angle between the original point and the new displaced point.
  - Direction of displacement – Displaced objects move in a specific direction.
- Relations – The relationships between objects, patterns, and processes. They’re the way everything in your design relates to each other and the viewer. Objects placed in a composition relate to each other, they relate to the overall design, the format and, they relate to the viewer. Through relations with each other, elements can attract or repel, they can imply movement and flow. Through relation to the overall design, elements convey a concept and theme. Through relation with the viewer elements communicate different messages.
  - Attraction/Static – Any time two objects appear in a design they appear to either attract or repel each other. A single object, not in movement, and with equal forces of attraction and repulsion applied, appears static.
  - Symmetry/Asymmetry – Objects identically arranged around an axis are symmetrical. Objects not identically arranged around an axis are asymmetrical. Symmetry is considered beautiful, but static. Asymmetry is more interesting because it is dynamic.
  - Balance – When the visual weights of objects in a composition are in equilibrium, the composition is in balance.
  - Groups – When objects display repetition or are in close proximity to one another they form a group.
  - Fine/Coarse – The distance between structure lines defines the fineness or coarseness of an object or structure.
  - Diffusion – An irregular dispersion of objects with varying fineness and coarseness is called diffusion.
  - Direction – Structures can actively define direction.
  - Position – A group of objects in a composition can define a position. That position can be in the center or along the edge or corner of the composition.
  - Space – Space is the empty areas between major and minor objects and is as important to a design as the areas where the space is filled with objects. Learning to see and use the space in your designs is one of the most important things any designer can learn.
  - Weight – All objects in a design have a visual weight based on size, color, form, surrounding space, etc. Our eye is drawn to elements with the greatest visual weight.
  - Amount/Dominance – The amount of objects in a given area of a design contributes to the visual weight of that area. Areas or objects in a design with the most visual weight are dominant and create entry points and focal points in a design.
  - Neutral – Elements in a design that do not stand out from other objects are neutral in relation to those other objects. When too many objects in a design are neutral the entire design can become neutral.
  - Background/Foreground – The position of objects, their relative weights, the space around them and, their relative proportions all contribute to which elements are seen as being in the foreground and which are seen as part of the background.
  - Coordination – When objects share the same coordinates, value, focus, and are perceived to be same perspective they are in coordination with each. Two identical objects aligned vertically are not in coordination as the one on the bottom is perceived to be closer than the one on the top.
  - Distance – Closeness and remoteness are relative. The distance between objects is perceived based on the viewer’s perspective. Objects that appear close in 2 dimension can appear very far apart when the composition is seen in a 3-dimensional perspective.
  - Parallel/Angle – Two lines that never intersect are parallel. When lines intersect they form an angle. Angles exist only in relation to something else.
  - Negative/Positive – Negative and positive are terms that relate to opposite values such as light and dark. Positive elements appear to be in the foreground and negative elements appear to be in the background.
  - Transparent/Opaque – Light shines through transparent objects and can not penetrate opaque objects.
  - Tangent – Two elements that touch and share a common point are tangential to each other.
  - Overlapping/Compound – When part of one object lies on top of another object, the first overlaps the second. When overlapping objects visually appear to be one object they become a new compound form.
  - Subtraction/Coincidence – When an object is overlapped by another subtraction occurs in the overlapped part of the underlying object. When two objects share form and size and are position in a way that when seen from above they appear to be one, the objects are in coincidence.
  - Penetration/Extrusion – When one object is pushed through a larger object the first penetrates the second. When an object is forced through the opening of another object in such a way that the opening alters the form of the first object it has been extruded.
  - Influence – When an object’s form appears to be altered by another object, the altered object has been influenced by the other object.
  - Modification – An object that has been slightly altered has been modified. Modification does not change the basic characteristics of an object. A rectangle whose corners have been slightly rounded still appears to be a rectangle.
  - Variation – When objects are repeated with minor variance or modification the repetition is called variance.

III. Quotes

The reason for writing a grammar of visual language is the same as for any language: to define its basic elements, describe its patterns and processes, and to understand the relationship between the individual elements in the system. Visual language has no formal syntax or semantics, but the visual objects themselves can be classified.
Knowledge of visual concepts is often acquired through physical experience and applied without the use of written or spoken language.
Reflection about what one is going to create or what one has created alters the creative process: we think differently when we have a language to describe something.

The Visual Display Of Quantitative Information by Edward R. Tufte

Mon, 03 Oct 2022 00:00:00 GMT

I. Brief Summary

Edward Tufte was a professor of statistics, graphic design, and political economy at Yale University. He has been described by The New York Times as "the Leonardo da Vinci of Data". He is an expert in the presentation of informational graphics such as charts and diagrams, and is a fellow of the American Statistical Association. His idea of data-ink ratio is a great analytical tool in understanding the true information of a graph versus being a novelty visualization. In a world where visualizations are ordinary, graphical integrity is constantly being breached to get the story out at scale with facts being secondary. He provides many examples of both poor and great display of visual evidence, visual reasoning and visual understanding of quantitative information.

II. Big Ideas

Data graphics visually display measured quantities by means of the combined use of points, lines, a coordinate system, numbers, symbols, words, shading, and color. The diversity of skills required to build a graph - the visual-artistic, empirical-statistical, and mathematical.
It was not until 1750-1800 that statistical graphics, length and area to show quantity, time-series, scatter-plots, and multivariate displays were invented. The remarkable William Playfair (1759-1823) developed or improved upon nearly all the fundamental graphical designs, seeking to replace conventional tables of numbers with the systematic visual representations of his linear arithmetic.
Often the most effective way to describe, explore, and summarize a set of numbers even a very large set is to look at pictures of those numbers. Furthermore, of all methods for analyzing and communicating statistical information, well-designed data graphics are usually the simplest and at the same time the most powerful.
EXCELLENCE in statistical graphics consists of complex ideas communicated with clarity, precision, and efficiency. Graphical displays should:
- show the data
- induce the viewer to think about the substance rather than about methodology, graphic design, the technology of graphic production, or something else
- avoid distorting what the data have to say
- present many numbers in a small space
- make large data sets coherent
- encourage the eye to compare different pieces of data
- reveal the data at several levels of detail, from a broad overview to the fine structure
- serve a reasonably clear purpose: description, exploration, tabulation, or decoration
- be closely integrated with the statistical and verbal descriptions of a data set.
The problem with time-series is that the simple passage of time is not a good explanatory variable: descriptive chronology is not causal explanation. There are occasional exceptions, especially when there is a clear mechanism that drives the Y-variable.
Principles of Graphical Excellence:
- Graphical excellence is the well-designed presentation of interesting data a matter of substance, of statistics, and of design.
- Graphical excellence consists of complex ideas communicated with clarity, precision, and efficiency.
- Graphical excellence is that which gives to the viewer the greatest number of ideas in the shortest time with the least ink in the smallest space.
- Graphical excellence is nearly always multivariate.
- Graphical excellence requires telling the truth about the data.
Tables usually outperform graphics in reporting on small data sets of 20 numbers or less.
Graphical integrity is more likely to result if these six principles are followed:
- The representation of numbers, as physically measured on the surface of the graphic itself, should be directly proportional to the numerical quantities represented.
- Clear, detailed, and thorough labeling should be used to defeat graphical distortion and ambiguity. Write out explanations of the data on the graphic itself. Label important events in the data.
- Show data variation, not design variation.
- In time-series displays of money, deflated and standardized units of monetary measurement are nearly always better than nominal units.
- The number of information-carrying (variable) dimensions depicted should not exceed the number of dimensions in the data.
- Graphics must not quote data out of context.
Japanese graphical distinction is consistent with that country's heavy use of statistical techniques in the workplace and extensive quantitative training, even in the early years of school...The five U.S. publications examined rank toward the bottom of the world list...the complete dominance of non-relational designs at the lower-ranked newspapers and magazines. This is unfortunate because the relational graphic, unlike the simpler designs, is an explanatory graphic- surely a natural for news reporting and analysis.
The conditions under which many data graphics are produced- the lack of substantive and quantitative skills of the illustrators, dislike of quantitative evidence, and contempt for the intelligence of the audience- guarantee graphic mediocrity. These conditions engender graphics that
- lie
- employ only the simplest designs, often unstandardized time-series based on a small handful of data points
- miss the real news actually in the data.
How can graphic mediocrity be remedied? These doctrines blame the victims (the audience and the data rather than the perpetrators. Graphical competence demands three quite different skills: the substantive, statistical, and artistic. Yet now most graphical work, particularly at news publications, is under the direction of but a single expertise - the artistic. Allowing artist-illustrators to control the design and content of statistical graphics is almost like allowing typographers to control the content, style, and editing of prose.
Five principles in the theory of data graphics produce substantial changes in graphical design. The principles apply to many graphics and yield a series of design options through cycles of graphical revision and editing:
- Above all else, show the data.
- Maximize the data-ink ratio.
- Erase non-data ink.
- Erase redundant data-ink.
- Revise and edit.
Chartjunk does not achieve the goals of its propagators. Graphics do not become attractive and interesting through the addition of ornamental hatching and false perspective to a few bars. Chartjunk can turn bores into disasters, but it can never rescue a thin data set. Forgo chartjunk, including moire vibration, the grid (use gray grids), and the duck.
Mobilize every graphical element, perhaps several times over, to show the data.
Small multiples reflect much of the theory of data graphics:
- for non-data-ink, less is more
- for data-ink, less is a bore
Aesthetics and Technique in Data Graphics Design
- Graphical elegance is often found in the simplicity of design and complexity of data
- Attractive displays of statistical information:
  - have a properly chosen format and design
  - use words, numbers, and drawings together
  - reflect a balance, a proportion, a sense of relevant scale
  - display an accessible complexity of detail
  - often have a narrative quality, a story to tell about the data
  - are drawn in a professional manner, with the technical details of production done with care
  - avoid content-free decoration, including chartjunk
Epilogue: Design is choice. The theory of the visual display of quantitative information consists of principles that generate design options and that guide choices among options. The principles should not be applied rigidly or in a peevish spirit; they are not logically or mathematically certain; and it is better to violate any principle than to place graceless or inelegant marks on paper. Most principles of design should be greeted with some skepticism, for word authority can dominate our vision, and we may come to see only through the lenses of word authority rather than with our own eyes. What is to be sought in designs for the display of information is the clear portrayal of complexity. Not the complication of the simple; rather the task of the designer is to give visual access to the subtle and the difficult – that is, the revelation of the complex.

III. Quotes

Above all else show the data.
Graphics reveal data.
Of course, statistical graphics, just like statistical calculations, are only as good as what goes into them.
A silly theory means silly graphic.
Graphical excellence begins with telling the truth about the data.
Graphical excellence is that which gives to the viewer the greatest number of ideas in the shortest time with the least ink in the smallest space.
Allowing artist-illustrators to control the design and content of statistical graphics is almost like allowing typographers to control the content, style, and editing of prose.
The emphasis is on maximizing principles, empirical measures of graphical performance, and the sequential improvement of graphics through revision and editing. Insights into graphical design are to be gained, I believe, from theories of what makes for excellence in art, architecture, and prose.
Most of all, then, this book is a celebration of data graphics.
Get it right or let it alone. The conclusion you jump to may be your own. - James Thunder
As to the propriety and justness of representing sums of money, and time, by parts of space, tho' very readily agreed to by most men, yet a few seem to apprehend that there may possibly be some deception in it, of which they are not aware. - William Playfair, The Commercial and Political Atlas (London, 1786)
Different people see the same areas somewhat differently; perceptions change with experience; and perceptions are context-different.
Misperception and miscommunication are certainly not special to statistical graphics.
Why do artists draw graphics that lie? Why do the world's major newspaper and magazines publish them?...Lurking behind the inept graphic is a lack of judgment about quantitative evidence, Nearly all those who produce graphics for mass publication are trained exclusively in the fine arts and have had little experience with the analysis of data. Such experience is essential for achieving precision and grace in the presence of statistics, but even textbooks of graphical design are silent on how to think about numbers. Illustrators too often see their work as an exclusively artistic enterprise - the words "creative," "concept," and "style" combine regularly in all possible permutations, a Big Think jargon for the small task of constructing a time-series a few data points long. Those who get ahead are those who beautify data, never mind statistical integrity.
The doctrine of boring data serves political ends, helping to advance certain interests over others in bureaucratic struggles for control of a publication's resources. For if the numbers are dull dull dull, then an artist, indeed many artists, indeed an Art Department and an Art Director are required to animate the data, lest the eyes of the audience glaze over. Thus the doctrine encourages placing data graphics under control of artists rather than in the hands of those who write the words and know the substance. As the art bureaucracy grows, style replaces content. And the word people, having lost space in the publication to data decorators, console themselves with thoughts that statistics are really rather tedious anyway.
If the statistics are boring, then you've got the wrong numbers. Finding the right numbers requires as much specialized skill- statistical skill-and hard work as creating a beautiful design or covering a complex news story.
Many believe that graphical displays should divert and entertain those in the audience who find the words in the text too difficult.
If you have to explain it, don't use it.
... no nation ranks higher in its collective passion for statistics. In Japan, statistics are the subject of a holiday, local and national conventions, awards ceremonies and nationwide statistical collection and graph-drawing contests. "This year," said Yoshiharu Takahashi, a Government statistician, "we had almost 30,000 entries. Actually, we had 29,836." Entries in the [children's statistical graph contest were screened three times by judges, who gave first prize this year to the work of five 7-year-olds. Their graph creation, titled "Mom, play with us more often," was the result of a survey of 32 classmates on the frequency that mothers play with their offspring and the reasons given for not doing so.... Other children's work examined the frequency of family phone usage and correlated the day's temperature with cicada singing.' - Andrew H. Malcolm
It wastes the tremendous communicative power of graphics to use them merely to decorate a few numbers.
Like weeds, many varieties of chartjunk flourish.
Painting is special, separate, a matter of meditation and contemplation, for me, no physical action or social sport. As much consciousness as possible. Clarity, completeness, quintessence, quiet. No noise, no schmutz, no schmerz, no fauve schwärmerei. Perfection, passiveness, consonance, consummateness. No palpitations, no gesticulation, no grotesquerie. Spirituality, serenity, absoluteness, coherence. No automatism, no accident, no anxiety, no catharsis, no chance. Detachment, disinterestedness, thoughtfulness, transcendence. No humbugging, no button-holing, no exploitation, no mixing things up. - Ad Reinhardt, statement for the catalogue of the exhibition, "The New Decade: 35 American Painters and Sculptors," Whitney Museum of American Art, New York, 1955.
Graphical elegance is often found in simplicity of design and complexity of data.

Design As Art by Bruno Munari

Wed, 28 Sep 2022 00:00:00 GMT

I. Brief Summary

Design as Art is a collection of Munari’s essays on various topics concerning design and art. He was among the most inspirational designers of all time, described by Picasso as 'the new Leonardo'. He insisted that design ought to be beautiful, functional and accessible. He shares his thoughts on visual, graphic and industrial design and the role it plays in the objects (lamps, road signs, typography, posters, children's books, advertising, cars and chairs) we use everyday. The book is precise, smart, and humorous on the topic of relationship between art and design. His writing is meditative. His ability to share thoughts on when design needs to step back and when it needs to step up and his maddening account on the various types of chairs or knives are still relevant in contemporary times. Munari’s mid-century Italian humour pairs well with his immense knowledge of the tradition of commercial design as an art form. It helps you engage with everyday objects as not just objects of utility, but expressions of culture and aesthetic value.

II. Big Ideas

If art asks questions then design answers them.
Design is planning: the planning as objectively as possible of everything that goes to make up the surroundings and atmosphere in which men live today.
Stylists
- The problem with that is that styles tend to go out of fashion. By styling your design with the latest trend you put an end-of-use date on that thing you’re designing. The design of the object is no longer itself, it’s something external–something fickle. We decorate and style those objects in a superficial coat, that has no purpose other than to look attractive. We look at the world of art in art galleries, or the world of architecture of great old Renaissance villas, and we transfer it to our own designs for everyday objects.
Japanese designs
- Throughout the book Munari keeps going back to Japanese design, which he approves. Japanese designs thrive because it’s designing the object as the object itself, and not an imitation of something else.
- Another important element of Japanese design is its close connection to the materials used–an intelligent use of each material depending on its looks and properties. As a result, Japanese design embodies the object with both, its function, and the properties of the materials used.
- Take chopsticks. Two pieces of wood. The same pieces of wood can be served to anyone, regardless of their status, and regardless of the occasion. They are simply designed, light and easy to make. They are cheap and you can throw them out after a meal. Compare this to Western cutlery. You can buy all sorts of knives, forks and spoons. They can be cheap, expensive, steel, silver, funny, serious, light, heavy, and so on, and never mind the various utensils and knives designed specifically for different dishes, whether that be some Parmesan cheese, or a rack of lamb. Moving to a new house? You better make sure you’ve bought all the various cutlery you’ll need. The Western utensil is an explosion of complexity where as the chopstick is an eating tool reduced to its simplest form.
- The ancient Japanese word for art is Asobi, but it also means game. Bruno Munari sees art–not something exclusive to the halls of elite exhibitions, but something exploratory that involves the viewer as much as the artist.
Useless machines
- Throughout the book Munari introduces some of his own inventions, pieces of art he calls useless machines. Munari’s playful, experimental approach is inspiring and original.
- For example, one such thing is something you would hang on the ceiling that’s made out of fine metal mesh, curved on itself several times over. The resulting object will wobble and rotate slightly as the air passes around it, but the real point is the shadow that it casts–something that looks like a pencil sketch due to the metal mesh pattern, but at the same time animated and flowing, like a cloud. It’s art that breaks out of the old two dimensions of paintings, and becomes three and four dimensional with the addition of time through animation. It is also spontaneous art–the object takes the properties of its material and produces something unique to itself with little direction from the artist.
Nature
- ‘Copying nature’ is one thing and understanding nature is another. Copying nature can be simply a form of manual dexterity that does not help us to understand, for it shows us things just as we are accustomed to seeing them. But studying the structures of nature, observing the evolution of forms, can give everyone a better understanding of the world we live in.
- The designer of course does not operate in nature, but within the orbit of industrial production, and therefore his projects will aim at a different kind of spontaneity, an industrial spontaneity based on simplicity and economy in construction. There are limits of how far simplicity of structure can be taken, and it is exciting to push things to these limits.
Form
- An object should be judged by whether it has a form consistent with its use.
- A leaf on a tree, is beautiful whether you have ever thought about it or not. It has the unique beautiful form because it belongs to a certain tree, where it fulfills a certain function. This unique form that the leaf has - its structure - is determined by the veins and capillaries which carry the sap. The leaf is beautiful, not because it is stylish, but because it is perfectly natural - it has been created in its exact form, by its exact function. This beauty is what an ideal designer should try to create in his work - the work should feel as natural, as does a leaf on a tree.
- A designer is a human being with his own tastes and preferences, but he does not suffocate his work with his personal ideologies, he tries to be objective. He simply helps that object, to make itself, by the proper means.
- If we look around us we see a lot of art and design trying to represent something else. Art is trying to depict certain scenes of our own world and nature, design trying to mimic other objects.
- In his view the role of a designer is to create the thing in itself, in the form of itself, not an imitation of something else. The form should be almost spontaneous, governed by the function of the thing and the materials used to create it. Other factors that will influence the design are cost of manufacture and transportation–important factors of industrial design.
Luxury
- A laugh is an external sign of inner balance, while a gloomy face is the sign of gloom in the spirit. (Zen)...this is particularly true of Italians, who have a mania for luxury.
- What does luxury consist of, for the vast majority of the people who buy or rent homes? As a general rule, value is confused with price, and the things that cost most are the most luxurious. Someone accustomed to using an enamelled chamber-pot thinks that luxury means having a gold one. He will not change his habits, but he must have the most ex- pensive thing of its kind: a gold chamber-pot.
- But it is not marbles, chandeliers, panoramic windows and outrageously expensive things which make a gentle- man's residence. If the person living in it is a gentleman the house will match him: it will be modest, quiet, hospitable, and will have all the necessary comforts without falling over backwards to achieve them.
- These are uncluttered houses, built by uncluttered builders for uncluttered tenants.
- Luxury is the manifestation of uncivilized richness that wants to impress who is poor. It is the manifestation of the importance given to exteriority and reveals the lack of interest for cultural erudition. It is the triumph of appearance over substance.
- Luxury is a necessity for people who want to feel a sense of dominance over others. But if those others are civilized they will understand that luxury is pretence, if they are ignorant people they will admire and even envy those who live in luxury. But who cares about the admiration of ignorant people? Perhaps fools. Luxury is indeed a manifestation of foolishness. For instance: what do you need golden faucets for? If from those faucets it comes out polluted water wouldn’t it be better to spend money on a water depurator and use regular faucets? Then luxury is the wrong use of expensive material that does not improve function, and therefore it is foolish.
- When a lot of money comes along before culture arrives, we get the phenomenon of the gold telephone. And when I say culture I don’t mean academic knowledge, I mean information: information about what is happening in the world, about the things that make life interesting.

III. Quotes

A designer is a planner with an aesthetic sense.
The designer of today re-establishes the long-lost contact between art and the public, between living people and art as a living thing. Instead of pictures for the drawing-room, electric gadgets for the kitchen. There should be no such thing as art divorced from life, with beautiful things to look at and hideous things to use. If what we use every day is made with art, and not thrown together by chance or caprice, then we shall have nothing to hide.
When the objects we use every day and the surroundings we live in have become in themselves a work of art, then we shall be able to say that we have achieved a balanced life.
Design came into being in 1919, when Walter Gropius founded the Bauhaus at Weimar. Part of the prospectus of this school reads: s'The function of art has in the past been given a formal importance which has severed it from our daily life; but art is always present when a people lives sincerely and health. 'Thus our job is to invest a new system of education that may lead to a complete knowledge of human needs and a universal awareness of them.'...What Gropius wrote is still valid. Tis first school of design did tend to make a new kind of artist, an artist useful to society because he helps society to recover its balance, and not to lurch between a false world to live one's material life in and ideal world to take moral revenge in.
The vase once had an extremely common use. Most probably it was used for cooking-oil. It was made by a designer of those times, when art and life went hand in hand and there was no such thing as a work of art to look at and just any old thing to use.
The greatest freedom comes from the greatest strictness. - Paul Valéry
When the objects we use every day and the surroundings we live in have become in themselves a work of art, then we shall be able to say that we gave achieved a balanced life.
To understand means to be capable of doing. - Goethè
People haven’t got time to stop in the street, size a poster up, see what it refers to and then decide whether or not it interests them. Communication must be instant and it must be exact.
When one studies something characteristic of a people it is wise to look at its best side, at least if one wants to learn anything. Ugly things are ugly in much the same way the world over. Only the best can teach us, and the best of anything is individual. Each country excels in some things, and in the rest is just the same as other countries: mediocre.
The stylist works by contrast. After a season of violet, one can predict a season of yellow.
It is certainly quite wrong to read a poem in a hurry, as if it were a telegram.
What is a car, for many people, if not a piece of travelling sculpture?
As long as art stands aside from the problems of life it will only interest a very few people.
What then is this thing called Design if it is neither style nor applied art? It is planning: the planning as objectively as possible of everything that goes to make up the surroundings and atmosphere in which men live today. This atmosphere is created by all the objects produced by industry, from glasses to houses and even cities. It is planning done without preconceived notions of style, attempting only to give each thing its logical structure and proper material, and in consequence its logical form.
By designing without any stylistic or formal preconceived notions, and tending towards the natural formation of things, one gets the essence of a product. This means using the most appropriate materials of the correct thickness, reducing working hours to a minimum, combining a number of functions in one element, making all attachments simple, using as few different materials as possible for each single object, trying to abolish the need for finishing off in detail, doing any necessary lettering during the original pressing, and bearing in mind that the object should take up as little storage space as possible and should assemble itself automatically when ready for use.
I TAO PI PU TAO’: If the idea is there, the brush can spare itself the work. (Ancient rule of Chinese painting.)
An artist is a man who digests his own subjective impressions and knows how to find a general objective meaning in them, and how to express them in a convincing form. - Maxim Gorky
A poem only communicates if read slowly: only then does it have time to create a state of mind in which the images can form and be transformed.
Any knowledge of the world we live in is useful, and enables us to understand things that previously we did not know existed.
Concern yourself with things before they come into existence. - Tao Te-ching
Naturally, this puts an end to the already tarnished image of the work of art as a rare and even unique thing, independent of what it expresses.
According to an ancient Chinese saying, infinity is a square without corners.
We therefore have an object that is absolutely useless to man, an object good for nothing better than being looked at, or at the most sniffed (though it seems that some producers have now invaded the market with roses that do not even have the virtue of scent). This is an object without justification, and one moreover that may lead the worker to think futile thoughts. It is, in the last analysis, even immoral.
Today it has become necessary to demolish the myth of the ‘star’ artist who only produces masterpieces for a small group of ultra-intelligent people. It must be understood that as long as art stands aside from the problems of life it will only interest a very few people. Culture today is becoming a mass affair, and the artist must step down from his pedestal and be prepared to make a sign for a butcher’s shop (if he knows how to do it). The artist must cast off the last rags of romanticism and become active as a man among men, well up in present-day techniques, materials and working methods. Without losing his innate aesthetic sense he must be able to respond with humility and competence to the demands his neighbors may make of him.
Anyone working in the field of design has a hard task ahead of him: to clear his neighbor’s mind of all preconceived notions of art and artists, notions picked up at schools where they condition you to think one way for the whole of your life, without stopping to think that life changes - and today more rapidly than ever. It is therefore up to us designers to make known our working methods in clear and simple terms, the methods we think are the truest, the most up-to-date, the most likely to resolve our common aesthetic problems. Anyone who uses a properly designed object feels the presence of an artist who has worked for him, bettering his living conditions and encouraging him to develop his taste and sense of beauty.
We know that only the technical means of artistic achievement can be taught, not art itself. The function of art has in the past been given a formal importance which has severed it from our daily life; but art is always present when a people lives sincerely and healthily. ‘Our job is therefore to invent a new system of education that may lead - by way of a new kind of specialized teaching of science and technology - to a complete knowledge of human needs and a universal awareness of them. ‘Thus our task is to make a new kind of artist, a creator capable of understanding every kind of need: not because he is a prodigy, but because he knows how to approach human needs according to a precise method. We wish to make him conscious of his creative power, not scared of new facts, and independent of formulas in his own work.’
...these are certainly not objects produced by designers, for designers do not have such raging imaginations. They confine themselves to making candlesticks that look like candlesticks.

As One Is by Jiddu Krishnamurti

Tue, 20 Sep 2022 00:00:00 GMT

I. Brief Summary

Krishnamurti gave a series of 8 talks in Ojai, California in 1955 on human conditioning. These thoughts are still as fresh today as they were 70 years ago. He confronts the idea of productivity and self-improvement. He goes deep into why there is suffering due to how society is governed. He argues the apparent progress of the self which is not progress toward freedom, but an illusion. Krishnamurti asserts knowing one's mind, through diligent self-observation which is the only way to freedom.

II. Big Ideas

The moment you stop seeking, you'll know the truth.
Want freedom from human conditioning? Try
- No judgement
- No opinions
- No foreknowledge
- No rituals
- No dogma
- No concept
- No condemnation
- No competition
- No ego
- No demands
- No greed
- No ambition
- No control
- No domination
Big ideas from each talk:
- Talk 1: When the mind is free from all conditioning, then you will find that there comes the creativity of reality, of God, or what you will, and it is only such a mind, a mind which is constantly experiencing this creativity, that can bring about a different outlook, different values, a different world.
- Talk 2: Everywhere society is conditioning the individual, and this conditioning takes the form of self-improvement, which is really the perpetuation of the 'me', the ego, in different forms. Self-improvement may be gross, or it may be very, very refined when it becomes the practice of virtue, goodness, the so-called love of one's neighbor, but essentially it is the continuance of the 'me', which is a product of the conditioning influences of society. All your endeavor has gone into becoming something, either here, if you can make it, or if not, in another world; but it is the same urge, the same drive to maintain and continue the self?'
- Talk 3: Our problem is to be good without trying to be good. I think there is a vast difference between the two... A person who tries to be humble obviously has not the least understanding of what humility is. ... Is it possible to have the sense of humility without the cultivation of humility?
- Talk 4: If we want to understand the problem of sorrow and perhaps put an end to it, then we cannot possibly think in terms of progress because a man who thinks in terms of progress, of time, saying that he will be happy tomorrow, is living in sorrow. AND. Self-improvement is progress in sorrow, not the cessation of sorrow.
- Talk 5: Cultures create religions but not the religious man. The religious man comes into being only when the mind rejects culture, which is the background, and is therefore free to find out what is true. ... Such a person is not an American, an Englishman, or a Hindu but a human being; he does not belong to any particular group, race, or culture and is therefore free to find out what is true, what is God. No culture helps man to find out what is true. Cultures only create organizations which bind man.
- Talk 6: If one is capable of studying, watching oneself, one begins to discover how cumulative memory is acting on everything one sees; one is forever evaluating, discarding or accepting, condemning or justifying, so one's experience is always within the field of the known, of the conditioned. But without cumulative memory as a directive, most of us feel lost, we feel frightened, and so we are incapable of observing ourselves as we are. When there is the accumulative process, which is the cultivation of memory, our observation of ourselves becomes very superficial. Memory is helpful in directing, improving oneself, but in self-improvement there can never be a revolution, a radical transformation. It is only when the sense of self-improvement completely ceases, but not by volition, that there is a possibility of something transcendental, something totally new coming into being.
- Talk 7: If we can discover from what the sense of domination springs, that discovery may answer the question of why we are violent.
- Talk 8: Being free of society implies not being ambitious, not being covetous, not being competitive; it implies being nothing in relation to that society which is striving to be something. But you see, it is very difficult to accept that because you may be trodden on, you may be pushed aside; you will have nothing. In that nothingness there is sanity, not in the other... As long as one wants to be part of this society, one must breed insanity, wars, destruction, and misery; but to free oneself from this society-the society of violence, of wealth, of position, of success-requires patience, inquiry, discovery, not the reading of books, the chasing after teachers, psychologists, and all the rest of it.

III. Quotes

Is it possible to teach your children without conditioning them?
An artist who is concerned with his name, with his greatness, with comparison, with fulfilling his ambition, has ceased to be an artist; he is merely a technician like everybody else. Which means, really, that to love something there must be a total cessation of all ambition, of all desire for the recognition of society, which is rotten anyhow.
If you are examining, understanding the ways of your own mind without seeking a reward, an end, without the motivation of gain, then there is self-knowledge, and you will see an astonishing thing come out of it.
A man who lives never asks, "What is living?" and he has no theories about living. It is only the half-alive who talk about the purpose of life.
To stand alone is to be uncorrupted, innocent, free of all tradition, of dogma, of opinion, of what another says, and so on. Such a mind does not seek because there is nothing to seek; being free, such a mind is completely still without a want, without movement. But this state is not to be achieved; it isn't a thing that you buy through discipline; it doesn't come into being by giving up sex, or practicing a certain yoga. To stand alone is to be uncorrupted, innocent, free of all tradition, of dogma, of opinion, of what another says, and so on. Such a mind does not seek because there is nothing to seek; being free, such a mind is completely still without a want, without movement. But this state is not to be achieved; it isn't a thing that you buy through discipline; it doesn't come into being by giving up sex, or practicing a certain yoga. It comes into being only when there is understanding of the ways of the self, the 'me', which shows itself through the conscious mind in everyday activity, and also in the unconscious. What matters is to understand for oneself, not through the direction of others, the total content of consciousness, which is conditioned, which is the result of society, of religion, of various impacts, impressions, memories - to understand all that conditioning and be free of it. But there is no "how" to be free. If you ask how to be free, you are not listening.
Our culture is based on will-the will to be, to become, to achieve, to fulfill-therefore, in each one of us there is always the entity who is trying to change, control, alter that which he observes. But is there a difference between that which he observes and himself, or are they one? This is a thing that cannot be merely accepted. It must be thought of, gone into with tremendous patience, gentleness, hesitancy, so that the mind is no longer separated from that which it thinks, so that the observer and the observed are psychologically one. As long as I am psychologically separate from that which I perceive in myself as envy, I try to overcome envy; but is that ‘I’, the maker of effort to overcome envy, different from envy? Or are they both the same, only the ‘I’ has separated himself from envy in order to overcome it because he feels envy is painful, and for various other reasons? But that very separation is the cause of envy. Perhaps you are not used to this way of thinking, and it is a little bit too abstract. But a mind that is envious can never be tranquil because it is always comparing, always trying to become something which it is not; and if one really goes into this problem of envy radically, profoundly, deeply, one must inevitably come upon this problem-whether the entity that wishes to be rid of envy is not envy itself. When one realizes that it is envy itself that wants to get rid of envy, then the mind is aware of that feeling called envy without any sense of condemning or trying to get rid of it. Then from that the problem arises: Is there a feeling if there is no verbalization? Because the very word envy is condemnatory, is it not? Am I saying too much all at once? Is there a feeling of envy if I don’t name that feeling? By the very naming of it, am I not maintaining that feeling? The feeling and the naming are almost simultaneous, are they not? And is it possible to separate them so that there is only a sense of reaction without naming? If you really go into it, you will find that when there is no naming of that feeling, envy totally ceases-not.
So the question now is: Why does the mind think in terms of habit, the habit of relationship, the habit of ideas, the habit of beliefs, and so on? Why? Because essentially it is seeking to be secure, to be safe, to be permanent, is it not? The mind hates to be uncertain, so it must have habits as a means of security. A mind that is secure can never be free from habit, but only the mind that is completely insecure - which doesn't mean ending up in an asylum or a mental hospital.

The mind that is completely insecure, that is uncertain, inquiring, perpetually finding out, that is dying to every experience, to everything it has acquired, and is therefore in a state of not-knowing - only such a mind can be free of habit, and that is the highest form of thinking.

To understand oneself requires, not impetuous urges, conclusions, but great patience. One must go slowly, millimeter by millimeter, never missing a step - which doesn't mean that you must everlastingly keep awake. You can't. It does imply that you must watch and drop what you have watched, let it go and pick it up again, so that the mind does not become a mere accumulation of what it has learned but is capable of watching each thing anew.
Is it possible, then, to be in a state of experiencing without the experiencer? Do you understand? Can the mind experience ugliness, beauty, or what you will, without the entity who says, 'I have experienced'? Because that which is Truth, that which is God, that which is immeasurable, can never be experienced as long as there is an experiencer. The experiencer is the entity of recognition; and if I am capable of recognizing that which is truth, then I have already experienced it, I already know it; therefore, it is not truth. That is the beauty of truth; it remains timelessly the unknown, and a mind that is the result of the known can never grasp it.
Sorrow may be controlled, disciplined, subjugated, rationalized, super-refined, but the potential quality of sorrow is still there; and to be free from sorrow, there must be freedom from this potentiality, from this seed of the ‘I’, the self, from the whole process of becoming.
For beauty there must be austerity and a total abandonment, and there cannot be abandonment if there is any sense of ambition expressing itself as an achievement. When there is austerity, there is simplicity, and only the mind that is simple can abandon itself, and out of this abandonment comes love. Such a state is beauty. But of that we are totally unaware. Our civilization, our culture, is based on arrogance, on the sense of achievement, and in society we are at each other's throats, violently competing to achieve, to acquire, to dominate, to become somebody. These are obvious psychological facts.
We are human beings, not Asiatics and Americans, Russians and Germans, communists and capitalists. We all have the same human problems.
This whole problem of naming a feeling, of giving it a term, is part of the problem of consciousness. Take a word like 'love'. How immediately your mind rejoices in that word! It has such significance, such beauty, ease, and all the rest of it. And the word 'hate' immediately has quite another significance, something to be avoided, to be got rid of, to be shunned, and so on. So words have an extraordinary psychological effect on the mind, whether we are conscious of it or not. Now, to go beyond, to transcend all that, requires tremendous attention. This total attention, in which there is no choice, no sense of becoming, of changing, altering, wholly frees the mind from the process of self-consciousness; there is then no experiencer who is accumulating, and it is only then that the mind can be truly said to be free from sorrow. It is the accumulation that is the cause of sorrow.
In attention there is no focusing, no choice; there is complete awareness without any interpretation. And if we can listen so attentively, completely, to what is being said, then that very attention brings about the miracle of change within the mind itself.
But when you are completely attentive with that attention in which there is no object because there is no process of acquiring, no cultivation of the will to achieve a result, then you will find that the mind is extraordinarily steady, inwardly still-and it is only the still mind that is free to discover or let that reality come into being.
In the moment of attention the self, the ‘me’, is absent, and it is that moment of attention that is good, that is love.
What is confusion? Confusion exists only when there is the fact plus what I think about the fact: my opinion about the fact, my disregard of the fact, my evasion of the fact, my evaluation of the fact, and so on. If I can look at the fact without the additive quality, then there is no confusion.
Anything I fight, I am giving life to. If I fight an idea, I am giving life to that idea; if I fight you, I am giving you life to fight me.
The mind hates to be uncertain, so it must have habits as a means of security.
There is progress in self-improvement-I can be better tomorrow, more kind, more generous, less envious, less ambitious. But does self-improvement bring about a complete change in one’s thinking? Or is there no change at all, but only progress?
Only the mind that is not occupied with desire can understand desire.

Paul Rand | A Designer's Art by Paul Rand

Thu, 25 Aug 2022 00:00:00 GMT

I. Brief Summary

This is a collection of short essays about theories and ideas surrounding not only graphic design, but art and visual role in our society written by legendary Paul Rand. He was one the most influential American art directors and graphic designers. I had a privilege to listen to a story about how Morningstar's logo came about which was designed by Paul Rand. He also worked with Steve Jobs. He took the position of design consultant at companies such as ABC, UPS and IBM. In an era where creative direction and art direction was somewhat unknown, Rand was a pioneer in this area. Rand shared lessons that are timeless and still most relevant today. Driving into Rand's mind is an absolute treat! This is an alchemy of design mastery.

II. Big Ideas

Words such as design, form, beauty, artistic, creative, and graphic are hard to design as it involves subjective interpretation.
Design focuses more on conception than it does on execution. The design of an idea might be conceived by a designer but it cannot come to fruition without the skills of a printer or a stone cutter.
Graphic design is essentially about visual relationships. It is the designer's job to select and fit the material together and make it interesting.
Form and function is the integration of the beautiful and usefulness.
Designer experiences, perceives, analyzes, organizes, symbolizes, synthesizes; considers spectator's feelings; draws upon instincts and intuition; must go through rigorous mental exercise.
The designer is primarily confronted with three classes of material: a) the given material: product, copy, slogan, logotype, format, media, production process; b) the formal material: space, contrast, proportion, harmony, rhythm, repetition, line, mass, shape, color, weight, volume, value, texture; c) the psychological material: visual perception and optical illusion problems, the spectators’ instincts, intuitions, and emotions as well as the designer’s own needs.
If there is vagueness in problem statement, it is the designer's job to restate the problem. Driving clarity is essential!
Since graphic design deals with spectator, it is the goal of the designer to be persuasive or at least informative. Painters need not concern with this since a painting is open to interpretation.
Trademark and logo are symbols. There are good symbols and bad symbols. The flag is a symbol of a country. The cross is a symbol of a religion. A trademark is created by a designer but made by a corporation.
Stripes draw attention. They are memorable. Nature has created stripes (Zebras). They are effective.
Ideas do no need to be esoteric to be original or exciting. Originality is related more to the unexpected idea than to some flamboyant or peculiar technique. To defamiliarize the commonplace, to see it as if were for the first time, is the artist's goal.
The artist is a collector of things imaginary or real. He accumulates things with the same enthusiasm that a little boy stuffs his pockets. The scrap heap and the museum are embraced with equal curiosity. He takes snapshots, makes notes and records impressions on tablecloths or newspapers, on backs of envelopes or matchbooks. Why one thing and not another is part of the mystery, but he is omnivorous.
Repetition is an effective way of achieving unity. Repetition also means remembrance.
Humor is misunderstood and plays a significant role in design process and artifacts. Plato, in The Republic declares: Therefore do not use compulsion, but early education be rather a sort of amusement.
The deployment of any visual image must begin with some tangible idea or conscious.
Collage and montage draws spectators engagement because it requires personal discovery and exploration on what an artist is trying to convey. The value of audience participation is critical!
Type matter involves readability. However, this function by a designer is taken too literally and overemphasized at the expense of style and individuality.
Symmetry offers the spectator too simple and too obvious a statement. It offers little or no intellectual pleasure, no challenge. With asymmetric, designer is able to achieve great interest.
In his writings specifically around typography, he puts emphasizes on there is no such thing as American font. A long-standing debate in many disciplines. American type is the combination of many geographies, culture and people.
Meaningless solutions are produced when too much emphasize is placed on freedom and self-expression. Conversely, meaningful solutions are produced with defined limits. The latter is the instinct of play and will most likely yield novel solution. The rules are the means to the end, the conditions the player must understand thoroughly and work in order to participate. Without specific formal limitations and without the challenge of play, both teacher and student and teacher cannot help but be bored. The student has the illusion of creating great art in an atmosphere of freedom, when in fact, the designer is handicapped by the absence of certain disciplines which would evoke ideas and make playing with those ideas possible and interesting.
Rand lists number of design exercises to work up your design muscle: crossword puzzle, the tangram, hokusai's drawing, chinese characters, the modular, the grid system, mason's mark, tatami, albers, cubist collages, matisse, picasso, mu ch'i, the photogram, piet zwart, japanese craftsman.
Taboos and prejudices have long created limiting barriers to experimentation and to meaningful work in the arts, that is against the color black. However, the color black has many virtues. It is perfect for contrasting. Looking around us, nature has many elements of black. In Japanese painting, black (sumi) is often the only color employed.
Together black and white act as complementary colors. Bright light reflected by the white area nullifies the reflected light from the black area. This makes the black seem blacker and white more brilliant.
The field of packaging include materials, construction, and application. The Chanel packaging and design is an excellent study. In a well designed package, the designer does not seek to exploit consumer's visual memories and attachments by sentimental distortion but to express his objective appreciation of the fact that people do have strong affective reaction to things.
The last two chapters Politics of Design and Integrity and Invention are worth re-reading. Rand worked with large organizations when design was at its infancy, so he knows how design was perceived in the world of commercialization. I have both chapters filled with annotations and notes. There is a lot of wisdom in them.

III. Quotes

Design is the animating principle of all creative processes. - Vasari
It is no secret that the real world in which the designer functions is not the world of art, but the world of buying and selling.
Design is a problem-solving activity.
Dignity, like understanding, is a general term, a principal of action.
The problems of optical illusion and visual distortion are but a few considerations about which the designer must be aware.
Functionalism does not preclude beauty, but it certainly does not guarantee it either.
A mind so disciplined should be both more abstract and more concrete. It has been trained in the comprehension of abstract thought and in the analysis of facts. - Alfred North Whitehead
It is impossible to define cold without contrasting it with heat. It is impossible to comprehend life if death is ignored. Black is the color of death, but by virtue of the same psychological fact it is also the color of life-it defines, contrasts, and enhances life, light, and color.
The source of the creative impulse is a mystery. Where do ideas come from?
Curiosity is the common denominator and the pleasure of discovery an important by-product.
Don't try to be original; just try to be good.
Visual communication of any kind, whether persuasive or informative, from billboards to birth announcements, should be seen as the embodiment of form and function: the integration of

the beautiful and useful. Copy, art, and typography should be seen as a living entity; each element integrally related, in harmony with the whole, and essential to the execution of an idea.

Design can be art. Design can be aesthetics. Design is so simple, that's why it is so complicated.
Everything is design. Everything!
You will learn most things by looking, but reading gives understanding. Reading will make you free.
So that is the design process or the creative process. Start with a problem, forget the problem, the problem reveals itself or the solution reveals itself and then you reevaulate it. This is what you are doing all the time.
Design is the method of putting form and content together. Design, just as art, has multiple definitions, there is no single definition. Design can be art. Design can be aesthetics. Design is so simple, that’s why it is so complicated.
Simplicity is not the goal. It is the by-product of a good idea and modest expectations.
All art is relationships, all art. Design is relationships. Design in a relationship between form and content... Your glasses are round. Your collar is diagonal. These are relationships. Your mouth is an oval. Your nose is a triangle - this is what design is.
Without aesthetic, design is either the humdrum repetition of familiar clichés or a wild scramble for novelty. Without the aesthetic, the computer is but a mindless speed machine, producing effects without substance. Form without relevant content, or content without meaningful form.
Design is the silent ambassador of your brand.
The designer does not, as a rule, begin with some preconceived idea. Rather, the idea is (or should be) the result of careful study and observation, and the design a product of that idea.
Even if it is true that the average man seems most comfortable with the commonplace and familiar, it is equally true that catering to bad taste, which we so readily attribute to the average reader, merely perpetuates that mediocrity and denies the reader one of the most easily accessible means for esthetic development and eventual enjoyment.
Design is a way of life, a point of view. It involves the whole complex of visual communications: talent, creative ability, manual skill, and technical knowledge. Aesthetics and economics, technology and psychology are intrinsically related to the process.
The artist is a collector of things imaginary or real. He accumulates things with the same enthusiasm that a little boy stuffs his pockets. The scrap heap and the museum are embraced with equal curiosity. He takes snapshots, makes notes and records impressions on tablecloths or newspapers, on backs of envelopes or matchbooks. Why one thing and not another is part of the mystery, but he is omnivorous.
The public is more familiar with bad design than good design. It is, in effect, conditioned to prefer bad design, because that is what it lives with. The new becomes threatening, the old reassuring.
The hardest thing to see is what is in front of your eyes. - Goethe
Stubbornness may be one of the designer's admirable or notorious qualities (depending on one's point of view)-a principled refusal to compromise, or a means of camouflaging inadequacy. Design clichés, meaningless patterns, stylish illustrations, and predetermined solutions are signs of such weakness. An understanding of the significance of modernism and familiarity with the history of design, painting, architecture, and other disciplines, which distinguish the educated designer and make his role more meaningful, are not every designer's strong points.
Technologically, scientifically, and hygienically packages of today are practical, but are they beautiful? Functionalism does not preclude beauty, but it certainly does not guarantee it either. The obsession with functional shapes and new materials is a questionable limitation even for the conscientious designer blessed with a sensitive client. It tends to promote a misconception of simplicity, translating this admirable quality into bareness or rendering it self-conscious to the point of vapidity.

Dieter Rams by Klaus Klemp

Sat, 20 Aug 2022 00:00:00 GMT

I. Brief Summary

This book presents the product designs of an industrial designer Dieter Rams, organized in chronological order from 1947 to 2020. Dieter Rams is an industrial designer whose collaborations with Braun and Vitsoe have produced some of the most iconic consumer products of the 20th century. Rams is known for consumer products that has defined the most recent of our society-an electric razor, blow-drier, electric tooth brush, or a lighter. Rams is credited as the lead inventor of the patented F1 mactron pocket lighter design from 1971. His greatest economic success was for the American company-the Sensor razor which went on to sell 100 million units in 1989. His design philosophy is simple, yet hard-less, but better.

II. Big Ideas

Rams describes his thoughts on what design should be:
- Rams has always based his design on functionality, intensive cooperation with engineers was an integral part of his practice and he was often involved in the technical development of products. He practiced what he preached-design is a process, and industrial design is teamwork with many people involved.
- Design is not just about the formal design of things, it determines the life of every individual and how we all live with one another.
- Design can promote social togetherness but it can also damage it.
- Designers should not just accept the job of designing a product, but ask hard questions.
  - For example, whether the product we are designing is really necessary, or if something already exists that does the job well enough, if not better. Does it really help to enrich our lives or does it only appeal to ideas of status? Is it repairable? Is it durable? Easy to use and flexible in its use? Can I master it easily or does the new product dominate me?
  - The last question on dominance is more relevant than ever.
- We should surround ourselves with fewer things, but better things. This is not a constraint, it is an advantage, which allows us more space for real life.
- Strive to build better things that last longer than striving to build the next best thing. This is the necessary incentive for the design of our whole environment. This is the benchmark for the future.
  - Less, but better has to hold true for production, but also with respect to short-lived items as well. We have less and less resources, and our rubbish dumps are getting bigger and bigger - even in outer space and in our planet's oceans. We have to protect our climate and we have to design our cities in more intelligent and affordable ways. This is the great challenge of our age for our governments and for us in our behavior as citizens. Last, but not least, we need entrepreneurs and designers to develop intelligent alternatives.
  - The word function covers has expanded enormously and we have learned how complex and diverse the function of a product can be. Today we are well aware that the things we make need to have psychological, ecological and social utility as well. The functional, then, has very many facets. But, as far as I can see, there is no alternative.
  - Less, but better means we must distance ourselves from the unculture of excess-of waste. Away from cheapness in the literal, and also the figurative sense. It also means that we need more things that truly give the buyer and the user what they expect from them: the facilitation, enhancement and strengthening of their lives.
- Less, but better, we need:
  - Less and less of the kind of products whose production and use squander resources and are a burden on the environment.
  - Less and less of the kind of products that stimulate the desire to buy, but are barely used, quickly set aside, thrown away and then replaced with new ones.
  - Less and less of the kind of products that are nothing more than fashion and become obsolete as soon as that fashion has passed.
  - Less and less of the kind of products that break quickly, wear out and age prematurely.
Work attitude:
- Rams repeatedly emphasized on the importance of teamwork.
- What is significant is that the designs themselves were not changed, or were only altered very slightly; at Braun, a design was only changed when actual innovations were achieved. This approach reflects a fundamental conviction of Rams and Braun that technical improvements do not automatically warrant a new design, and, as a result, many Braun appliances had an extraordinarily long design cycle. This is in stark contrast to the common business practice of introducing old or barely improved technology to the market packaged in a new look to stimulate consumption. The same rules were applied at Vitsoe, the original designs from 1960s virtually remains unchanged.
- Three essential qualities of Rams from the days of working at Braun:
  - First, he was a designer who operated at the highest level of personal productivity.
  - Second, he was a team leader, without whose persistence and diplomacy the company's strong design mentality would not have developed so fully. This one should not be underestimated.
  - Third was his contemplative approach. He went from theorist to fighting against excessive mass consumption to protect the environment.
- Japan's deep-rooted culture played a vital role in his style. This gave him new horizons and experiences. Kenji Ekuan, Japan's most important industrial designer at the time influence Rams.
- Rams expressed his self-image after 25 years as an industrial designer: Designers, as I understand them, are critics of civilization, critics of technology, critics of society. But in contrast to the many critical minds that exist today, some with a calling, some without, they must not stop at criticism. They have to keep trying to create something new that emerges from the criticism and withstands criticism. A shaver or a chair, a film camera or a shelf should have the objective usefulness of tools in their construction and design. They should help people to solve small or large problems. They should help them to be creative themselves. They should live with them and enable them to become friends. [...] As a designer, if you don't close your eyes, you won't be able to stop brooding.
- Rams also refers to the comprehensive approach to design, to the impact of spaces and things on people, to a nature destroyed by ever-increasing consumer waste and to the blatant injustice of superfluous things in rich countries and poverty in developing countries.
- Rams expressed his thoughts on who ultimately decides on what is produced: Who decides about designs? [...] It is unrealistic to expect a company to leave the decision to the designer alone. … It would also be unfair to saddle the designer with a decision that affects the entire company. The company's management must be able to rely on the professional expertise of its employees - the engineers, the sales staff and the designers! It cannot reduce any of these three to mere lackeys. And yet they cannot allow the specialists to make the decisions alone. From my point of view, the reality is that the designers prepare the decision to a large extent, and greatly limit the possible leeway in the decision- making. [...] Management cannot go to the drawing board or create models themselves. They can only accept, influence and reject. I honestly have to say that many a good design has fallen by the wayside. But I also have to say that I basically do not consider any other solution to be sensible or realistic. It is good when decisions about design are made at the highest level in a qualified and competent manner-good for the company, good for the designers.
- Over the years, Rams developed a strategy of presenting only fully developed prototypes to the decision-making committees. He deliberately refrained from giving interim presentations to avoid raising concern over half-finished products.
- One of the underlying principle was when making continuous updates, the new modifications must be compatible with existing system.
- His credo: less, but better, a motto for change, and potentially the key to a better existence for everyone and for the environment.
Design elements and characteristics:
- Rams often worked with right angles, with cube and rectangular box shapes. A closer look, however, shows that these basic shapes have often been altered in detail: for example, in the slight curvature in the grille of the LE1loudspeaker, in the asymmetrically rounded edges of the domino table lighter, or in his use of color to add an element of contrast to his otherwise understated designs.
- Another trait is that his objects are always designed from every angle, even the rear sides that might normally be concealed. He applied this principle as early as 1957, with the RZ 57 modular system, which could be assembled as a freestanding unit and placed anywhere in a room. This holistic approach permeates his entire design practice.
- Another central element in Rams's design work is the principle of modularity, or in other words, connectivity. What makes the approach so successful is that the different components do not look like autonomous elements casually strung together; instead they produce a considered and harmonious overall form.
- Color also played an important, albeit discreet, role for Rams. His electronic devices were not just black, white or grey, as some critics claimed during the post-modern era., Rams used colors as indicators of operability, but even more important was their ability to bring aesthetic value. He used color very sparingly, but it was precisely for this reason that it had such an impact. The complementary contrast between red and green played a role again and again, but often Rams opted for a simple red dot. There is virtually no Braun device that he was involved with that goes without this minimalist color scheme.
- Similarly, his use of typography on the devices was very light and restrained, and this would become typical of the Braun style; even on his earliest designs, Rams kept the lettering and the logo very small. His consistent use of the Akzidenz-Grotesk font enhanced the longevity of Braun's corporate design.
- The final characteristic that was central to Rams's approach, as well as to Braun's, was intuitive user interaction, and it can be traced back to Herbert Hirche's HF1 television set from 1958, which had only one visible power button. Subsequently, Braun devices came to be defined by the fact that they required no 4 operating instructions; in other words, they were self-explanatory. This was truly a great challenge and achievement, and has been an ell inspiration for Apple in particular since the early 2000s. For Rams, the objects of our everyday are, and have, always been, special; they are the things that deserve our attention, that are in need of improvement and, if possible, reduction. For him, design is not something to be exalted and distinguished, as we are led to believe in a world of consumerism. Back to purity, back to simplicity! is the last statement of his ten principles. A motto for new beginnings.
Design style and principles:
- One question that cannot be answered with a simple yes' or 'no' is whether Rams has a definitive design style. In 1977, Rams described his approach to design as follows: First of all, we tried - and continue to do so - to understand anew and better what kind of devices people really need, and then what they should look like. And we constantly asked ourselves and others: does it have to be like this?
- For him, having an attitude towards design has always been more important than a style, one that is user-oriented, sensible, ethical and aesthetic. He stated this in his 10 principles for good design:
  - Good design is innovative. The possibilities for innovation are not, by any means, exhausted. Technological development is always offering new opportunities for innovative design. But innovative design always develops in tandem with innovative technology, and can never be an end in itself.
  - Good design makes a product useful. A product is bought to be used. It has to satisfy certain criteria, not only functional, but also psychological and aesthetic. Good design emphasizes the usefulness of a product whilst disregarding anything that could possibly detract from it.
  - Good design is aesthetic. The aesthetic quality of a product is integral to its usefulness because products we use every day affect our person and our well-being. But only well-executed objects can be beautiful.
  - Good design makes a product understandable. It clarifies the product’s structure. Better still, it can make the product talk. At best, it is self-explanatory.
  - Good design is unobtrusive. Products fulfilling a purpose are like tools. They are neither decorative objects nor works of art. Their design should therefore be both neutral and restrained, to leave room for the user’s self-expression.
  - Good design is honest. It does not make a product more innovative, powerful or valuable than it really is. It does not attempt to manipulate the consumer with promises that cannot be kept.
  - Good design is long-lasting. It avoids being fashionable and therefore never appears antiquated. Unlike fashionable design, it lasts many years – even in today’s throwaway society.
  - Good design is thorough down to the last detail. Nothing must be arbitrary or left to chance. Care and accuracy in the design process show respect towards the user.
  - Good design is environmentally-friendly. Design makes an important contribution to the preservation of the environment. It conserves resources and minimizes physical and visual pollution throughout the lifecycle of the product.
  - Good design is as little design as possible. Less, but better – because it concentrates on the essential aspects, and the products are not burdened with non-essentials. Back to purity, back to simplicity.

III. Quotes

There have been so many inspiring conversations with so many people. I have always treasured the global nature of such encounters, because it is only through international dialogue and collaboration that we will be able to shape our world wisely for the future. Any form of nationalism has always been alien to me.
Design can promote social togetherness-but it can also damage it. This is why the responsibility carried by designers is so great.
Look at all the things we have designed in the last 150 years alone: telephones, cars, radios, televisions, computers and smartphones. Marshall McLuhan was right in saying that the medium is the message, in that it both extends and restricts our possibilities.
Free yourself from the ballast of too many things. A willingness for order-for simple, calm, restrained forms with longer, more aesthetic, useful lives-seems to me to be of far more importance than constantly trying to invent the next best thing. However, good design does not come through + the fulfillment of demands alone. Good everyday design should always be design that speaks for itself.
I have always been convinced that the good design is a matter for companies and not just individual designers. This conviction has become stronger over the years.
I am counting on the younger generation, who are hopefully well aware of all these problems and not just concerned with individual advantage and maximum profit. Changing the future was never easy and it has become a lot harder today.
I am convinced that there is an ethics of design-that there has to be one. It is time to realize that we have once again reached the end of a phase of disorientation and arbitrariness. Everything seemed possible-and we could do anything we wanted-and the me came before the we. But we have to change our course now-before catastrophe forces us to do so.
I believe that one of the most important responsibilities of design-perhaps the most important, in respect of society - is to help lighten the chaos that we are forced to live in today.
Since we can never know anything for sure, it is simply not worth searching for certainty: but it is well worth searching for truth: and we do this chiefly by searching for mistakes, so that we can correct them! - Austrian-British philosopher Karl Popper
If Rams shows technology, it is technology that has been civilized by design.
But what is the use of all the work if it is not published?

The Art Of Doing Science And Engineering by Richard W Hamming

Sun, 07 Aug 2022 00:00:00 GMT

I. Brief Summary

This is one of the most influential book I have read on-highly effective thinking. This book is a true gift of inspiration to humanity. A mathematician, Hamming worked on the Manhattan Project and early digital computers. Everything we do in today’s digital world depends on Richard Hamming’s inventions. Hamming saw science and engineering at the highest levels. Hamming stresses that our society no longer values today: “With only one life to live on this earth, you ought to try to make significant contributions to humanity rather than just get along through life comfortable-that the life of trying to achieve excellence in some area is in itself a worthy goal for your life.” It is worth listening to him with wide open years because he has done it himself. Hamming describes while university is good at teaching technical skills, it's not good at teaching the thinking through the lens of multidisciplinary approach. Critical thinking is an art that engineers and scientists can be taught. This book will enhance a person's ability to function as a problem-solver of complex issues. This is an excellent book on style-of-thinking. It definitely belongs in my re-read category. I will come back to this book many times over my life.

II. Big Ideas

This book is concerned more with future and less with the past of science and engineering. Hamming argues future predictions are uncertain and usually based on past; but the past is also much more uncertain or even falsely reported than is usually recognized. Hamming in his own words:
- I was trying to teach “style” of thinking in science and engineering and “style” is an art, I should therefore copy the methods of teaching used for the other arts-once the fundamentals have been learned.
- How to be a great painter cannot be taught in words; one learns by trying many different approaches that seem to surround the subject. Art teachers usually let the advanced students paint, and then make suggestions on how they would have done it, or what also be tried, more or less as the points arise in the students head-which is where the learning is supposed to occur.
- I firmly believe in Pasteur's remark, “Luck favors prepared mind.” In this way I can illustrate how the individual's preparation before encountering the problem can often lead to recognition, formulation and solution. Great results in science and engineering are bunched in the same person too often for success to be a matter of random luck.
- Teacher should prepare the student for the student's future, not for the teacher's past.
I loved the Foreword by Bret Victor in the edition produced by Stripe Press. Bret Victor is another giant within the field of engineering. The entire thing is worth reading several times. Some of Bret's own words capturing the importance of Hamming's ideas and writings:
- Most thrilling was Hamming's vivid image of greatness, and its unapologetic pursuit. Not only was it allowable to aim for greatness, it was cowardly not to. It was the most inspirational thing I'd ever read.
- ...studying how great scientists thought about digital filters, one learns, however gradually, to think like a great scientist.
- Among, the most remarkable attributes of Hamming's style of thinking is its sweeping range of scale.
- Nothing is taken for granted of left unquestioned, but is picked up and turned over curiously, intently, searching for fundamentals.
- Just as nothing is taken for granted, nothing is taken in isolation.
- For one accustomed to the myopia of day-to-day work in a field, so jammed against the swaggering parade of passing trends that one can hardly see beyond them or beneath them, such shifts in viewpoint are exhilarating-a reminder that information may be abundant but wisdom is rare.
- After all, where today can the serious student of scientific creativity observe the master at work, short of apprenticeship?
- Histories are written for spectators; textbooks teach tools, not craft.
- The reader is destined to join him in extending the arc of history, to become a great person who does great work. In this tour of scientific greatness, the reader is not a passenger, but a driver in training.
- It is valuable to consider exactly what he meant by “great people,” and by “great work.”
  - In Hamming's world, great people do and the rest do not.
  - It is well-known that science is a fundamentally social enterprise, advanced by the intermingling ideas and cumulative contributions of an untold mass of names which, if not lost to the ages, are at least absent from Wikipedia.
  - He spent his days helping other people with their problems, often problems of a practical and mundane nature.
  - And most critically, all of his “great” work, his many celebrated inventions, grew directly out of these problems he was solving for other people.
  - Hamming's conviction-indeed, obsession-was the opposite: that this greatness was less a matter of genius (or divinity), and more a kind of virtuosity. He saw these undeniably great figures as human beings that had learned how to do something, and by studying them, he could learn it too.
    - Against a background of colleagues more talented, more knowledgeable, more supported, better equipped along every axis, Hamming was the one to invent the inventions, found the fields, win the awards, and generally transcend his times.
  - Hamming was always as much a teacher as a scientist. He felt he could prepare the next generation for even greater greatness. That's the premise and promise of this book.
  - Hamming-greatness is thus more a practice than a trait. This book is fully of great people performing mighty deeds, but they are not here to be admired. They are to be aspired to, learned from, and surpassed.
- Hamming leaves the definition of “great work” open, encouraging the reader to “pick your goals of excellence” and “strive for greatness as you see it.” Hamming considered “great” had a distinct shape, and tracing that shape reveals the deepest message of the book.
  - There are all the things that are taught. To “use” them means to learn them, understand them, internalize them, perform them with one's own hands. They are free to any open mind.
  - In Hamming's world, great achievements are gifts of knowledge to humanity.
  - It's possible to see these past gifts as inevitable, without realizing how much the present-day winds have shifted. Many of the bright young students who, in Hamming's day, would have pursued a doctorate and a research career, today find themselves pursued by venture capital. Steve Jobs has replaced Einstein as cultural icon, and the brass ring is no longer the otherworldly Nobel Prize, but the billion-dollar acquisition. Universities are dominated by “technology-transfer” activities, and engineering professors-even some in the sciences–are looked at askance if they aren't running a couple startups on the side.
    - One can imagine the encouraged path, the inevitable-seeming path, for a present-day inventor of error-correcting codes: error-correcting.com, encoding as a service, all ingenuity hidden behind an API. Bait to be swallowed by some hulking multi-national. Hamming wrote books.
  - Gifts to humanity to be learned by minds, not downloaded to phones.
  - As we read Hamming's reminiscences of lunching with Shockley, Brattain, and Bardeen-lauded today as “inventors of the transistor”-let us keep in mind how they viewed themselves: “discoveries” of “transistor action.” A phenomenon, not a product; to be described, not owned and rented out. Their Nobel Prize reads “discovery of the transistor effect.” Hamming's account lingers on the prize and is silent on the patents.
  - The true magic lay in motivation.
  - Bell Labs imposed upon itself an unusual responsibility-its workers saw themselves as bound to operate in the public interest. And what fruits that restriction yield.
  - This book is adopted from a course that Hamming taught at the U.S. Naval Postgraduate School, to cohorts, of “carefully selected navy, marine, army, air force, and coast guard students with very few civilians.” Hamming tell his students: “The Navy is paying a large sum of money to have you here, and it wants its money back by your later performance.”
    - The United States Navy does not want its money back with an IPO.
    - Regardless of one's orientation toward military engineering, there is no question that these students are expected and expecting to serve the public interest.
  - Hamming-greatness is tied, inseparably, with the conception of science and engineering as public service. This school of thought is not extinct today, but it is rare, and doing such work is not impossible, but fights a nearly overwhelming current.
    - Yet, to Hamming, bad conditions are no excuse for bad work.
My major highlights and takeaways:
- We are, in a very real sense, the sum total of our habits, and nothing more.
- Education is what, when and why to do things. Training is how to do it.
- What do you focus on in your studies? Focus on the fundamentals, or what you think are the fundamentals.
- Develop the ability to learn new fields of knowledge when they arise so you won’t be left behind.
- Fundamentals are things that have lasted a long time (similar to Lindy). Another way to detect them is to see if they can be derived using the standard methods in the field.
- The future will be more limited by human organization than it will be by technological progress.
- Having a good vision of what you want to achieve will help you go further. Having no vision is essentially like walking in a random direction from a starting point. The accuracy of the vision is less important than having a vision at all. There are many paths to greatness, and you only need one.
- The standard approach of breaking knowledge down into disciplines/sub-disciplines has two drawbacks. First, it conceals the underlying homogeneity of knowledge. Second, it leaves out the important things that fall between the disciplines.
- You have only one life-you should try to make significant contributions to humanity rather than just get through comfortably.
- You must understand the deep theories of things to be effective far into the future as the higher-level ideas slowly advance.
- You should pay attention to what you know. Be able to re-think it from the ground up and decide for yourself whether it is still applicable. As the world changes, theories lose their relevance or start to look outdated in the face of new information.
- New innovation often takes the form of an “S” curve. Often innovation overall will be successive “S” curves overlaid onto one another - as one invention takes over from another. This means that you see times of high innovation, then plateaus of little innovation.
- Computers are not just number crunchers. They are symbol manipulators.
- Almost everybody who opens up a new field doesn’t understand it in the same way that followers do. This is because creators have to fight through many dark difficulties, misunderstanding and confusion. They are the ones exploring the dead ends and finding the way. The people who come after already have a path to follow, which is far more clear and easy.
- Programming is kinda like novel writing in the sense that it is very imaginative.
- You need to think carefully before programming. Think about the whole thing, including testing and how maintenance will happen.
- The most productive programmers are far more productive than the least productive. Hamming suggests firing the least productive, but paying the most productive ones very well.
- When giving a talk, consider what your audience wants to hear. Do not give dull talks, but walk the line between science communication and entertainment.
- Communicate your excitement to the audience. Don’t relax too much when giving your talks otherwise your audience will fall asleep.
- When you use a computer to do a job, it never does the same job as if somebody was to do it manually. Rather it does an equivalent job.
- The most important things you can do are those which make a difference to your organization (whatever it is). 10% improvements are fine, but keep an eye out for the great new things on the horizon.
- Computers manipulate symbols, but not information.
- We must consider, “out of all of life’s burdens, which are those machines can relieve, or significantly ease, for us?”
- It’s hard to define “thinking”. Turing sidestepped the question with his Turing Test, since he specified a way to recognize thinking, but didn’t define thinking directly. I.e. a “I know it when I see it” thing.
- Thinking might not be a yes/no thing, but rather a matter of degree.
- We should focus on AI where humans and machines can work together, not where they compete between each other. Robots will displace humans from doing menial tasks, but this should only allow humans to do humane jobs.
- We originally started programming computers to play games in order to gain insights into how the human brain works. Eventually this motivation changed to trying to make computers win games. The original aim is still likely most important.
- We should carefully consider the `solution space' of any given design problem. Consciously probe this space for novel solutions.
- The meaning of any symbol depends on how it is processed. Symbols have no inherent meaning. For example, the meaning of an instruction is dependent on the subroutine (i.e. context) it appears in.
- One of Hamming’s greatest discoveries (error correcting codes) occurred to him while there was a great deal of emotional stress. This is a characteristic of most great discoveries. Working calmly will let you elaborate and extend things, but breakthroughs generally come from great frustration and emotional involvement.
- Hamming was able to invent error correcting codes because he was familiar with the binary system which wasn’t common in the late 40’s (then, people used analog computers). By understanding this (then) niche field, he was able to come up with new inventions which intersected that field with more established areas of study.
- Pasteur’s rule: Luck favors the prepared mind. You succeed by preparing yourself to succeed. Yes, luck exists. You need to have an element of luck to be able to discover new things, but in Hamming’s career, there were many people who were in a similar position to him and who did not make great discoveries. Hamming was lucky, but he was also preparing himself to understand what was going on, more than the other people around who were merely reacting to things, and not thinking deeply as to what was behind the surface phenomena.
- Life presents you with lots of opportunities to do great things. Prepared people will hit one or more successes, but unprepared people will miss almost every time.
- What it takes to be great in one time period is different from what it takes to be great in the next. You can’t simply copy the approaches of others (e.g. Hamming), but rather think for yourself about the nature of the future that you will live in, and adapt your approach with that in mind.
- Inspect the definitions of terms and other things. To what extent do results stem from the definition framed to get a desired result? How often were definitions framed under one condition, but applied under another? For the first question, think IQ tests - they are defined to give a normal distribution of IQ among the population. They could just as easily be defined to give an exponential distribution of IQ. For the second question, think economics. Much of economic theory rests on assumptions that do not hold (or rarely hold) in practice.
- Learning a new subject is something you will have to do many times in your career if you are to be a leader and not left behind as a follower by newer developments.
- When you see something weird, always ask yourself; “What is really going on here?” Work from first-assumptions where possible.
- People always want to think that something new is just like the past. They want to be comfortable with the new stuff. As such, they prevent themselves from making significant contribution to the new field being created right under their noses.
- When something is claimed to be new, don’t quickly think that it is just the past slightly improved. Rather, it may be a great opportunity for you to do significant things. Then again, it may indeed be nothing new.
- If you want stuff to be named after you, then it must be your friends that make you famous by quoting and citing you. As such, it pays to be helpful to others as they try to do their work. They may in the future give you credit for your work, which is far better than trying to claim it for yourself.
- Cooperation is essential because we work on such complex projects. You can no-longer work alone as an individual on most stuff. Instead, learn to work effectively in a team and seek out places where you can help others. In any case, the fun of working with other people on important problems is more pleasurable than the resulting fame.
- You should be careful when writing up results that you worked on with others - they may see your contributions and theirs in a different light to how you do. If they write up results, then they can cite you as a co-author as they wish.
- When something can’t be done remember the reason why. Then later on, when the circumstances have changed, you will recognize that maybe it can actually be done. Review the /details/ of why the task could not originally be done, and ascertain whether it is still the case.
- To the extent that you can choose, work on problems that you think are important
- As people get more specialized and narrower in their knowledge, we need more people to keep the larger view and see that things are done honestly. These are the people who can ensure that a broader vision is followed, and link separate areas of knowledge together.
- If you don’t occasionally doubt accepted rules, then you are unlikely to be a (thought) leader. At the same time, if you doubt too much, then you will be paralyzed and do nothing. How to strike a balance between these two extremes is a matter of style - you must learn and develop it for yourself. Big advances usually come from changes in the underlying assumptions of a field.
- When running simulations, it is better to run a few simulations and understand what happened well than it is to run hundreds and use trial and error. The former way allows you to get an intimate feeling about the simulation.
- Doing simple simulations at the early stages of research lets you develop insights into the whole system which would be disguised in a full-scale simulation. Therefore, where possible, start with a simple simulation and then evolve it into a more complete and accurate simulation later.
- Older minds generally have more trouble adjusting to new ideas than younger minds. This is relevant, since you will often be presenting to older people throughout your career, so bear this in mind.
- You should try to keep abreast of new developments in your field by actively anticipating the way things and ideas might go, then seeing what actually happens. Your anticipation means that you are far better prepared to absorb new things when they arise than if you sit passively and merely follow the progress. “Luck favors the prepared mind”.
- What is technologically feasible and even economically better is often constrained by legal, social and economic conditions. Bear this in mind.
- What you learn from others you can use to follow. What you learn for yourself you can use to lead.
- You must learn to recognize different concepts in different forms. For example in computer programming, there are many different problems that are suitable for solving through recursion. You must be able to recognize abstract ideas and apply them in specific contexts.
- Mathematics is a sort of a universal mental tool for clear thinking.
- Part of what makes mathematics effective is that there are analogies between the equations on our desks and the real world. Only while these analogies are accurate, can mathematics have predictive power.
- Hamming theorizes that in the past, we have found the ‘easy’ applications of mathematics where there is a close correspondence between the underlying structure of mathematics and the corresponding real-world phenomena. In time, this won’t be the case, and we will have to be satisfied with mathematics having a looser relationship with the real world - it’ll be simply too hard to model. As such, we may have to have many different models where the whole is more than the sum of the parts.
- There can be multiple theories that can account for the same observations and agree on all the predicted details. You can’t go from a body of data to a unique theory.
- Man is not a rational animal. He is a rationalizing animal.
- Hamming predicts that in the future, we won’t be able to fully “understand” things because they will be too complex/complicated. He implies that we will invent new tools that can cope with this.
- Creativity seems, to be the ability to “usefully” put things together which were not perceived to be related before. It might be the initial psychological distance between things that counts the most.
- Creativity in an individual can be improved/developed. You must develop your own effective style in order to have “great ideas”.
- I often suspect creativity is like sex; a young lad can read all the books you have on the topic, but without direct experience he will have little chance of understanding what sex is-but even with experience, he may still not understand what is going on!
- Creativity tends to have the following pattern. First there is a recognition of the problem at hand, at least in a dim sense. Then the problem is refined over some period of time (you shouldn’t be too hasty here-put the problem in a conventional form and you will get a conventional (uncreative) solution). This second stage requires emotional involvement, which is your commitment to finding a fundamental and novel solution. Either you come up wit ha solution or otherwise temporarily abandon the problem. Temporary abandonment is a common feature of great creative acts, often it is required to enable the subconscious to find a new approach. Finally, there is a moment of insight where you can see the solution. Of course, you might be wrong, where on closer examination, your solution is faulty. Even then, it might be able to be saved with a revision.
- When stuck at work, Hamming asks himself “If I had a solution, what would it look like?”. This tends to sharpen the approach because it may reveal new ways of looking at the problem that might have been initially ignored.
- Once you have a solution, there is still a lot more work to be done. It needs to be cleaned up and organized so that others can see it. The public presentation to others may require you to reframe the solution in a more standard, less idiosyncratic way than you first conceived it. Revising the solution often brings clarity in the long run.
- How to bet your subconscious to think of stuff? Saturate it by only thinking of that thing for hours/days even weeks. Left only with a single problem, it will mull it over. Then, the solution will pop into our mind one day.
- Sometimes analogy is the most important tool for creativity, where something seems like something else. This means that being widely acquainted with many fields is helpful, providing that you can recall the knowledge when needed (rather than only realizing when led directly to it). This flexible access to knowledge comes from looking at knowledge from many different angles while you are acquiring it, and turning the idea over to see all of its sides before ‘filing it away’.
- Getting to the fundamentals of the field involves looking at it from many angles, then deciding what is fundamental and what is frills.
- We reason mainly by analogy.
- When learning new things, try to create ‘hooks’ for that knowledge so you’ll be able to recall it in the future. One way to do that is to consider ways in which the knowledge might be applicable in the future - i.e. new applications.
- Without self-confidence, you are not likely to create great, new things. There is a thin line between having enough self-confidence and being over-confident.
- We are, in a very real sense, the sum total of our habits. By changing our habits, we are changing ourselves. In doing so, we can change the path along which we want to go.
- If you are to succeed, you must be creative in the face of rapidly changing technology which will dominate you career. Society won’t stand still for you, rather it will evolve more and more rapidly as technology plays an increasing role everywhere.
- You must know when to drop the wrong problem. If you can’t drop a problem then you will be stuck with it for the rest of your career (this happened to Einstein in his mid/late years).
- With very creative people, their previous successes convince them that they can solve any problem. However, it often gets harder to solve highly creative problems with advancing age in some fields. These include mathematics, physics, etc. Yet in literature, composition, statesmanship etc age is an asset.
- If you want to do significant things, now is the time to start thinking! Don’t wait until the proper moment - it may never arrive!q
- As our knowledge grows exponentially, we cope with the growth mainly through specialization.
- An expert is one who knows everything about nothing; a generalist knows nothing about everything.
- In an argument between a specialist and a generalist the expert usually wins by simply: (1) using unintelligible jargon, and (2) citing their specialist results which are often completely irrelevant to the discussion. The expert is, therefore, a potent factor to be reckoned with in our society. Since experts are both necessary, and also at times do great harm in blocking significant progress, they need to be examined closely.
- Kuhn defined the concept of a ‘paradigm’. Most of the time, any particular science has accepted a given set of assumptions which are not often mentioned or discussed. The teaching of new students is predicated on these assumptions, who accept them without being aware of how extensive they are. Workers in the field then elaborate on them, ignoring contradictions which appear. Eventually, there will be a sudden change in the paradigm, which creates new answers to old questions and brings new questions in itself.
- Change is usually resisted by the establishment, which has put lots of effort into the old approach. Usually, the new eventually trumps the old.
- All proofs of impossibility rest on a number of assumptions, which might not apply in any given situation.
- New ideas seldom come from experts in a field. You can’t blame them because it is more economical to use old and successful ways of thinking before trying new ways.
- If an expert says something can be done he is probably correct, but if he says it is impossible then consider getting another opinion.
- Experts have a dilemma, there are many crackpots outside the field who are crazy and only a few with good ideas. They most of the time, will simply decide not to listen to outsiders.
- If you are an expert, you should ask yourself “What would I accept as evidence to show I’m wrong?” and “Why do I believe whatever I do?”.
- You need to keep up with what’s going on in your field or you’ll be overtaken. If you don’t keep up, you’ll eventually drop out and disappear.
- Civilization is merely a thin veneer we have put on top of our anciently derived instincts, but the veneer is what makes it possible for modern society to operate. Being civilized means, among other things, stopping your immediate response to a situation, and thinking whether it is or is not the appropriate thing to do.
- There is never time to do the job right, but always time to fix it later (Hamming doesn’t like this).
- Lots of economic indicators are incredibly unreliable. They come from when societies were manufacturing societies, but now many/most are service societies. For example unemployment figures don’t distinguish between the unemployed and unemployable.
- Institutions, like people, tend to move only when forced to.
- Averages are meaningful for homogeneous groups (with respect to actions that later may be taken), but meaningless for diverse groups. For example, the average adult has one testicle and the average number of children people have is likely a fraction.
- If you want to find out data for something that people would be embarrassed or reluctant to tell you (e.g. whether they are cheating on their partner), then you can use the following method (n.b. Hamming has not tested this). You interview people and toss a coin without anybody but themselves seeing the outcome. If it is heads then they should claim to be cheating, if it is tails, then they should tell the truth. Thus, each person individually has anonymity (or plausible deniability), but with a large sample size, you could find the incidence of cheating.
- Parables are often more effective than statements.
- “A man was examining the construction of a cathedral. He asked a stone mason what he was doing chipping the stones, and the mason replied, “I am making stones”. He asked a stone carver what he was doing, “I am carving a gargoyle”. And so it went, each person said in detail what they were doing. Finally he came to an old woman who was sweeping the ground. She said, “I am helping build a cathedral”.”
- Very few professors would say “I am educating students to prepare them for their future careers” when asked a similar question.
- Most of the time, we are so immersed in the details of one part of the whole, that we do not think of how and what we are doing related to the larger picture.
- Systems engineering is attempting to keep the larger goals in mind all the time, and translate local action into global results.
- The first rule of systems engineering is: If you optimize the components, you will probably ruin the system performance
- Few people set out to reform a system by first trying to find the total system problem. Instead they attack the first symptom they see. This isn’t effective.
- Part of systems engineering design is to prepare for changes so they can be gracefully made and still not degrade the other parts
- The half life of engineering details is 15 years, and is probably decreasing slowly.
- Good design generally includes the graceful decay of performance when the specifications are exceeded.
- Specialists brought together to make a team are the basis of systems engineering. But, between jobs they must go back to their specialties to maintain their expertise. Using a group too often to fight fires is detrimental in the long run since the individuals will start to lose their expert skills.
- The heart of systems engineering: acceptance that there is neither a definite fixed problem nor a final solution. Evolution is the natural state of affairs.
- The way you choose to measure something controls what measurements you will get.
- Accuracy of measurement tends to get confused with the relevance of measurement, much more than most people believe. For example, at school it is easy to measure training but hard to measure education. You tend to see final exams which measure training but neglect the education part.
- It is very similar in Computer Science where the ability to cope with the mass of programming details favors one kind of mind, one which is often negatively correlated with seeing the bigger picture.
- The popularity of a measure has little to do with its accuracy or relevance
- We only have one life to lead. It’s better to do significant things than plan to ‘just’ get along through life. Certainly, near the end of life it’s nice to look back at what you’ve accomplished (rather than just a life where you have merely survived and amused yourself).
- It is worth trying to accomplish the goals you set for yourself, and it is worth having high goals
- You should always try to do first-class work.
- One reason that people don’t set themselves high goals is because they think achieving them is down to luck. But remember what Pasteur said - “luck favors the prepared mind”. There is an element of luck, but to a large extent, things are also up to you.
- Newton apparently observed that if others would think as hard as he did, then they would be able to do the same things as he. Edison said that genius was 99% perspiration and 1% inspiration. Hard work applied for long years leads to the creative act. It is rarely just handed to you without any serious effort.
- Brains are nice, but many people with not great IQ’s have done great things.
- Among the important properties to possess is the belief that you can do important things. If you do not work on important problems, then how can you expect to do important work?
- Confidence in yourself is an essential property. You could also call it “courage”. You can develop this in yourself. Look at your successes and pay less attention to your failures. Courage is important because research of ten has long periods with no success and many discouragements.
- The desire for excellence is an essential feature for doing great work. If you have a great vision and a desire to do significant work, then you’re on the right track.
- Often, the most famous people think that they can only work on important problems. Thus they fail to plant the little acorns which grow into mighty oak trees. You should work on small things which seem to you to have the possibility of future growth.
- Working with your (hypothetical) office door closed lets you get more work done per year than if you had an open door. However, those with closed doors will work on slightly the wrong problems while those who leave their doors open will get more less done but will work on the right problems.
- The conditions you want are seldom the best ones. But the interaction with reality tends to push you towards significant discoveries which you might not have thought about while doing research without these constraints.
- Great people have a great deal of drive to do things.
- I had worked with John Tukey for some years before I found he was essentially my age, so I went to our mutual boss and asked him, “How can anyone my age know as much as John Tukey does?” He leaned back, grinned, and said, “You would be surprised how much you would know if you had worked as hard as he has for as many years”
- Intellectual investment is like compound interest. The more you do, the more you learn how to do, so the more you do, etc. Hamming estimates the compounding is well over 6% - one hour extra per day over a whole lifetime will more than double the total output.
- But be careful, it’s not about who works the hardest. You need to be working on the right problem, at the right time, in the right way. This is your style.
- Hamming would set aside Friday afternoons for “great thoughts”. After lunchtime, he would only think about the big questions - where was CS going, what was the role of computers in Bell Telephone Labs, etc. He strongly recommends taking this time on a regular basis.
- Another great trait to have is tolerating ambiguity - being able to believe and disbelieve at the same time. For example, you need to believe that your field of research is the best, but also believe that there is room for improvement.
- Most great people have 10-20 problems that they regard as basic and of great importance, but don’t know how to solve. They keep them in their mind, hoping to get a clue as to how to solve them.
- “I have long held the attitude of telling every one freely my ideas, and in my long career I have only had one important idea ‘stolen’ by another person. I have found people are remarkably honest if you are in your turn.”
- To sell ideas, you must do three things. 1) Give formal presentations. 2) Produce written reports. 3) Master the art of informal presentations as they happen to occur.
- You must learn to sell your ideas, not by propaganda, but by force of clear presentation. Many scientists think that their ideas are good and therefore will be widely adopted. This is not the case. Many good ideas had to be rediscovered before they were used - the first time they were invented, they simply didn’t get attention. New ideas are automatically resisted by ‘the establishment’.
- Change does not mean progress, but progress requires change.
- “Good after dinner speeches require three well told jokes. One at the beginning, one in the middle to wake people up, and one at the end so that they remember at least one thing you said!”
- You might think that you don’t have the freedom to work on what you believe would be best. Neither did Hamming. Rather, he had to work for many years to establish a reputation for doing important work (in his own time), so that then he was given the time to do important work.
- Is the effort required for excellent work worth it? The main benefit of the effort is changing yourself - if you end up where you want to be that’s great, but the most important bit is who you are when you get there. You must regularly extend yourself in life, and you need to pick goals worth striving for.
- It is generally easier to succeed than it first seems. There are almost always some opportunities for you to select from - you must develop your style for how to live your life how you want to. Nobody told Hamming most of these things, he figured them out for himself. Now that you have a guide, you have no excuse.

III. Quotes

We live in an age of exponential growth in knowledge, and it is increasingly futile to teach only polished theorems and proofs. We must abandon the guided tour through the art gallery of mathematics, and instead teach how to create the mathematics we need. In my opinions, there is no long-term practical alternative.
A life without a struggle on your part to make yourself excellent is hardly a life worth living.
Too often we see what we want to see, and therefore you need to consciously adopt a scientific attitude of doubting your own beliefs.
Big advances usually come from significant changes in the underlying beliefs of a field.
Man is not a rational animal, he is a rationalizing animal.

Endurance by Alfred Lansing

Sat, 06 Aug 2022 00:00:00 GMT

I. Brief Summary

An unbelievable, yet true story about the Trans-Atlantic expedition in 1914 led by Earnest Shackleton who lost his ship and spent two years trying to survive in the harshest environment known to mankind-Antarctica. His ship Endurance became locked on an island of ice which crushed the ship due to the pressure of being stuck between two large ice floes. Shackleton decided to command his crew of 27 men and 69 dogs on a journey of 850 miles to reach the closest civilization in South Georgia island. After two years all 28 men were rescued (all dogs were killed). Alfred Lansing has done a brilliant job of narrating this voyage. It felt like I was there witnessing all of this unfold. When an author captures the details at levels that Lansing did, you have to appreciate the research process. This is a magnificent book-a great story about leadership lessons during times.

II. Big Ideas

The intensity of this voyage cannot be underestimated. There were no modern tools or radio signals available back then to seek help. The harsh environment of Antarctica were stacked up against them, yet all men survived. Shackleton recruited competent men with diverse background for his voyage. Their spirits were tested time and time again-fragile psyche, no water, minimum food, dragging 3 boats, killing dogs, frostbites, sleeping in cold and wet sleeping bags, having to leave behind sentimental valuables, deteriorating strength, sea sickness, no visible land for days, high tides, continuing to fight for hope, long winters, and so much more. Stranded for over a year in the most inhospitable climate on the face of the Earth, literally one tiny step away from complete disaster due to starvation, extreme weather or the ice flows being cracked with the freezing depths below.
Timeline:
- Dec. 5, 1914 Endurance leaves South Georgia Island
- Dec. 7, 1914 enters pack ice in Weddell Sea
- Jan 18, 1915 Endurance trapped and drifts with the currents
- Oct. 27, 1915 Endurance crushed by ice pack and they abandon ship
- Nov. 21, 1915 Endurance sinks
- April 1916 in 3 boats, they reach Elephant Island
- April 24 - May 10, 1916 Shackleton and crew sail to South Georgia Island
- August 30, 1916 remaining crew rescued from Elephant Island
Shackleton was decisive, but also observable of the harsh environment presented to the crew. He constantly had to back track on decisions he made. His decisions were decisive when they were needed, but he was willing to change the path depending on the weather conditions. I wonder if it weren't for Shackleton would the entire crew could've survived. Great leaders lead in tough times and that is exactly what Shackleton did.

III. Quotes

No matter what the odds, a man does not pin his last hope for survival on something and then expect that it will fail.
We had seen God in His splendors, heard the text that Nature renders. We had reached the naked soul of man.
By endurance we conquer.
Of all their enemies-the cold, the ice, the sea-he feared none more than demoralization.
Thus their plight was naked and terrifying in its simplicity. If they were to get out, they had to get themselves out.
The whole undertaking was criticized in some circles as being too “audacious.” And perhaps it was. But if it hadn't been audacious, it wouldn't have been to Shackleton's liking. He was, above all, an explorer in the classic mold-utterly self-reliant, romantic, and just a little swashbuckling.
The rapidity with which one can completely change one’s ideas...and accommodate ourselves to a state of barbarism is wonderful.
Shackleton’s order to abandon ship, while it signaled the beginning of the greatest of all Antarctic adventures, also sealed the fate of one of the most ambitious of all Antarctic expeditions. The goal of the Imperial Trans-Antarctic Expedition, as its name implies, was to cross the Antarctic continent overland from west to east.
Unlike the land, where courage and the simple will to endure can often see a man through, the struggle against the sea is an act of physical combat, and there is no escape. It is a battle against a tireless enemy in which man never actually wins; the most that he can hope for is not to be defeated.
There can be little doubt that Shackleton, in his way, was an extraordinary leader of men.

On Design

Fri, 29 Jul 2022 00:00:00 GMT

The discipline of design is often confused with art. I often struggled with form vs functionality. My idea of design was beauty. I understood the basic elements of design-colors, shape, symmetry, typography, visuals and space.

After spending time with designers and digging deeper into the topic, I came to realization design is more than just beauty. Art is about the artist. Design is about the environment in which people interact within themselves and their surroundings. While art is subjective, design is objective. Art expresses creativity. Design uses creativity. Design is all about functionality and if something is truly functional then beauty speaks for itself. Design in the absent of content is not design, it is a decoration.

Design does not follow optics or look down upon industries that are frowned upon. The impact of design is non-judgemental and transformative. Designers are always welcoming and “open” the doors for others. Designers are thoughtful of human psychology because designers solve problems for humans. Designers also don't judge constraints. They work with constraints.

Design is a multidisciplinary approach. It is a symbiosis between the engineering, business and the end users. It should work with everyone to understand problems and constraints so it can build solutions that are accepted by everyone. Designers always start with end users not the raw materials such as colors and shapes. A great designer always thinks in a system.

Design that considers the end user and their needs and that advocates for helpful, ethical solutions to complex problems is needed more than ever. This work requires a conscious, thoughtful application of empathy, strategy, communication, and management of the technology itself, all through a lens of creativity. These skills cannot be automated!

Caught in the balance between product, business, and user needs, designers should always uplift the user needs. The end user, typically not in the room when a product is being developed, lacks representation; it’s the duty of the designer to advocate on their behalf. User-focused design means repeatedly asking why-why now and why this way.

Research by IBM, NASA, and McKinsey & Company suggests a tangible benefit of investing in UX (links in the references below).

Our team collected more than two million pieces of financial data and recorded more than 100,000 design actions.1 Advanced regression analysis uncovered the 12 actions showing the greatest correlation with improved financial performance and clustered these actions into four broad themes. - McKinsey & Company

The ultimate goal of a designer has to be well-being-not delight. Understanding how the product interaction touches deeper motivations and impacts people’s broader lives is thoughtful design.

Design thinking

IDEO transformed human-centered design led by David Kelley. Humans don't care about fancy pixels. They want tools to make their jobs easier.

Design thinking is the process that helps with approaching and solving problems creatively. Design thinking focuses on the human side. When it comes to solving problems, it incorporates human behavior into the design process solution. You need to consider three aspects if you want your idea to be meaningful and successful: Feasibility, Desirability and Viability. The solution needs to improve people's life in some manner, but at the same time it needs to be feasible and make business sense.

There are 5 phases of design thinking process. The design thinking process has five steps, which empathize and answer questions like: Who you are designing for? What their needs are? This process wants to solve the problem from the customer's point of view. Building a solution from each other's ideas inside the team. This will allow you to provide solutions from different point of views while taking into account different disciplines.

Frame a question
Gather inspiration
Generate ideas
Make ideas tangible
Test to learn
Share the story

Incorporate human behavior into design. The end goal for the design thinking process is that the solution leads to innovation, putting empathy and collaboration as the main focus for the final solution. ABC Nighttime made a great segment about IDEO's design thinking process for when they needed to re-design a shopping cart. It is worth a watch.

We cannot talk about design thinking without talking about Dave Kelley from IDEO. Dave Kelley worked closely with Steve Jobs. He was the one who designed the computer mouse for Apple among some other revolutionary products. There is a great video where you can see Dave Kelly and IDEO in action. Stanford University was one of the pioneers when it comes to promoting the design thinking program: a design process focus in the human approach to tackle problems through design. Steve Jobs was a big advocate for this process and the mix of technology and liberal arts for all Apple products.

User research (UX)

Solutions cannot be designed without researching the underlying core problems. We expect to use products to solve our problems in the easiest and fastest way possible. We don't want to think about how to use a product. We have mental models on how products should look and behave and we apply those all the time when we use any product.

UX covers a broad range of disciplines and skills, such as testing, research, prototype, interactions, visuals, sounds, accessibility, animations, wireframes, developing user journey, user flows, information architecture, sitemap, etc. UX, in short, is all aspects of a product/service as experienced by the users.

The UX designer's mission is to develop products that fit perfectly in people's lives, products that have a human-centered approach, and help users achieve their goals. UX designers work on making computer-human interactions as smooth and “human” as possible.

Business goals vs and users goals: A UX designer takes into consideration the business goals just as much as the user’s goals. A good UX designer will try to find the sweet spot of merging the needs and goals of the two. This needs spending a lot of time on solution-seeking and paying attention to both sides constantly, and knowing what to prioritize.

UX research is based on observation, understanding, and analysis. UX researchers use multiple research methods to discover problems, patterns, user mental models, how users think and behave. To develop more insightful research, UXers work hand in hand with data analysts, marketing teams, data scientists, and stakeholders. Good research guides successful designs.

UX designers focus on the following:

User Flows
Testing
Accessibility
Crafting Personas
Interactions
Wireframes
Research
User Journey
Sitemaps
Error Handling
Sounds & Animations
Prototyping
Information Architecture

User interface (UI)

Interface is what humans need to interact with when experiencing products. In industrial design, it could be physical products. In software design, it can be digital interactions. Nonetheless, interface is the space that brings humans and machines together.

To work with UI means finding ways to develop interactions that allow the user to have a better experience. The UI can not be confusing, demanding, or cause stress to the visitors. Instead, user journeys should be so fluid that their navigation becomes intuitive and effortless.

Heuristic evaluation (Nielsen and Molich) is a usability method for finding flaws in a user interface design. This involves having a set of checklist of criteria and judging the design based on the usability principles: the "heuristics", and using the checklist to see what principles were violated by the design in the opinion of the evaluator. Below are the 10 Nielsen heuristics:

Visibility of system status: A system should always keep users informed about what is going on, through feedback in real-time. By knowing what the current status is, a user can change it and have a better understanding of what you need to do to reach your goal. For instance, when you make a payment online, you need to know that payment was approved and everything went well, without having to go to the bank.
Match between system and the real world: People find comfort in familiarity, this is the reason why this principle is so important in Jakob Nielsen's view. If people don't understand the terms used in a system, they will feel unsure and feel forced to go elsewhere to find explanations and complete their goals. The system should always speak the users' language, and use concepts familiar to the user.
User control and freedom: The users should always be given the ability to control and have the freedom to undo, and redo their performed intentional & unintentional actions. Make sure your design allows users to learn by exploring, poking around, trying things out. This means consequences of errors need to be less severe. For example-Dialog, operations should have a Cancel option.
Consistency and standards: Users should not have to wonder whether different words, situations, or actions mean the same thing across an interface/system. You need to make sure the same words mean the same thing and launch the same action in your interface. Also, your design needs to have external consistency too. People come to your UI with existing expectations for how things should work and where they should be placed.
Error prevention: Prevent unconscious errors by either eliminating error-prone conditions or present users with a confirmation option before they commit to the action.
Recognition rather than recall: Users should not have to remember what certain things do from one place to another, this is why you should minimize the user's memory load. Make objects, actions, and options visible. People have limited short-term memories, designs that promote recognition reduce the amount of cognitive effort required from users.
Flexibility and efficiency of use: Designers often focus only on first-time users, but once a system is used again and again, users need ways to speed up their process. A system should cater to both new users and expert users by including accelerators, meaning having multiple ways and methods for accomplishing certain routine tasks quickly and easily.
Aesthetic and minimalist design: Remove unnecessary elements from the interface and focus on the essentials. Create less noise and distractions in your design, and let users have a smoother experience and faster way to accomplish their goals.
Help users recognize, diagnose, and recover from errors: The simple 3 steps to respect this principle are the following: inform users when an error has occurred, tell users exactly what the problem is, using plain language (no codes) and offer a way/solution to fix the error.
Help and documentation: Things like onboarding pages, tooltips, walkthroughs, videos, chatbots, comprehensive FAQs, are great ways to provide help and documentation.

Visual language

Communication requires language. The visual language of design is no exception. Design elements are like letters and words. Below is the list of visual grammar that can be used to build interactions and experiences.

Objects: The basic elements we have to work with. Can be abstract or concrete.
- Abstract Objects are idealized shapes that can’t physically be created. For example take a point. A point by definition has no area. It only has a position. Any point we try to draw will have some kind of area if we are to see it and once it does, it ceases to become a point. It can only exist as an abstract concept and not as a physical thing. Abstract objects include:
  - Points: A position on a coordinate system without area. Points have no dimensions.
  - Lines: A series of points adjacent to each other. Points have one dimensions.
  - Surfaces: A series of lines that are adjacent to each other and perpendicular to their direction. Surfaces have two dimensions.
  - Volumes: An empty space defined by surfaces, lines, and points. Volumes have three dimensions.
- Concrete objects are perceived within defined limits called contours. Inside and including the contour itself is our object, our shape, our form, and outside the contour is everything else. Forms or shapes can be geometric, organic, or random (sometimes called abstract). A circle is an example of a concrete object. It’s contour being the curved line that encloses it. Concrete objects have:
  - Form: defined by a contour of surfaces and lines. A form is how a thing looks.
  - Size: Forms can be large or small. They are perceived relative to the person viewing, other forms in the composition, and the format of the design.
  - Color: we perceive different wavelengths of light as color. A form can be any color, though we are limited to seeing only those colors in the visual spectrum.
- Structures: The patterns formed from our basic elements. Can be abstract or concrete.
  - Abstract Structures when the structure lines of a structure are invisible and inactive the structure is considered to be abstract. Consider the image below. The circles are clearly arranged in a pattern. There is a structure present, but the lines defining that structure are invisible.
    - Formal: even distribution of elements and spacing (structure units) between them.
    - Informal: lacking regularity in the arrangement of objects. Even if a pattern is observed the structure is informal if the objects do not follow straight structural lines.
    - Gradation: structure units change in form or size, but at an even rate.
    - Radiation: structure units radiate from a common center.
    - Spiral: uneven distribution from a common center.
  - Concrete structures have either visible or active structure lines. Where abstract structures indirectly show the structure, concrete structures directly show the structure. Concrete structures can be visible compositions on their own such as the patterns that form into textures.
    - Visible structures do not have to include objects. As long as the structure lines are visible, the structure itself is visible.
    - Active structures are those where the structure lines influence the form of the objects within the structure.
- Activities: The processes we can represent with our basic elements and patterns.
  - Repetition: Anytime several objects share some characteristic repetition is created. When more than one characteristic is shared the dominant one is used to describe the repetition. Repetition helps create consistency and design flow.
  - Frequency/Rhythm: When the distance between repeated objects is identical we have frequency. When the distance is varied between several frequencies we have rhythm.
  - Mirroring: When light waves are reflected from the surface at the same angle they fall onto it, an object is symmetrically rendered around an axis and mirroring is created.
  - Mirroring against a volume – When the surface has several different angles of reflection it becomes a volume. Volumes distort the reflected object and the mirroring is no longer symmetrical about an axis.
  - Rotation: When an object moves around a point or axis it rotates around that point or axis. The point or axis of rotation can be inside or outside the object.
  - Upscaling/Downscaling: When objects are scaled up or down their dimensions remain in proportion to each other. Their width-to-height ratio remains constant.
  - Movement: Within a visual design movement can only be shown as a representation of movement. This representation can be shown as a sequence or some illusion of motion.
  - Path: An object showing movement travels along an imaginary line or curve, which is the object’s path.
  - Direction: A moving object has a direction defined by a line or curve that leads from start to end point.
  - Superordinate and subordinate movement: Objects can rotate, move back and forth, or swing as they travel along a path. This secondary movement is the subordinate movement, whereas movement along the path is the superordinate movement.
  - Displacement: When only part of an object moves it’s form is displaced. Displacement is define by an angle between the original point and the new displaced point.
  - Direction of displacement: Displaced objects move in a specific direction.
- Relations: The relationships between objects, patterns, and processes. They’re the way everything in your design relates to each other and the viewer. Objects placed in a composition relate to each other, they relate to the overall design, the format and, they relate to the viewer. Through relations with each other, elements can attract or repel, they can imply movement and flow. Through relation to the overall design, elements convey a concept and theme. Through relation with the viewer elements communicate different messages.
  - Attraction/Static: Any time two objects appear in a design they appear to either attract or repel each other. A single object, not in movement, and with equal forces of attraction and repulsion applied, appears static.
  - Symmetry/Asymmetry: Objects identically arranged around an axis are symmetrical. Objects not identically arranged around an axis are asymmetrical. Symmetry is considered beautiful, but static. Asymmetry is more interesting because it is dynamic.
  - Balance: When the visual weights of objects in a composition are in equilibrium, the composition is in balance.
  - Groups: When objects display repetition or are in close proximity to one another they form a group.
  - Fine/Coarse: The distance between structure lines defines the fineness or coarseness of an object or structure.
  - Diffusion: An irregular dispersion of objects with varying fineness and coarseness is called diffusion.
  - Direction: Structures can actively define direction.
  - Position: A group of objects in a composition can define a position. That position can be in the center or along the edge or corner of the composition.
  - Space: Space is the empty areas between major and minor objects and is as important to a design as the areas where the space is filled with objects. Learning to see and use the space in your designs is one of the most important things any designer can learn.
  - Weight: All objects in a design have a visual weight based on size, color, form, surrounding space, etc. Our eye is drawn to elements with the greatest visual weight.
  - Amount/Dominance: The amount of objects in a given area of a design contributes to the visual weight of that area. Areas or objects in a design with the most visual weight are dominant and create entry points and focal points in a design.
  - Neutral: Elements in a design that do not stand out from other objects are neutral in relation to those other objects. When too many objects in a design are neutral the entire design can become neutral.
  - Background/Foreground: The position of objects, their relative weights, the space around them and, their relative proportions all contribute to which elements are seen as being in the foreground and which are seen as part of the background.
  - Coordination: When objects share the same coordinates, value, focus, and are perceived to be same perspective they are in coordination with each. Two identical objects aligned vertically are not in coordination as the one on the bottom is perceived to be closer than the one on the top.
  - Distance: Closeness and remoteness are relative. The distance between objects is perceived based on the viewer’s perspective. Objects that appear close in 2 dimension can appear very far apart when the composition is seen in a 3-dimensional perspective.
  - Parallel/Angle: Two lines that never intersect are parallel. When lines intersect they form an angle. Angles exist only in relation to something else.
  - Negative/Positive: Negative and positive are terms that relate to opposite values such as light and dark. Positive elements appear to be in the foreground and negative elements appear to be in the background.
  - Transparent/Opaque: Light shines through transparent objects and can not penetrate opaque objects.
  - Tangent: Two elements that touch and share a common point are tangential to each other.
  - Overlapping/Compound: When part of one object lies on top of another object, the first overlaps the second. When overlapping objects visually appear to be one object they become a new compound form.
  - Subtraction/Coincidence: When an object is overlapped by another subtraction occurs in the overlapped part of the underlying object. When two objects share form and size and are position in a way that when seen from above they appear to be one, the objects are in coincidence.
  - Penetration/Extrusion: When one object is pushed through a larger object the first penetrates the second. When an object is forced through the opening of another object in such a way that the opening alters the form of the first object it has been extruded.
  - Influence – When an object’s form appears to be altered by another object, the altered object has been influenced by the other object.
  - Modification: An object that has been slightly altered has been modified. Modification does not change the basic characteristics of an object. A rectangle whose corners have been slightly rounded still appears to be a rectangle.
  - Variation: When objects are repeated with minor variance or modification the repetition is called variance.

Motion graphics

Motion graphics are an essential part of modern media design. They are used in films, television, and digital media to create dynamic, engaging visual content. Below is a list of some key motion graphics :

Easing: It refers to the way an animation moves from one keyframe to another. Instead of moving at a constant speed, easing adds acceleration and deceleration to the animation, creating a more natural movement.
Offset & Delay: They are techniques used to create staggered and overlapping animations. Offset refers to starting each animation at a slightly different time, while delay is used to pause an animation before it begins.
Parenting: It is a technique where one layer is linked to another, so when the parent layer moves or rotates, the child layer follows along. This technique is commonly used to create complex animations and interactions.
Transformation: It refers to the manipulation of a layer's position, scale, and rotation. These transformations can be keyframed to create smooth and dynamic animations.
Value Change: It refers to changing the properties of a layer over time, such as opacity or color. This technique can be used to create interesting visual effects or to transition between different states.
Masking: It is a technique used to hide or reveal parts of a layer. This technique is commonly used to create complex animations and visual effects.
Overlay: It refers to placing one layer on top of another. This technique can be used to create interesting visual effects or to combine multiple elements into one cohesive animation.
Cloning: It is a technique used to create multiple copies of a layer. This technique is commonly used to create repeating patterns or to simulate a crowd.
Obscuration: It refers to hiding one layer behind another. This technique can be used to create interesting visual effects or to reveal hidden elements.
Parallax: It refers to the effect where objects in the foreground appear to move faster than objects in the background. This technique can be used to create a sense of depth and realism in animations.
Dimensionality: It refers to creating the illusion of three-dimensional space in a two-dimensional animation. This technique is commonly used to create realistic animations of objects and environments.
Dolly and Zoom: They are camera techniques used to create the illusion of movement and depth. Dolly refers to moving the camera towards or away from the subject, while zoom refers to changing the camera's focal length to make the subject appear closer or further away.

Interaction design

The essence of the word interaction implies a relationship between a human and an environment. Experiences should be fluid responding to human intent. This requires attention to details. There are plenty of experiences where a user is fighting the software because the interaction is not clear. A user should understand what triggers an action. Interfaces take a long time to be intuitively available to us.
Note interaction patterns is not a new concept. For example, we pinch our fingers which require motor skills to pick tiny objects. Using these physical patterns can easily be transferred to digital experiences.
It is upon a designer to keep interaction interface well-balanced. Too much of form or function can lead to non-fluid experiences.
Some of the core patterns that can be used to build application interface:
- Tapping
- Swiping
- Pinching
- Dragging
- Flicking
- Spreading
- Pressing
- Flipping

Information architecture

Wikipedia defines it as-“Information architecture (IA) is the structural design of shared information environments; the art and science of organizing and labelling websites, intranets, online communities and software to support usability and findability; and an emerging community of practice focused on bringing principles of design, architecture and information science to the digital landscape. Typically, it involves a model or concept of information that is used and applied to activities which require explicit details of complex information systems. These activities include library systems and database development.”

Information architecture is a critical part of the user experience. You want the user to not only be able to understand the structure of your content, but also to predict it. They should be able to find jewelry under the sub-category of accessories, the author’s name on a blog post, and so on. With a good IA, users can find the information they’re looking for as easily and quickly as possible. Without one, users won’t delight in your product, no matter how beautiful or engaging.

The ancient art of structuring information is the basic premise of information architecture (IA). This helps us communicate on a shared language while supporting usability and findability of information. If information is not usable or findable, the audience will be challenged to build trust and connect over your message.
In the digital world, abstract ideas are conceptualized through modeling. The model (or a concept) covers the complex details of your information system based on your beliefs and core principles. Data, logic (can be in a visual form) and language are the primitives of your information. The architecture represents the design of your digital landscape. Design is intentional in a way that supports the longevity and survivorship of your ideas.
Enterprise architecture of your business logic is one example. This business logic normally dictates the relative ordering and contextual legality of certain operations and data values. This contains the information of how your enterprise operates, the workflows of components that make up for the operation of your enterprise and how these components co-exist giving the structure of your enterprise. Employees, systems, decision-makers, customers and users, events such as transactions (employee payroll and customer purchases) play a role in enterprise architecture. Without this information neither can you adapt your systems to new normal nor attract employees or customers. It is the foundation for any system.
According to Wikipedia-in computer software, business logic or domain logic is the part of the program that encodes the real-world business rules that determine how data can be created, stored, and changed. It is contrasted with the remainder of the software that might be concerned with lower-level details of managing a database or displaying the user interface, system infrastructure, or generally connecting various parts of the program.
Sitemap of your website is another example. If your users cannot navigate your website, you will lose them. This is why structuring navigation that is usable and findable is critical, so they can get from one destination to another to perform their jobs.
There are several systems and sub-systems of a larger system that deals with the information component. There is one part of information which is the classification of information (data, logic or language) and the other which is structuring of that information. Then there is the user experience of information retrieval. Your readers will not be happy if the retrieval of information is painful.
Information rich systems prioritize accessibility.
Information rich systems provide useful context and composability.
Information rich systems make information consumable to help make quick decisions.
One last thing about an information rich system is it needs to be fluid. It needs to adapt as new information comes in. It needs to be structured dynamically enough, so it can adapt with time or interaction. For example, information might be ineffective if your website content does not change dynamically based on user behavior. For example, your music app that will recommend music based on what you click on the page and what your friends are listening. Dynamic content such as music recommendation data is as useful as your static content such as the logo on your website's homepage.

A masterclass in information architecture is to explore McMaster-Carr catalog website. The website is a joy to use. There are countless others on the internet. What makes them special?

To effectively describe a concept, it is important to prioritize simplicity. By avoiding unnecessary complexity, you can ensure that users are not confused.
To ensure a smooth user experience, it is important to maintain a consistent hierarchy on your website or app.
Proper organization and arrangement of elements on a page helps create a sense of structure. Margins, padding, and alignment play a crucial role in guiding the reader’s eye.
Typography plays a crucial role in creating visual contrasts between various levels of content. This is accomplished through the effective utilization of font size, style, and color.
Clear and well-organized navigation menus are essential for your website or app. Discoverability is essential.
To ensure important content receives the necessary attention, it’s crucial to prioritize it. This can be achieved by utilizing headings, subheadings, or clear calls to action.
IA should be scalable as you add more features and grow your website or app.
If you’re unsure about the direction of your IA concept, consider doing exploratory testing with users.

Sound design

A great write-up by Notboring Software on designing sound.

Sound design starts with knowing when to use it and when not to. A few guidelines on where sound adds value.

Communicate something. Sound can be thought of as the voice of your software.
Juice a moment. Need to celebrate an achievement? Add a sound. Warn against a wrong path? Sound. Enhance an otherwise boring action? Sound.
Create tangibility. The sound makes the action tangible and gives it more weight when in reality the computer is simply changing a few bits. In spatial design, sound is even more critical when other tactile senses like haptics are lost.
Shape a feeling. Sound can play a key role in queueing us in on how we should feel in a moment-happy, reflective, alert.
Immerse you in a world. Sound can stretch software beyond the screen and immerse us in a deeper world.

Guidelines on how to design inviting sound:

Break the repetition to prevent annoyance. Instead of repetition, you create texture.
Add layers to craft new sounds.
Build a wholistic experience where each element speaks to one another.
Create relationships. As with visual design, sounds for actions should never be considered in isolation but in how they relate to one another.
Listen to the world around you to find inspiration.
It’s common to think something should sound like what it is but sound doesn’t always need to be this literal.

Design system

I have been working on Design System at Morningstar since 2018. There is so much I have learned. I am a systems thinker because of this experience. Below are some of the lessons from my observations made and experiences gained while helping build a Design System.

The team has gone through 3 versions of the library since I joined. The team is meticulously process driven shaped by Nathan Curtis of Eight Shapes since the early days of the team. That culture of systems thinking is still present and the team continues to evolve as it overcomes challenges and solve problems.

A highly disciplined team that is ruthless about process, rigor and attention to details. This ensures delivery with high quality. The process is transparent and honest. Team members are compassionate but firm; they challenge one another and others. But, don't become married to process. - Nathan Curtis

Design systems provide a convenient, centralized, and evolving map of a brand’s known product territories with directional pointers to help you explore new regions. - Chris Messina

The Morningstar Design System (MDS) didn't start with Vue or React. MDS didn't even support javascript for almost 2 years. The components were supported using plain HTML & CSS. After three years, we rallied everyone to use Vue for their products so the system can scale and support product needs. The game of inches by going after the incremental changes paid off for our team and the organization. MDS is thriving today because the community is contributing and engineers are creating pull requests. The system is alive!

Before joining Morningstar Design System team, I had no clue what Design System did or meant. Twitter Bootstrap was the closest thing I knew. Developers who were not proficient in design would import a third party library such as Twitter Bootstrap to make their web application look “pretty.” These third party libraries covered the basics such as spacing, sizes, and colors. This allowed developers to focus on coding their applications instead of design.

Problem statement 1: Morningstar has over 60 products and they are all distributed across the organization, globally. Designers and developers faced many challenges of maintaining the design and code standard. Deadlines and roadmaps took over so the goal would be to make the components look as similar to other products as possible. There were central design specifications in form of PDFs but were not accessible to everyone. Or the specifications would be outdated. So the organizational products would have permutations of buttons, navigation, menus, etc. This disrupted branding and the user experience (UX) for Morningstar.

Every time a new product was launched, so were the components. They were being rebuilt over and over again. If you factor in the salary of developers and designers, and tie it into the time spent on building these same components, it would turn out to be hundreds and thousands of dollars. This would turn out to be very costly for the organization.

Problem statement 2: To solve the problem stated above, developers and designers teamed up part-time to build a central library. So anyone could consume this library (our version of Twitter Bootstrap) and would meet the design standard. It was not perfect, but it was progress in the right direction.

Consuming teams found many challenges including implementation of the components because of lack of documentation. Changes made were less frequent making the library stale. However, the library was available for anyone to fork it and expand it, which frequently happened.

This led to consuming teams building their own versions on top of this central library.

Product A built the central library.
Product B built another set of library on top of the central library.
Product C is now consuming Product B's library because Product B has the variation of button they need. So there were many extensions of the central library. This led to many non-standard components again.

The intention of Design System is not to stop people from doing. Design system exist to help people work faster, sacrifice control and embrace chaos when necessary.

There was no central team managing the library, contributing to the components, documenting the visual guidelines and technical guidelines, and educating developers and designers on the system.

Until Morningstar Design System (MDS) arrived.

The team was responsible for version 1 release of the library with components that were largely consumed across all products. The library was also introduced with public documentation site. Below is the easy-to-consume definition by the MDS team.

The Morningstar Design System is a collection of design & technical standards built into a central library to help teams quickly build high-quality, consistent experiences.

Design never was just how it looks, but now it’s also how it sounds, how it speaks, and where it can go. - Chris Messina

The main objective of the Design System is to bring consistency across all products, improve the speed of development, and support for maintenance. In other words, the system should never get in the way of development.

Central team: The central team has a clear ownership and is accountable for its roadmap. A centralized team helps scale the system. The decisions made by the team should benefit the entire organization not just itself. The central team is not only responsible for building blocks, but also need to maintain what they build. This ensures trust and durability for other product teams to adopt the Design System.
Maintenance & standardization: Design System eliminates code redundancy which then helps save time and money. Imagine a developer building a button every time a new product is built. Building a component library standardizes the technology stack which allows for maintainable changes or modifications. Reusable components then standardize the user experience (UX) and branding across all products.
Product focused: Design system should be treated as a product while treating consuming teams and implementors as clients. If clients are not treated well, there won't be any adoption, gradually leading to decline of the system. Design System is a living system serving other products. Design System consists of many *features-*UI components, design assets, design tokens and documentation. These are tangible outputs from the system which users value. Features are mostly driven by designers. But, developers consume these features while they do rapid development of applications. The following questions must be asked when architecting the system.
- How do we release the new components?
- How do we architect with little to no disruption?
- What tools do developers currently use?
- Which languages are products written in? For example, Vue or React.
Stakeholders: Design system consist of several stakeholders. The system should be built with the mindset of keeping everyone in mind. Treat all stakeholders as part of the system. An inclusive system brings transparency and build trust. The following are the group of people who keep the design system alive.
- Developers use and build the system
- Designers create visual language and components
- Product managers are customers of the system
- The leadership team are the buyers of the system
- Contributors include both designers and developers
Roadmap: Since Design System is a product, it should also have a roadmap. There were two roadmaps for the year-for the first half and second half. MDS team operated remotely since its inception so to bring everyone together the team would gather during the on-site meeting in Chicago. During this week-long planning meeting, the team conducted several sessions on large themes and objectives. The team would have breakout sessions and small group discussions. During the end of the planning meeting, the team would share these objectives with key stakeholders and users. Sharing these objectives with everyone validated the team's priorities. Every design system should have a roadmap because it consists of features and value delivered to users.
Collaboration: To welcome collaboration, communication channels are accessible for transparency. There are separate channels for engineering and design. Temporary channels are created during the beta and alpha testing. JIRA board is accessible to everyone. The team hosts weekly showcases to share a sprint progress. The team would accept pull-requests (PRs) from other developers if the changes made benefited the larger audience. This sort of transparency is intentional which leads to adoption and contribution.
Adoption & contribution: Once adoption reaches the peak, community contribution takes off. Process needs to be defined because quality can be sacrificed. This helps scale the system but quality can be sacrificed. But if the adoption rate is slow, getting contributing back can be challenging. To embed contribution and collaboration requires continuous engagement with adopters and implementors. But it doesn't just stop at engaging. As a central team, prioritizing feedback and implementing the changes are as crucial to maintaining the trust.
Building process: Process must be established for feature delivery. MDS team broke down the process into 4 steps - Discovery, Design, Build, Doc and Publish. These are not sequential and not role specific. These steps overlapped all the time and could be carried out by anyone.
Library distribution: There are a few ways to distribute UI Libraries. System can publish using NPM or Yarn with Semantic Versioning (SemVer) by versioning in form of X.Y.Z. See below to read more on SemVer. System can also publish the assets on CDN. At Morningstar, for version 3 of the library, MDS used monorepo to distribute pre-built components. Now consuming teams can pick and choose what they need from the library.

Design System is not a project or a side project. It is a product serving other products.
Design System is not a style guide, pattern library or a component library. But all of these together make up the system.

A style guide is an artefact of the design process. A design system is a living, funded product with a roadmap & backlog, serving an ecosystem. - Nathan Curtis

Design System does not just serve the design organization. It serves engineering, product and key stakeholders.
Design System does not care about agile methodology. If it is treated like a product which it should be then it needs agile for it to be efficient.
Design System is just a documentation site or a component library. No. Maintenance and support are ongoing tasks which means constantly updating documentation and supporting adopters with new features and components.
Design System does not need documentation. A system can be complex depending on the size of the organization. This requires thorough documentation for adopters to understand and consume the system.
Design System stops at building. Promoting the system to potential adopters is part of primary tasks.
Design System is defaulted to just web platform. It can be multi-platform.
Design System limits product teams from building new components. Not true. For a component to be in the system, MDS uses a 2-team rule which means there should be a need for X by more than just one team.

A design system consists of but not limited to:

Reusable UI Components with many variations
Sketch Library (or any other tool)
Visual Language Assets: Logo, Typography, Colors, Layouts, Grids, Icons, Spaces & Sizes
Documentation for Engineers & Designers
Accessibility Guidelines
Content Guidelines
Release Notes and Change Logs
Contribution Guidelines

Design system requires a change in mindset. The bullet points below are credited to Nathan Curtis.

Component style libraries → Shared resources
Standards → shared values
Documentation → shared language
Roadmap → shared destination
Communication strategy → shared understanding
Contribution → shared equity
Governance → shared execution

A few of my favorite design system below, While building components, I spent much of my time on what other systems were doing with their components. Below are a few that I frequently visited during the discovery phase.

Design legends

Name	Bio
Dieter Rams	He is an industrial designer whose collaborations with Braun and Vitsoe have produced some of the most iconic consumer products of the 20th century. Rams is known for consumer products that has defined the most recent of our society-an electric razor, blow-drier, electric tooth brush, or a lighter. Rams is credited as the lead inventor of the patented F1 mactron pocket lighter design from 1971. His greatest economic success was for the American company was the Sensor razor which went on to sell 100 million units in 1989. His design philosophy is simple, yet hard-less, but better.
Paul Rand	He was one the most influence American art directors and graphic designers of history. I had a privilege to listen to a story about how Morningstar's logo came about which was designed by Paul Rand. He also worked with Steve Jobs. He took the position of design consultant at companies such as ABC, UPS and IBM. In an era where creative direction and art direction was somewhat unknown, Rand was a pioneer in this area.
Bruno Munari	Munari was an Italian artist, designer, and inventor who contributed fundamentals to many fields of visual arts in modernism, futurism, and concrete art, and in non-visual arts with his research on games, didactic method, movement, tactile learning, kinesthetic learning, and creativity.
Rowena Reed Kostellow	Miss Reed taught industrial design at Pratt Institute for more than fifty years. She deeply studied and analyzed abstract visual relationships between volumes in 3D space. For her form truly mattered.
Donald A Norman	Norman is an American researcher, professor, and author. Norman is the director of The Design Lab at University of California, San Diego. He is best known for his books on design, especially The Design of Everyday Things.
Josef Albers	Albers teaches is an expert in color theory. His work is essential work on visual literacy. Josef Albers was a German-born artist and educator.
Edward R. Tufte	Edward Rolf Tufte, sometimes known as "ET", is an American statistician and professor emeritus of political science, statistics, and computer science at Yale University. He is noted for his writings on information design and as a pioneer in the field of data visualization.
Kelley Brothers	IDEO founder and Stanford d.school creator David Kelley and his brother Tom Kelley, IDEO partner know a thing or two on how to unleash the creativity that lies within each and every one of us.
Ed Catmull	Edwin Earl "Ed" Catmull is an American computer scientist who is the co-founder of Pixar and was the President of Walt Disney Animation Studios. He has been honored for his contributions to 3D computer graphics.
John Maeda	He works at Microsoft leading Design and Artificial Intelligence. His work explores where business, design, and technology merge to make space for the “humanist technologist.” He was a research professor at the MIT Media Lab leading advancements in computational design, low-code/no-code, and creative commerce.

Dieter Rams

Rams is a legend in the industry because his products spoke functionality with form. He is a German industrial designer. Braun design team is where he made a huge impact in electrical objects such as radio and home appliances (TP 1 & 3 radio was famous, calculator, furniture). Braun's products were everywhere in every part of home! Braun's products were domestic in its era. His products were functional, long-lasting, high quality, and highly aesthetic. Some products hadn't changed in many years and didn't need to be replaced. They weren't emotionless. It had emotional relationship.

Rams was angry when Braun was acquired by Gilette. Having to constantly change design to meet marketing need. He had to report to almost 10 CEOs when Braun got acquired. "If you don't have someone who stands behind you, then you can forget it." In 1995, he left design department. In fact, he was pushed out and given a title, “Executive Director, Corporate Identity.” Finally, he left in 1997. Then got a bit involved with Vitsoe. The philosophy was adopted-Living better, with less, that lasts longer.

The Rams philosophy is studied by many students including Naoto Fukasawa from Tokyo and Jonathan Ive (one of the original Apple's designer). They used Rams as a role model and inspiration. iPod was hugely inspired by it-icons, graphics, grid system and aesthetics.

Rams was heavily influenced by Japanese culture. His home garden is Japanese inspired which he is lived in for over 50 years. Even cutting trees is design. And they need to be cut for maintenance. The Zen philosophy stands out in his work.

Visiting Japan, I was immediately impressed by the simplicity.

This influenced his own philosophy which sums down to:

Less, but better.

Rams thoughts on what a good design should be and everything that revolves around it:

Design can have a strong orientation.
Design should be an answer to solving a problem not making more problems.
One of the core principles of product was letting it do the job and get out of the way.
Product design is the total configuration of a product-its forms, color, material and construction. You cannot understand good design if you can't understand people.
For design to be understandable by everyone it should be simple as possible. The time of thoughtless design for thoughtless consumption is over. It should be less, but better.
To overcome mediocrity, Rams recommends young designers to be highly collaborative, who think beyond what they are responsible for on a daily basis. Designers who think-“what will our society look like in the future?” will be better off in their design path.
We don't need anything faster. We need something more sensible and better. Auto industry wants faster and faster and that is why Rams is not interested with auto industry. Even Tesla is not that impressive to him. The problem is beyond energy. It has to deal with traffic and the environment. We need to rethink the transportation system not just the technology. This is an emphasis on systems thinking.
If he had to revisit his origin of design, he would focus on architecture. Shaping our environment (urban development) is the most important thing. It starts with designing the landscape not designing the machine. Design in media is increasingly associated with beautification. He hates the term beautification. We never just wanted to make something beautiful. We wanted to make things better, as he has always wanted. What we need is less, but better. Rams does not want to design a single object, but want to design the entire environment (the entire system).
Design is politics. Creating a world that is a better place and to give people freedom.
Engineering can be harsh at times with new ideas. The engineering team says, “Ugh, typical designers...we can't do that!” But those same ideas are no longer novelty. They become commercial products soon.
On logos, he always put a small one in the back. The battle he ultimately lost with the last CEO because he wanted large logos in the front. Rams argued when you enter a room you don't shout and say, “I am so-and-so.” You do it quietly. Just imagine when you have many products, it irritates and overwhelm people.
The product graphics are very important.
Consistency matters because it speaks the same language. Don't confuse people.
It is better to improve one thing than to be constantly forced to come up with something new which is often not new but is formalistically superimposed. That's why he prefers the term re-engineering. Thinking from inside to outside not the other way. Apple is a great example of this philosophy.
Good design just happens, it's an outgrowth of our education. It's an evolution after another.
Design doesn't just mean expensive.
Design should not deal with things like confusion.
Everything has a story. Even the objects he doesn't like, have stories.
It worries him that people are no longer looking each other in the eye. They are staring at their tablets and walking across the streets like that. It is significant how humanity has changed. Contemporary products are no longer serving humanity.
Technology is moving faster every day. Think of all the computers. If you get a computer today, it's already obsolete tomorrow. Today no industry is interested in improving. This is also a phenomenon-it's better to just buy a new one. We have to get away from the "un-culture" of abundance because there is no future with so many redundant things. He thinks that all this digitization is becoming more and more a part of our life. He thinks it diminishes our ability to experience things. We have to be careful now, that we rule over the digital world, and not ruled by it. For example, there should be no light during the day. Use natural light even during the cloudy days. Use natural materials, no paint brushes. Craftsmanship should stand out without layering anything on the top. This could be a problem however people who like colors.
Architecture and product design have in common. It's about the selection of materials, it's about proportions, the use of color and, last but not least, functionality. But it is also about emotional approaches, about signfulness, about meanings. Both professions have intersections with each other.
In my opinion, a long product cycle is a proven means of limiting a senseless and fast overconsumption. However, products should not only last technically long and be repairable, but also visually. A good design can deliver. In addition to my ten theses, you should also read my explanations. Many designers have undoubtedly referred to these theses. Jony Ive mentioned them in many interviews, including Jasper Morrison and Naoto Fukasawa. They took a close look at the Braun products and learned from them and developed their own attitude. These were not simple takeovers of designs, but intelligent further developments.
We have to get involved in fewer things, but specifically more useful, more useful, more environmentally friendly, more universal and also fascinating. In my opinion, this is the key if we want to change thoughtless consumption into responsible consumption. Attraction must refer to new compelling concepts and functions, not to the beautiful appearance of a design for superfluous buying incentives. An ethically justifiable design must of course also be present in the minds of the company management. Because the designer does not alone decide what is produced. Students of business administration learn a lot about marketing, but they are not taught the characteristics of good design. This means that the corporate goals should ask not only profit and growth but also about the meaningfulness of their products. Design should actually become a mandatory subject for economists.
I don't think that everything used to be better, as older people like to read. The saying already existed in a similar way with Aristotle in antiquity. For my generation, there was initially only hope for a better future, because the recent past had left a disaster with war and National Socialism. It was about cleaning up not only in the physical sense, but also in the mental. We have understood a better, unrepresentative, not sentimentally design as a relief, as a liberation from the ballast of the past. The sixties were then a gigantic upheaval and departure. However, it was also the beginning of ever greater consumption. Our reaction to this was to design reasonable and durable products with objectivity. However, today's time is very worrying to me. The climate catastrophe is no longer undeniable, yet the cars are getting bigger, not less, but more and more consumed. Putin is waging a bloody war of aggression against Ukraine, the USA and China have gone from economic cooperation to political confrontation. I am sometimes very forward-looking.
I don't use one or the other. All this is very suspicious to me and I don't want to sit in front of the computer for hours. I prefer to cut my bonsais in the garden and think about it. This also includes intensive book and newspaper readings. In my opinion, the old media still work quite well, if not even better in some respects. However, digitality certainly plays a major role today. Models can be produced much faster than before. But fast renderings also tempt too little thought-out designs, because everything looks so beautiful at first glance. Designers should always first think about whether their designs really mean progress. Design starts in the head, not on the computer. And putting first ideas on paper by hand is still a veritable procedure in my opinion.
Consider the worldwide littering caused by thoughtless product design.
A system is better than a single element" and that "good design is the overall configuration of a product.
Modularity is still a current topic. My shelf can always be adapted to new room situations and supplemented with new modules. The system is compatible with all previous elements. You don't have to dispose of anything when you move. Modules were part of Greek antiquity as well as part of the prefabricated buildings of the 20th century. Century. However, the latter were mostly poorly made, perhaps with the exception of the settlements of the New Frankfurt in the 1920s. The proportions and the details are right. Conseled modules should result in a coherent, harmonious overall form. If you screw two armchairs from my 620 system together, then it looks like a sofa, not like two single armchairs screwed together, even though they are.
Art has its own principles and they are certainly very diverse. Without a doubt, I like visual arts as art, but not as artificial design. For me, a concentrated art that you look into for a long time is better than an overwhelming one. I wouldn't have felt very comfortable in the Baroque. As you know, postmodernism was not my thing either, although I appreciated representatives like Ettore Sottsass humanly. In all times and styles, there have been good and less good productions. I have always been interested in the respective design quality. In the Baroque and even in the architectural historicism of the late 19th century. Century. The Alte Oper in Frankfurt has quite creative conciseness. However, today's industrial products for long-term use should not be embellished with ornamentation. You can quickly get tired of that. And then it is disposed of.
I don't hate the word design, but it's inflated, from nail design to jeans design. I would find the word design more appropriate, also internationally. In a lecture, you were once asked by a listener what advice you would give to a young designer. Their advice was: "Find the right people to work with, people who think beyond what they are responsible for in their daily work and who think about what our society will look like in the future." Can you explain this great advice in more detail? He actually says it all. Designers are not independent artists. Designers must above all be able to work in a team and speak, with colleagues, with entrepreneurs and also with the marketing specialists. Nobody designs convincing solutions for industrial design alone. And you should walk through the world with your eyes open. You mentioned that you would have liked to have a career as a landscape architect. Do you have any other unrealized projects, be it in the field of design or otherwise? I stand on the topics of landscape planning and urban design and what I have said about it.
Designers started to reject Ram's principles but with climate change, Rams is back. He was vocal about his actions impacting the planet in 90s. He paused and asked-“Am I part of the problem? I am making all molding and plastic stuff.” That is when 10 design principles came from.
- Good design is innovative. The possibilities for innovation are not, by any means, exhausted. Technological development is always offering new opportunities for innovative design. But innovative design always develops in tandem with innovative technology, and can never be an end in itself.
- Good design makes a product useful. A product is bought to be used. It has to satisfy certain criteria, not only functional, but also psychological and aesthetic. Good design emphasizes the usefulness of a product whilst disregarding anything that could possibly detract from it.
- Good design is aesthetic. The aesthetic quality of a product is integral to its usefulness because products we use every day affect our person and our well-being. But only well-executed objects can be beautiful.
- Good design makes a product understandable. It clarifies the product’s structure. Better still, it can make the product talk. At best, it is self-explanatory.
- Good design is unobtrusive. Products fulfilling a purpose are like tools. They are neither decorative objects nor works of art. Their design should therefore be both neutral and restrained, to leave room for the user’s self-expression.
- Good design is honest. It does not make a product more innovative, powerful or valuable than it really is. It does not attempt to manipulate the consumer with promises that cannot be kept.
- Good design is long-lasting. It avoids being fashionable and therefore never appears antiquated. Unlike fashionable design, it lasts many years – even in today’s throwaway society.
- Good design is thorough down to the last detail. Nothing must be arbitrary or left to chance. Care and accuracy in the design process show respect towards the user.
- Good design is environmentally-friendly. Design makes an important contribution to the preservation of the environment. It conserves resources and minimizes physical and visual pollution throughout the lifecycle of the product.
- Good design is as little design as possible. Less, but better – because it concentrates on the essential aspects, and the products are not burdened with non-essentials. Back to purity, back to simplicity.
“Less, but better” is not just a design concept, it's also about our behavior. Less would be better everywhere. Rams principles are not about principles, but about attitude. Rams design principles have influences so many which focuses on removing visual clutter and living with what you need.

His advice to the next generation of designers:

Keep your eyes wide open when you are walking in the city, neighborhoods. Don't trust everything the teachers tell you, because it's not all correct.

How important is design in protecting our future and the planet? True innovation are rare these days. It seems to me that the term "design" is mushrooming. Design has become a synonym for a backdrop, for beautiful appearance, for the stylish, and I fear we could lose our orientation at a point in time when orientation is needed as never before.

People are anxious about the future. Look at America with this new President. Increasing fear. The last thing we need is fear and anxiety. Politicians are obviously incapable of removing that fear. But most of my colleagues-architects, urban planners or designers-they are capable of doing this. Design only works when it really seeks to achieve something for humanity.

Paul Rand

It is no secret that the real world in which the designer functions is not the world of art, but the world of buying and selling. For sales, and not design are the raison d’etre of any business organization. Unlike the the salesman, however, the designer’s overriding motivation is art: art in the service of business, art that enhances the quality of life and deepens appreciation of the familiar world.

Design is a problem-solving activity. It provides a means of clarifying, synthesizing, and dramatizing a word, a picture, a product, or an event. A serious barrier to the realization of good design, however, are the layers of management inherent in any bureaucratic structure. For aside from the sheer prejudice or simple unawareness, one is apt to encounter such absurdities as second guessing, kow-towing, posturing, nit-picking, and jockeying for position, let alone such buck-passing institutions as the committee meeting and the task force. At issue, it seems, is neither malevolence nor stupidity, but human frailty.

The smooth functioning of the design process may be thwarted in other ways, by the imperceptive executive, who in matters of design understands neither his proper role nor that of the designer; by the eager but cautious advertising man whose principal concern is pleasing his client; and by the insecure client who depends on informal office surveys and pseudo-scientific research to deal with questions that are unanswerable and answers that are questionable.

Unless the design function in business bureaucracy is so structured that direct access to the ultimate decision-maker is possible, trying to produce good work is very often an exercise in futility. Ignorance of the history and methodology of design - how work is conceived, produced, and reproduced - adds to the difficulties and misunderstandings. Design is a way of life, a point of view. It involves the whole complex of visual communication: talent, creative ability, manual skill, and technical knowledge. Aesthetics and economics, technology and psychology are intrinsically relate to the process.

One of the more common problems which tends to create doubt and confusion is caused by the inexperienced and anxious executive who innocently expects, or even demands, to see not one but many solutions to a problem. These may include a number of visual and/or verbal concepts, an assortment of layouts, a variety of pictures and color schemes, as well as a choice of type styles. He needs the reassurance of numbers and the opportunity to exercise his personal preferences. He is also most likely to be the one to insist on endless revisions with unrealistic deadlines, adding to an already wasteful and time-consuming ritual. Theoretically, a great number of ideas assures a great number of choices, but such choices are essentially quantitative. This practice is as bewildering as it is wasteful. It discourages spontaneity, encourages indifference, and more often than not produces results which are neither distinguished, interesting, nor effective. In short, good ideas rarely come in bunches.

The designer who voluntarily presents his client with a batch of layouts does so not out prolificacy, but out of uncertainty or fear. He thus encourages the client to assume the role of referee. In the event of genuine need, however, the skillful designer is able to produce a reasonable number of good ideas. But quantity by demand is quite different than quantity by choice. Design is a time-consuming occupation. Whatever his working habits, the designer fills many a wastebasket in order to produce one good idea. Advertising agencies can be especially guilty in this numbers game. Bent on impressing the client with their ardor, they present a welter of layouts, many of which are superficial interpretations of potentially good ideas, or slick renderings of trite ones.

Frequent job reassignments within an active business are additional impediments about which management is often unaware. Persons unqualified to make design judgements are frequently shifted into design-sensitive positions. The position of authority is then used as evidence of expertise. While most people will graciously accept and appreciate criticism when it comes from a knowledgeable source, they will resent it (openly or otherwise) when it derives solely from a power position, even though the manager may be highly intelligent or have self-professed “good taste.” At issue is not the right, or even the duty, to question, but the right to make design judgement. Such misuse of privilege is a disservice to management and counterproductive to good design. Expertise in business administration, journalism, accounting, or selling, though necessary in its place, is not expertise in problems dealing with visual appearance. The salesman who can sell you the most sophisticated computer typesetting equipment is rarely one who appreciates fine typography or elegant proportions. Actually, the plethora of bad design that we see all around us can probably be attributed as much to good salesmanship as to bad taste.

Deeply concerned with every aspect of the production process, the designer must often contend with inexperienced production personnel and time-consuming purchasing procedures, which stifle enthusiasm, instinct, and creativity. Though peripherally involved in making aesthetic judgements (choosing printers, papermakers, typesetters and other suppliers), purchasing agents are for the most part ignorant of design practices, insensitive to subtleties that mean quality, and unaware of marketing needs. Primarily and rightly concerned with cost-cutting, they mistakenly equate elegance with extravagance and parsimony with wise business judgement.

These problems are by no means confined to the bureaucratic corporation. Artists, writers, and others in the fields of communication and visual arts, in government or private industry, in schools or churches, must constantly cope with those who do not understand and are therefore unsympathetic to their ideas. The designer is especially vulnerable because design is grist for anybody’s mill. “I know what I like” is all the authority one needs to support one’s critical aspirations.

Like the businessman, the designer is amply supplied with his own frailties. But unlike him, he is often inarticulate, a serious problem in an arena in which semantic difficulties so often arise. This is more pertinent in graphic design than in the industrial or architectural fields, because graphic design is more open to aesthetic than to functional preferences.

Stubborness may be one of the designer’s admirable or notorious qualities (depending on one’s point of view) - a principled refusal to compromise, or a means to camouflage inadequacy. Design cliches, meaningless patterns, stylish illustrations, and predetermined solutions are signs of such weakness. An understanding of the significance of modernism and familiarity with the history of design, painting, architecture, and other disciplines, which distinguish the educated designer and make his role more meaningful, are not every designer’s strong points.

The designer, however, needs all the support he can muster, for his is a unique but unenviable position. His work is subject to every imaginable interpretation and to every piddling piece of fact- finding. Ironically, he seeks not only the applause of the connoisseur, but the approbation of the crowd.

A salutary working relationship is not only possible but essential. Designers are not always intransigent, nor are all purchasing agents blind to quality. Many responsible advertising agencies are not unaware of the role that design plays as a communication force. As for the person who pays the piper, the businessman who is sympathetic and understanding is not altogether illusory. He is professional, objective, and alert to new ideas. He places responsibility where it belongs and does not feel insecure enough to see himself as an expert in a field other than his own. He is, moreover, able to provide a harmonious environment in which goodwill, understanding, spontaneity, and mutual trust - qualities so essential to the accomplishment of creative work - may flourish.

Similarly, the skilled graphic designer is a professional whose world is divided between lyricism and pragmatism. He is able to distinguish between trendiness and innovation, between obscurity and originality. He uses freedom of expression not as a license for abstruse ideas, and tenacity not as bullheadedness but as evidence of his own convictions. His is an independent spirit guided more by an “inner artistic standard of excellence”(1) than by some external influence. At the same time as he realizes that good design must withstand the rigors of the marketplace, he believes that without good design the marketplace is a showcase of visual vulgarity.

The creative arts have always labored under adverse conditions. Subjectivity emotion, and opinion seem to be concomitants of artistic questions. The layman feels insecure and awkward about making design judgments, even though he pretends to make them with a certain measure of know-how. But, like it or not, business conditions compel many to get inextricably involved with problems in which design plays some role.

For the most part, the creation or effects of design, unlike science, are neither measurable nor predictable, nor are the results necessarily repeatable. If there is any assurance, besides faith, a businessman can have, it is in choosing talented, competent, and experienced designers.

Meaningful design, design of quality and wit, is no small achievement, even in an environment in which good design is understood, appreciated, and ardently accepted, and in which profit is not the only motive. At best, work that has any claim to distinction is the exception, even under the most ideal circumstances. After all, our epoch can boast of only one A.M. Cassandre.

Words such as design, form, beauty, artistic, creative, and graphic are hard to design as it involves subjective interpretation.
Design focuses more on conception than it does on execution. The design of an idea might be conceived by a designer but it cannot come to fruition without the skills of a printer or a stone cutter.
Graphic design is essentially about visual relationships. It is the designer's job to select and fit the material together and make it interesting.
Form and function is the integration of the beautiful and usefulness.
Designer experiences, perceives, analyzes, organizes, symbolizes, synthesizes; considers spectator's feelings; draws upon instincts and intuition; must go through rigorous mental exercise.
The designer is primarily confronted with three classes of material: a) the given material: product, copy, slogan, logotype, format, media, production process; b) the formal material: space, contrast, proportion, harmony, rhythm, repetition, line, mass, shape, color, weight, volume, value, texture; c) the psychological material: visual perception and optical illusion problems, the spectators’ instincts, intuitions, and emotions as well as the designer’s own needs.
If there is vagueness in problem statement, it is the designer's job to restate the problem. Driving clarity is essential!
Since graphic design deals with spectator, it is the goal of the designer to be persuasive or at least informative. Painters need not concern with this since a painting is open to interpretation.
Trademark and logo are symbols. There are good symbols and bad symbols. The flag is a symbol of a country. The cross is a symbol of a religion. A trademark is created by a designer but made by a corporation.
Stripes draw attention. They are memorable. Nature has created stripes (Zebras). They are effective.
Ideas do no need to be esoteric to be original or exciting. Originality is related more to the unexpected idea than to some flamboyant or peculiar technique. To defamiliarize the commonplace, to see it as if were for the first time, is the artist's goal.
The artist is a collector of things imaginary or real. He accumulates things with the same enthusiasm that a little boy stuffs his pockets. The scrap heap and the museum are embraced with equal curiosity. He takes snapshots, makes notes and records impressions on tablecloths or newspapers, on backs of envelopes or matchbooks. Why one thing and not another is part of the mystery, but he is omnivorous.
Repetition is an effective way of achieving unity. Repetition also means remembrance.
Humor is misunderstood and plays a significant role in design process and artifacts. Plato, in The Republic declares: Therefore do not use compulsion, but early education be rather a sort of amusement.
The deployment of any visual image must begin with some tangible idea or conscious.
Collage and montage draws spectators engagement because it requires personal discovery and exploration on what an artist is trying to convey. The value of audience participation is critical!
Type matter involves readability. However, this function by a designer is taken too literally and overemphasized at the expense of style and individuality.
Symmetry offers the spectator too simple and too obvious a statement. It offers little or no intellectual pleasure, no challenge. With asymmetric, designer is able to achieve great interest.
In his writings specifically around typography, he puts emphasizes on there is no such thing as American font. A long-standing debate in many disciplines. American type is the combination of many geographies, culture and people.
Meaningless solutions are produced when too much emphasize is placed on freedom and self-expression. Conversely, meaningful solutions are produced with defined limits. The latter is the instinct of play and will most likely yield novel solution. The rules are the means to the end, the conditions the player must understand thoroughly and work in order to participate. Without specific formal limitations and without the challenge of play, both teacher and student and teacher cannot help but be bored. The student has the illusion of creating great art in an atmosphere of freedom, when in fact, the designer is handicapped by the absence of certain disciplines which would evoke ideas and make playing with those ideas possible and interesting.
Rand lists number of design exercises to work up your design muscle: crossword puzzle, the tangram, hokusai's drawing, chinese characters, the modular, the grid system, mason's mark, tatami, albers, cubist collages, matisse, picasso, mu ch'i, the photogram, piet zwart, japanese craftsman.
Taboos and prejudices have long created limiting barriers to experimentation and to meaningful work in the arts, that is against the color black. However, the color black has many virtues. It is perfect for contrasting. Looking around us, nature has many elements of black. In Japanese painting, black (sumi) is often the only color employed.
Together black and white act as complementary colors. Bright light reflected by the white area nullifies the reflected light from the black area. This makes the black seem blacker and white more brilliant.
The field of packaging include materials, construction, and application. The Chanel packaging and design is an excellent study. In a well designed package, the designer does not seek to exploit consumer's visual memories and attachments by sentimental distortion but to express his objective appreciation of the fact that people do have strong affective reaction to things.
The last two chapters Politics of Design and Integrity and Invention are worth re-reading. Rand worked with large organizations when design was at its infancy, so he knows how design was perceived in the world of commercialization. I have both chapters filled with annotations and notes. There is a lot of wisdom in them.

Bruno Munari

A designer is a planner with an aesthetic sense.
The designer of today re-establishes the long-lost contact between art and the public, between living people and art as a living thing. Instead of pictures for the drawing-room, electric gadgets for the kitchen. There should be no such thing as art divorced from life, with beautiful things to look at and hideous things to use. If what we use every day is made with art, and not thrown together by chance or caprice, then we shall have nothing to hide.
When the objects we use every day and the surroundings we live in have become in themselves a work of art, then we shall be able to say that we have achieved a balanced life.
Design came into being in 1919, when Walter Gropius founded the Bauhaus at Weimar. Part of the prospectus of this school reads: s'The function of art has in the past been given a formal importance which has severed it from our daily life; but art is always present when a people lives sincerely and health. 'Thus our job is to invest a new system of education that may lead to a complete knowledge of human needs and a universal awareness of them.'...What Gropius wrote is still valid. Tis first school of design did tend to make a new kind of artist, an artist useful to society because he helps society to recover its balance, and not to lurch between a false world to live one's material life in and ideal world to take moral revenge in.
The vase once had an extremely common use. Most probably it was used for cooking-oil. It was made by a designer of those times, when art and life went hand in hand and there was no such thing as a work of art to look at and just any old thing to use.
The greatest freedom comes from the greatest strictness. - Paul Valéry
When the objects we use every day and the surroundings we live in have become in themselves a work of art, then we shall be able to say that we gave achieved a balanced life.
To understand means to be capable of doing. - Goethè
People haven’t got time to stop in the street, size a poster up, see what it refers to and then decide whether or not it interests them. Communication must be instant and it must be exact.
When one studies something characteristic of a people it is wise to look at its best side, at least if one wants to learn anything. Ugly things are ugly in much the same way the world over. Only the best can teach us, and the best of anything is individual. Each country excels in some things, and in the rest is just the same as other countries: mediocre.
The stylist works by contrast. After a season of violet, one can predict a season of yellow.
It is certainly quite wrong to read a poem in a hurry, as if it were a telegram.
What is a car, for many people, if not a piece of travelling sculpture?
As long as art stands aside from the problems of life it will only interest a very few people.
What then is this thing called Design if it is neither style nor applied art? It is planning: the planning as objectively as possible of everything that goes to make up the surroundings and atmosphere in which men live today. This atmosphere is created by all the objects produced by industry, from glasses to houses and even cities. It is planning done without preconceived notions of style, attempting only to give each thing its logical structure and proper material, and in consequence its logical form.
By designing without any stylistic or formal preconceived notions, and tending towards the natural formation of things, one gets the essence of a product. This means using the most appropriate materials of the correct thickness, reducing working hours to a minimum, combining a number of functions in one element, making all attachments simple, using as few different materials as possible for each single object, trying to abolish the need for finishing off in detail, doing any necessary lettering during the original pressing, and bearing in mind that the object should take up as little storage space as possible and should assemble itself automatically when ready for use.
‘I TAO PI PU TAO’: If the idea is there, the brush can spare itself the work. (Ancient rule of Chinese painting.)
An artist is a man who digests his own subjective impressions and knows how to find a general objective meaning in them, and how to express them in a convincing form. - Maxim Gorky
A poem only communicates if read slowly: only then does it have time to create a state of mind in which the images can form and be transformed.
Any knowledge of the world we live in is useful, and enables us to understand things that previously we did not know existed.
Concern yourself with things before they come into existence. - Tao Te-ching
Naturally, this puts an end to the already tarnished image of the work of art as a rare and even unique thing, independent of what it expresses.
According to an ancient Chinese saying, infinity is a square without corners.
We therefore have an object that is absolutely useless to man, an object good for nothing better than being looked at, or at the most sniffed (though it seems that some producers have now invaded the market with roses that do not even have the virtue of scent). This is an object without justification, and one moreover that may lead the worker to think futile thoughts. It is, in the last analysis, even immoral.
Today it has become necessary to demolish the myth of the ‘star’ artist who only produces masterpieces for a small group of ultra-intelligent people. It must be understood that as long as art stands aside from the problems of life it will only interest a very few people. Culture today is becoming a mass affair, and the artist must step down from his pedestal and be prepared to make a sign for a butcher’s shop (if he knows how to do it). The artist must cast off the last rags of romanticism and become active as a man among men, well up in present-day techniques, materials and working methods. Without losing his innate aesthetic sense he must be able to respond with humility and competence to the demands his neighbors may make of him.
Anyone working in the field of design has a hard task ahead of him: to clear his neighbor’s mind of all preconceived notions of art and artists, notions picked up at schools where they condition you to think one way for the whole of your life, without stopping to think that life changes - and today more rapidly than ever. It is therefore up to us designers to make known our working methods in clear and simple terms, the methods we think are the truest, the most up-to-date, the most likely to resolve our common aesthetic problems. Anyone who uses a properly designed object feels the presence of an artist who has worked for him, bettering his living conditions and encouraging him to develop his taste and sense of beauty.
We know that only the technical means of artistic achievement can be taught, not art itself. The function of art has in the past been given a formal importance which has severed it from our daily life; but art is always present when a people lives sincerely and healthily. ‘Our job is therefore to invent a new system of education that may lead - by way of a new kind of specialized teaching of science and technology - to a complete knowledge of human needs and a universal awareness of them. ‘Thus our task is to make a new kind of artist, a creator capable of understanding every kind of need: not because he is a prodigy, but because he knows how to approach human needs according to a precise method. We wish to make him conscious of his creative power, not scared of new facts, and independent of formulas in his own work.’
...these are certainly not objects produced by designers, for designers do not have such raging imaginations. They confine themselves to making candlesticks that look like candlesticks.

Rowena Reed Kostellow

Pure, unadulterated beauty should be the goal of civilization!
Industrial design is about exactly what is there. The forms of industrial design are direct support for experience: they shape the conduct of our days: they structure the experience of being alive now.
Our goal is the training of a designer so familiar with the principles of abstraction that he automatically thinks of a visual problem in terms of organized relationships and then feels free to study other aspects of the problem, or to confer with specialists in related fields. He is a designer who can, visually, cross boundaries and suggest new forms for new materials or new techniques.
Miss Reed always told us that “Unity is the visual glue that holds everything together. You know that you have achieved it when all the visual relationships within the design are organized in such exquisite dependent relationship that every element supports and strengthens every other and any minor change would upset the perfect balance and tension.
She had a gift for friendship and nurtured long-term, personal relationships with many of her former students. They phoned at all hours, and came and went from her apartment, driving her to and from Pratt, taking her to lunch and dinner. They escorted her on her travels and slept on her couch when they came to town. They ran errands, helped her sort through piles of papers and slides, and brought her out to the country for weekends after she gave up her own country home.
Teaching is a marvelous adventure-like having a huge laboratory in which to carry out experiments.
Of course, a product is no good to anyone unless the function is properly worked out. The object should express what it is very directly, but it is possible for a design to express what it is and also be a beautiful object in its own right. We introduce the student to an ordered sequence of purely visual experiences by which an artist may develop his understanding and his recognition of the abstract elements in any design situation. Our goal is the training of a designer so familiar with the principles of abstraction that he automatically thinks of a visual problem in terms of organized relationships and then feels free to study other aspects of the problem or to confer with specialists in related fields. He is a designer who can visually cross boundaries and suggest new forms for new materials or new techniques.
Like a piano teacher, she made you do the exercises over and over so many times that you lost all your tricks. - Tucker Viemeister

Donald A Norman

Design is beyond window dressing products.
Design is really an act of communication, which means having a deep understanding of the person with whom the designer is communicating.
Good design is actually a lot harder to notice than poor design, in part because good designs fit our needs so well that the design is invisible, serving us without drawing attention to itself. Bad design, on the other hand, screams out its inadequacies, making itself very noticeable.
Rule of thumb: if you think something is clever and sophisticated beware-it is probably self-indulgence.
The idea that a person is at fault when something goes wrong is deeply entrenched in society. That’s why we blame others and even ourselves. Unfortunately, the idea that a person is at fault is embedded in the legal system. When major accidents occur, official courts of inquiry are set up to assess the blame. More and more often the blame is attributed to “human error.” The person involved can be fined, punished, or fired. Maybe training procedures are revised. The law rests comfortably. But in my experience, human error usually is a result of poor design: it should be called system error. Humans err continually; it is an intrinsic part of our nature. System design should take this into account. Pinning the blame on the person may be a comfortable way to proceed, but why was the system ever designed so that a single act by a single person could cause calamity? Worse, blaming the person without fixing the root, underlying cause does not fix the problem: the same error is likely to be repeated by someone else.
A brilliant solution to the wrong problem can be worse than no solution at all: solve the correct problem.
Cognition attempts to make sense of the world: emotion assigns value.
The problem with the designs of most engineers is that they are too logical. We have to accept human behavior the way it is, not the way we would wish it to be.
The vicious cycle starts: if you fail at something, you think it is your fault. Therefore you think you can’t do that task. As a result, next time you have to do the task, you believe you can’t, so you don’t even try. The result is that you can’t, just as you thought. You’re trapped in a self-fulfilling prophecy.
It is easy to design devices that work well when everything goes as planned. The hard and necessary part of design is to make things work well even when things do not go as planned.
One way of overcoming the fear of the new is to make it look like the old.
Norman’s Law: The day the product team is announced, it is behind schedule and over its budget.
When things go right, people credit their own abilities and intelligence. The onlookers do the reverse. When they see things go well for someone else, they sometimes credit the environment, or luck.
Finally, people have to actually purchase it. It doesn’t matter how good a product is if, in the end, nobody uses it.
In the university, professors make up artificial problems. In the real world, the problems do not come in nice, neat packages. They have to be discovered.
The design of everyday things is in great danger of becoming the design of superfluous, overloaded, unnecessary things.
Poor feedback can be worse than no feedback at all, because it is distracting, uninformative, and in many cases irritating and anxiety-provoking.
It is the duty of machines and those who design them to understand people. It is not our duty to understand the arbitrary, meaningless dictates of machines.
Original ideas are the easy part. Actually producing the idea as a successful product is what is hard.
Affordances define what actions are possible. Signifiers specify how people discover those possibilities: signifiers are signs, perceptible signals of what can be done. Signifiers are of far more importance to designers than are affordances.
Don't criticize unless you can do better. Try to understand how the faulty design might have occurred: try to determine how it could have been done otherwise.
In design, one of the most difficult activities is to get the specifications right.
Why do we need to know about the human mind? Because things are designed to be used by people, and without a deep understanding of people, the designs are apt to be faulty, difficult to use, difficult to understand.
The meanings of today may not be the meanings of the future.
Cognition and emotion cannot be separated. Cognitive thoughts lead to emotions: emotions drive cognitive thoughts. The brain is structured to act upon the world, and every action carries with it expectations, and these expectations drive emotions. That is why much of language is based on physical metaphors, why the body and its interaction with the environment are essential components of human thought. Emotion is highly underrated. In fact, the emotional system is a powerful information processing system that works in tandem with cognition. Cognition attempts to make sense of the world: emotion assigns value. It is the emotional system that determines whether a situation is safe or threatening, whether something that is happening is good or bad, desirable or not. Cognition provides understanding: emotion provides value judgements. A human without a working emotional system has difficulty making choices. A human without a cognitive system is dysfunctional.
When people fail to follow these bizarre, secret rules, and the machine does the wrong thing, its operators are blamed for not understanding the machine, for not following its rigid specifications. With everyday objects, the result is frustration. With complex devices and commercial and industrial processes, the resulting difficulties can lead to accidents, injuries, and even deaths. It is time to reverse the situation: to cast the blame upon the machines and their design. It is the machine and its design that are at fault. It is the duty of machines and those who design them to understand people. It is not our duty to understand the arbitrary, meaningless dictates of machines.
If the system lets you make the error, it is badly designed.
With the passage of time, the psychology of people stays the same, but the tools and objects in the world change.
Design is successful only if the final product is successful-if people buy it, use it, and enjoy it, thus spreading the word. A design that people do not purchase is a failed design, no matter how great the design team might consider it.
Procedural knowledge is difficult or impossible to write down and difficult to teach. It is best taught by demonstration and best learned through practice.
A device is easy to use when the set of possible actions is visible, when the controls and displays exploit natural mappings.
Alas, sometimes clever people are too clever for our good. Some well-meaning plumbing designers have decided that consistency should be ignored in favor of their own, private brand of psychology.
Because retrieval is a reconstructive process, it can be erroneous. We may reconstruct events the way we would prefer to remember them, rather than the way we experienced them. It is relatively easy to bias people so that they form false memories, “remembering” events in their lives with great clarity, even though they never occurred. This is one reason that eyewitness testimony in courts of law is so problematic: eyewitnesses are notoriously unreliable. A huge number of psychological experiments show how easy it is to implant false memories into people’s minds so convincingly that people refuse to admit that the memory is of an event that never happened.
We are creative and imaginative, not mechanical and precise. Machines require precision and accuracy; people don’t. And we are particularly bad at providing precise and accurate inputs.
Some things can only be solved by massive cultural changes, which probably means they will never be solved.
Recognize that most of our interactions with products are actually interactions with a complex system: good design requires consideration of the entire system to ensure that the requirements, intentions, and desires at each stage are faithfully understood and respected at all the other stages.
Question everything. I am particularly fond of “stupid” questions. A stupid question asks about things so fundamental that everyone assumes the answer is obvious.
If the skill is easily automated, it wasn't essential.
We only need to remember sufficient knowledge to let us get our tasks done. Because so much knowledge is available in the environment, it is surprising how little we need to learn. This is one reason people can function well in their environment and still be unable to describe what they do.
Yet surprisingly in this era of screen-based devices, paper tools are still enormously popular and effective, as the number of paper-based diaries and reminders indicates.
Good design is actually a lot harder to notice than poor design, in part because good designs fit our needs so well that the design is invisible, serving us without drawing attention to itself.
Human intelligence is highly flexible and adaptive, superb at inventing procedures and objects that overcome its own limits. The real powers come from devising external aids that enhance cognitive abilities.
Design is concerned with how things work, how they are controlled, and the nature of the interaction between people and technology.
Creeping featurism is the tendency to add to the number of features of a product, often extending the number beyond all reason. There is no way that a product can remain usable and understandable by the time it has all of those special-purpose features that have been added in over time.
Root cause analysis is the name of the game: investigate the accident until the single, underlying cause is found. What this ought to mean is that when people have indeed made erroneous decisions or actions, we should determine what caused them to err. This is what root cause analysis ought to be about. Alas, all too often it stops once a person is found to have acted inappropriately. Basically, it means that when searching for the reason, even after you have found one, do not stop: ask why that was the case. And then ask why again. Keep asking until you have uncovered the true underlying causes.
When companies try to increase sales by matching every feature of their competitors, they end up hurting themselves. After all, when products from two companies match feature by feature, there is no longer any reason for a customer to prefer one over another.
Often people will use their own conceptual models of the world to determine the perceived causal relationship between the thing being blamed and the result. The word perceived is critical: the causal relationship does not have to exist; the person simply has to think it is there.
So the hierarchy of goals is roughly: satisfy hunger; eat; cook; read cookbook; get more light. This is called a root cause analysis: asking “Why?” until the ultimate, fundamental cause of the activity is reached.
A conceptual model is an explanation, usually highly simplified, of how something works. It doesn’t have to be complete or even accurate as long as it is useful.
It is amazing how often people solve the problem before them without bothering to question it.
Market-driven pressures plus an engineering-driven company yield ever-increasing features, complexity, and confusion. But even companies that do intend to search for human needs are thwarted by the severe challenges of the product development process, in particular, the challenges of insufficient time and insufficient money.
The most effective way of helping people remember is to make it unnecessary.
Technology does not make us smarter. People do not make technology smart. It is the combination of the two, the person plus the artifact, that is smart. Together, with our tools, we are a powerful combination. On the other hand, if we are suddenly without these external devices, then we don’t do very well. In many ways, we do become less smart.
Once again, the designer should assume that people will be interrupted during their activities and that they may need assistance in resuming their operations.
Never underestimate the power of social pressures on behavior, causing otherwise sensible people to do things they know are wrong and possibly dangerous.
To understand products, it is not enough to understand design or technology: it is critical to understand business.
So we must design our machines on the assumption that people will make errors.
Product development involves an incredible mix of disciplines, from designers to engineers and programmers, manufacturing, packaging, sales, marketing, and service.
Producing a good product requires a lot more than good technical skills: it requires a harmonious, smoothly functioning, cooperative and respectful organization.
When a new way of doing things is vastly superior to another, then the merits of change outweigh the difficulty of change. Just because something is different does not mean it is bad. If we only kept to the old, we could never improve.
Most of human behavior is a result of subconscious processes. We are unaware of them. As a result, many of our beliefs about how people behave-including beliefs about ourselves-are wrong. That is why we have the multiple social and behavioral sciences, with a good dash of mathematics, economics, computer science, information science, and neuroscience.
We need to remove the word failure from our vocabulary, replacing it instead with learning experience. To fail is to learn: we learn more from our failures than from our successes. With success, sure, we are pleased, but we often have no idea why we succeeded. With failure, it is often possible to figure out why, to ensure that it will never happen again.
Two of the most important characteristics of good design are discoverability and understanding.
Most radical ideas fail: large companies are not tolerant of failure. Small companies can jump in with new, exciting ideas because if they fail, well, the cost is relatively low.
Most new inventions fail. And even the few that succeed to take decades to do so.
In general, people tend to think of innovation as being radical, major changes, whereas the most common and powerful form of it is actually small and incremental.
In the real world, the problems do not come in nice, neat packages. They have to be discovered. It is all too easy to see only the surface problems and never dig deeper to address the real issues.
Good designers never start by trying to solve the problem given to them: they start by trying to understand what the real issues are. As a result, rather than converge upon a solution, they diverge, studying people and what they are trying to accomplish, generating idea after idea after idea.
Human centered design is the process of ensuring that people’s needs are met, that the resulting product is understandable and usable, that it accomplishes the desired tasks, and that the experience of use is positive and enjoyable. Effective design needs to satisfy a large number of constraints and concerns, including shape and form, cost and efficiency, reliability and effectiveness, understandability and usability, the pleasure of the appearance, the pride of ownership, and the joy of actual use. HCD is a procedure for addressing these requirements, but with an emphasis on two things: solving the right problem, and doing so in a way that meets human needs and capabilities.
The best products come from ignoring these competing voices and instead focusing on the true needs of the people who use the product.
True customer-centric and customer-driven companies (rather than competition-driven) can avoid feature-creep.

Joseph Albers

Good teaching is more a giving of right questions than a giving of right answers.
In visual perception, a thing is never seen as it really is
A strong challenge to a class is to work with 3 or 4 given colors selected by a teacher or student. This and a continued use of disliked colors will teach that preference and dislike as in life so with color usually result from prejudices, from lack of experience and insight.
Color is fooling us all the time. All the time, like women do, you see, life is interesting.
In my color book there is no new theory of color. But, in it, there is a way to learn to see.
I have not taught art. Instead of art, I have taught philosophy…I never have taught [techniques for] how to paint. All my doing was to make people to see.
We can hear a single tone but rarely do we see a single color unrelated to other colors.
Anyone who predicts the effect of colors proves that he has no experience with color.
I have said to my students ‘I am putting you into a vacuum and asking you to breathe.’
This book presents results of search, not of what is academically called research.
As it is not a compilation from books, it does not end with a list of books - either books read, or books not read. Instead, this book ends with an acknowledgement of my students who are the authors of sample studies, and whom I therefore consider my indirect but first collaborators.
I like to state that my students in color have taught me more color than have books about color.
“Action” is the noun for the verb “to act”.
The word as such [value], when unspecified, permits application in innumerable directions... Unfortunately, the careless use of “value,” particularly with regard to equal lightness-as well as false examples reproduced in books-has destroyed it as a means of measure.
As basic rules of any language must be practiced continuously, and therefore are never fixed, so exercises toward distinct color effects never are done or over. New and different cases will be discovered time and again, and should be presented to the class again and again. In this way the study will be a mutual give and take. It will also show that all thorough study is basic, and that all education is self-education. This indicates that we expect from every student several solutions to each problem. In the end, teaching is a matter not of method but of heart. Therefore, the most decisive factor is the teacher's personality. His enthusiastic concern with the student's growth counts more than how much he knows. It is well known that "the teacher is always right," but rarely does this fact elicit respect or sympathy; even less often does it prove competence and authority. But the teacher actually is right and always will gain confidence when he admits that he does not know, that he cannot decide, and, as it often is with color, that he is unable to make a choice or to give advice. Besides, good teaching is more a giving of right questions than a giving of right answers.
The results of our trial-and-error experimentation, mostly done after class, are exhibited at the beginning of the next class. These studies we call the admission tickets" to the class.)
In the previous chapters we have presented a studio course, or, if you prefer, a laboratory or workshop course which opposes an administrative attitude of "theory and practice." Naturally, practice is not preceded but followed by theory. Such study promotes a more lasting teaching and learning through experience. Its aim is development of creativeness realized in discovery and invention-the criteria of creativity, or flexibility, being imagination and fantasy. Altogether it promotes "thinking in situations," a new educational concept unfortunately little known and less cultivated, so far.
These exercises are not meant to illustrate, or to decorate or beautify something, but aim at the development of the ability to produce the desired color effects. This reiterates our disbelief in self-expression, either as a way of study or as its aim, in schools.
After too much non-teaching, non-learning, and a consequent non-seeing, in too many art "activities" -it is time to advocate again a basic step-by-step learning which promotes recognition of insight coming from experience, and evaluation resulting from comparison. This, in sum, means recognition of development and improvement, that is, of growth, growth of ability. This growth is not only a most exciting experience; it is inspiring and thus the strongest incentive for intensified action, for continued investigation (search instead of re-search), for learning through conscious practice.
Singing a tune and playing it on instruments- even more, conducting several instruments- provides more contact, more insight than merely hearing the tune. So cooking, normally and naturally, teaches more than reading recipes.
We practice first and mainly a study of ourselves.

Edward R. Tufte

Above all else show the data.
Graphics reveal data.
Of course, statistical graphics, just like statistical calculations, are only as good as what goes into them.
A silly theory means silly graphic.
Graphical excellence begins with telling the truth about the data.
Graphical excellence is that which gives to the viewer the greatest number of ideas in the shortest time with the least ink in the smallest space.
Allowing artist-illustrators to control the design and content of statistical graphics is almost like allowing typographers to control the content, style, and editing of prose.
The emphasis is on maximizing principles, empirical measures of graphical performance, and the sequential improvement of graphics through revision and editing. Insights into graphical design are to be gained, I believe, from theories of what makes for excellence in art, architecture, and prose.
Most of all, then, this book is a celebration of data graphics.
Get it right or let it alone. The conclusion you jump to may be your own. - James Thunder
As to the propriety and justness of representing sums of money, and time, by parts of space, tho' very readily agreed to by most men, yet a few seem to apprehend that there may possibly be some deception in it, of which they are not aware. - William Playfair, The Commercial and Political Atlas (London, 1786)
Different people see the same areas somewhat differently; perceptions change with experience; and perceptions are context-different.
Misperception and miscommunication are certainly not special to statistical graphics.
Why do artists draw graphics that lie? Why do the world's major newspaper and magazines publish them?...Lurking behind the inept graphic is a lack of judgment about quantitative evidence, Nearly all those who produce graphics for mass publication are trained exclusively in the fine arts and have had little experience with the analysis of data. Such experience is essential for achieving precision and grace in the presence of statistics, but even textbooks of graphical design are silent on how to think about numbers. Illustrators too often see their work as an exclusively artistic enterprise--the words "creative," "concept," and "style" combine regularly in all possible permutations, a Big Think jargon for the small task of constructing a time-series a few data points long. Those who get ahead are those who beautify data, never mind statistical integrity.
The doctrine of boring data serves political ends, helping to advance certain interests over others in bureaucratic struggles for control of a publication's resources. For if the numbers are dull dull dull, then an artist, indeed many artists, indeed an Art Department and an Art Director are required to animate the data, lest the eyes of the audience glaze over. Thus the doctrine encourages placing data graphics under control of artists rather than in the hands of those who write the words and know the substance. As the art bureaucracy grows, style replaces content. And the word people, having lost space in the publication to data decorators, console themselves with thoughts that statistics are really rather tedious anyway.
If the statistics are boring, then you've got the wrong numbers. Finding the right numbers requires as much specialized skill- statistical skill-and hard work as creating a beautiful design or covering a complex news story.
Many believe that graphical displays should divert and entertain those in the audience who find the words in the text too difficult.
If you have to explain it, don't use it.
... no nation ranks higher in its collective passion for statistics. In Japan, statistics are the subject of a holiday, local and national conventions, awards ceremonies and nationwide statistical collection and graph-drawing contests. "This year," said Yoshiharu Takahashi, a Government statistician, "we had almost 30,000 entries. Actually, we had 29,836." Entries in the [children's statistical graph contest were screened three times by judges, who gave first prize this year to the work of five 7-year-olds. Their graph creation, titled "Mom, play with us more often," was the result of a survey of 32 classmates on the frequency that mothers play with their offspring and the reasons given for not doing so.... Other children's work examined the frequency of family phone usage and correlated the day's temperature with cicada singing.' - Andrew H. Malcolm
It wastes the tremendous communicative power of graphics to use them merely to decorate a few numbers.
Like weeds, many varieties of chartjunk flourish.
Painting is special, separate, a matter of meditation and contemplation, for me, no physical action or social sport. As much consciousness as possible. Clarity, completeness, quintessence, quiet. No noise, no schmutz, no schmerz, no fauve schwärmerei. Perfection, passiveness, consonance, consummateness. No palpitations, no gesticulation, no grotesquerie. Spirituality, serenity, absoluteness, coherence. No automatism, no accident, no anxiety, no catharsis, no chance. Detachment, disinterestedness, thoughtfulness, transcendence. No humbugging, no button-holing, no exploitation, no mixing things up. - Ad Reinhardt, statement for the catalogue of the exhibition, "The New Decade: 35 American Painters and Sculptors," Whitney Museum of American Art, New York, 1955.
Graphical elegance is often found in simplicity of design and complexity of data.

Kelley Brothers

Creative confidence is like a muscle-it can be strengthened and nurtured through effort and experience. Our goal is to help build that confidence in you.
Creative confidence is a way of seeing that potential and your place in the world more clearly, unclouded by anxiety and doubt.
We think of creativity as using your imagination to create something new in the world.
In the business world, creativity manifests itself as innovation.
For the people we've worked with, opening up the flow of creativity is like discovering that you've been driving a car with the emergency brake on-and suddenly experiencing what it feels like when you release the brake and can drive freely.
In our experience, everybody is the creative type.
Creative energy is one of our most precious resources.
A growth mindset is a passport to new adventures.
Effort is the path to mastery, so let's at least give it a try.
Designers always act with intention.
Everything in modern society is the result of a collection of decisions made by someone.
Failure sucks, but instructs.
We believe the lessons learned from failures may make us smarter-even stronger.
Relentless practice creates a database of experience that you can draw upon to make more enlightened choices.
Success has many fathers, but failure is an orphan.
When our self-worth isn't on the line, we are more willing to courageous and risk sharing our raw talents and gifts.
A sketch is worth a thousand words.
Courage is only the accumulation of small steps.
Do the thing you fear, and the death of fear is certain.
Daydreaming gets a bad rep, but prolific mind wanderers score higher on tests of creativity.
The first step toward a great answer is to reframe the question.
Nurture the kind of prepared mind that seizes the moment when an epiphany occurs.
Creative confidence people are not just passive observers. They live in the active voice. They write the scripts of their own lives, and in doing so they have a greater impact on the world around them. They believe actions can make a positive difference.
The most effective way to practice design thinking is by showing, not telling.
Don't turn talk a substitute for action.
Show, don't tell.
The most innovative companies in the 21st century have transitioned from command-and-control organizations to a participatory approach that involves collaboration and teamwork.
Few people think about it or are aware of it. But there is nothing made by human beings that does not involve a design decision somewhere. - Bill Moggridge

Ed Catmull

Failure isn't a necessary evil. In fact, it isn't even at all. It is a necessary consequence of doing something new.
It’s not the manager’s job to prevent risks. It’s the manager’s job to make it safe for others to take them.
Unleashing creativity requires that we loosen the controls, accept risk, trust our colleagues, work to clear the path for them, and pay attention to anything that creates fear.
When faced with a challenge, get smarter....I have met people who took what seemed the safer path and were the lesser for it....Always take a chance on better, even if it seems threatening.
You don’t have to ask permission to take responsibility.
To ensure quality, then, excellence must be an earned word, attributed by others to us, not proclaimed by us about ourselves.
…societal conditioning discourages telling the truth to those perceived to be in higher positions.
Failure is painful, and our feelings about this pain tend to screw up our understanding of its worth.
How do we face our failures without fear?
Self-interest guides opposition to change....Once you master any system, you typically become blind to its flaws; even if you can see them, they appear far too complex and intertwined to consider changing.

John Maeda

Law 1: Reduce | The simplest way to achieve simplicity is through thoughtful reduction. When subtracting from a product be careful to ensure that the product’s core value and quality are always there.
- Shrink: Psychologically, people fear big things and prefer small ones. Small and lightweight things are more likely to win people’s sympathy. The appearance of technology products has always followed this underlying rule. Taking mobile phones as an example, lightness and miniaturization are obvious trends (but not absolute). Correspondingly, the realization of a lightweight, miniaturized appearance benefits from the high internal technical advances, such as the IC of smartphones, which allows more complex calculations and processing to be done in a smaller central processing unit.
- Hide: The high-frequency and high-priority functions are presented in the core position, while other secondary parts are hidden or semi-hidden. This is one of the most straightforward and practical ways to improve usability. But consumers may not buy into it. In consumer psychology, the more exposed functions, the more they cater to consumers (people always want more but are not good at handling too much). Designers must guide users to restrain their desires and ensure the optimal use of limited core functions.
- Embody: The third point emphasizes that the simpler something is, the more it needs to be based on high-quality; otherwise, it feels of poor quality. IKEA’s products are simple, but we don’t think IKEA products are synonymous with high quality because their quality and materials are relatively ordinary. B&O’s audio and Japanese porcelain are excellent design examples that integrate simplicity and quality. Therefore, the more minimalist the product, the higher the requirements for quality, craftsmanship, materials, and details.
Law 2: Organize | Restructuring (Ordering) can make a complex system look simple.
- Reorganizing the external interface elements can make the product look more organized and simple. The book mentions a method named SLIP: Sort - label -Integrate-Priority. It should be noted that there are many possibilities for classification, labeling, and integration. To maximize the significance for the user, scattered elements (functional elements, formal elements, etc.) need to be classified and integrated based on the reasons which require careful handling by designers. The reorganization of the form level is also related to the Gestalt method.
- The basic theory of Gestalt psychology believes that human recognition of any visual image is a form and outline organized by the visual perception system and formed in the process of experience. For example, in visual recognition, people will naturally repair a complete circular shape from an incomplete one.
- How to make the organization of formal elements tend to have ideal effects? A simple method is to squint (squinting can help us see the overall form rather than a specific part) to see the overall impact to grasp a certain tendency towards perfect form.
Law 3: Time | Saving or optimizing the perception of time is a form of simplification.
- If a design optimizes a process and saves time, that can be considered simplification. However, the time law is more than it. Designers can also consider changing people’s perceptions of time, except saving people’s time. For example, in Las Vegas casinos, the spatial design erases everything related to the sense of time. There are no clocks or windows to reveal the existence of time, which allows people to be fully immersed in gambling. By “hiding” the external sense of time, people can ignore time.
- While waiting for a computer to produce a result, the accelerated progress bar can calm the user. People need all kinds of positive hints to feel that they are on the right track, and visual form is a language that can give users appropriate hints as long as it is applied properly.
Law 4: Learning | Knowledge makes everything simpler.
- This law focuses on how to reduce the cognitive load of users when they encounter an unfamiliar product. One important method is to utilize metaphors to create a sense of familiarity entirely.
- Using the “Relate-translate-surprise” method to enhance the product's simplicity allows users to accept quickly and like the product.
- Designers can consider culture, familiar texts, or symbols and find an affinity form for a new technology product, such as calling on familiar and related things in users’ mental image, allowing users to accept the product quickly. Or by the product’s semantics, users can directly understand its function and usage.
- Excellent designers are good at connecting the designed product and the context of people’s lives.
- After much repetitive learning and practice, experts can refine the same content to be more concise and directly hit the core.
Law 5: Differences | Simplicity and complexity need each other.
- We relied on walking in ancient times. Later came horse carriages, and with further technological advancements, we now have cars, airplanes, and other more convenient modes of transportation. However, these conveniences are built on the foundation of increasingly advanced technology. Similarly, products that provide a simple user experience often rely on complex and powerful backend technology.
- Complexity and simplicity are interdependent. On the other hand, humans naturally seek differentiation. Amongst many complex and similar things, a product with a simple design will attract more attention. But humans must pursue more than simplicity, as it would be monotonous. People seek change, and changes in things easily capture their attention. Only after experiencing complexity can one appreciate simplicity. For example, the changes in rhythm throughout the four seasons are fascinating. Designers need to create experiences with changes and rhythms.
Law 6: Context | What lies in the periphery of simplicity is definitely not peripheral.
- “Man is an animal suspended in the web of meaning he himself has woven,” One of the designer’s missions is to give meaning to “things” so that they exist more harmoniously in the web of social purpose. The discovery of meaning often comes from focusing on the whole and context. Therefore, design sometimes cannot be too focused but needs to find a more significant meaning based on a global perspective. This law shows the Eastern spirit, emphasizing context awareness and making designers focus on those invisible factors (flexible, non-tangible).
- “Matter is necessary to form, but the value of reality lies in its immateriality.”
- Humans who prioritize practicality find it challenging to overlook any emptiness. Urbanites always want every space to have economic value, businessmen will not miss any potential business opportunities, and technicians will not miss any additional product functions… But designers need to see the meaning of emptiness and use “white space” well in their designs. White space means less information presentation. Just as too much information is easier to dissipate people’s attention, moderate space creates a focus on the things already there. When something is scarce, we appreciate what we have even more.
- Sometimes, design may not necessarily design a material thing but create an atmosphere and unique experience. Creating an atmosphere is secondary in industries with efficiency and practicality at their core. However, in service industries that focus on the human experience as their core business, designers must focus on various details that affect the overall atmosphere. Such as, eating at a restaurant with a good environment can change the taste of the meal. To create a harmonious atmosphere, we need to be willing to eliminate any chaotic elements. This simplification is to serve the integral atmosphere.
- Finding a point between familiarity and complete unfamiliarity that gives people appropriate tension is also something that designers need to pay attention to. That is, not feeling bored due to excessive familiarity nor feeling pressured due to complete unfamiliarity. One reason good games are popular is that they provide suitable tension. The design of game levels does not make players feel unattainable while not being too easy, stimulating a desire for exploration.
- High-tech products can leave the elderly feeling lost. Suppose electronic products give the elderly appropriate tension, stimulating their desire to explore without feeling too much pressure due to complete unfamiliarity. In that case, it may be more conducive to users accepting and using the product. Over-complexity makes people lose their sense of control, while simplicity gives people a feeling of easy discovery and control.
- Law 5 tells us that we need to create a rhythm of change. So the transition between simplicity and complexity is the key to building a sense of rhythm. Law 6 emphasizes that designers must help users find an appropriate position between their cognitive relationship and “things” (between complexity and simplicity). Once people feel they are in a proper place in this relationship, they can freely lose themselves in the rhythm.
Law 7: Emotion | Simple doesn’t mean excluding emotion. More emotions are better than less.
- Starting from the first principle, designers need to make the functionality of objects clear and orderly at the logical level. This principle tells us that simplicity is not always the best solution. Most of the time, we should start with humanity and give the “object” a certain warmth.
- Providing online communication tools that only offer basic text transmission, like extremely modern functionalist products, ignores the rich emotions we need to convey in communication.
- In 1982, Mr. Scott Fahlmn invented the first smiley face for online communication, and since then, various expressions have become popular… People will not refuse designs that have warmth and emotion.
- Japanese traditional culture emphasizes the mysterious integrity of the world, and everything has a soul and deserves respect. Products designed with this belief and spirit have pure divinity. The soul and emotion of a craftsman are injected into it, creating a spiritual connection between the “object” and people. Therefore, such objects will make people more comfortable. Achieving clarity and conciseness is not difficult, but what is difficult is giving things the appropriate warmth and making people feel comfortable.
Law 8: Trust | In simplicity we trust.
- It is human nature to trust in a power beyond ourselves. We trust in the love of our parents completely. But can a relationship of trust be established between people and products or services? When we try to “trust” a product, we may receive some benefits (such as various conveniences), but we may also have to sacrifice privacy. “Trust” is a complex topic, but it is particularly worth considering today as personal privacy data is increasingly exposed.
- Make users relax: In a complex social environment, it is almost impossible to make a person relax. Think about what kind of design can make people relax. B&O’s design tries to ease tension and make people relax. The core of audio design, of course, is to provide the best sound quality experience but to allow people to enjoy the sound quality better, the first consideration is how to create a relaxed and comfortable feeling. In a relaxed state, music will naturally permeate into people’s senses.
- Provide master-level service: “Omakase,” originating from the Japanese cuisine culture, means “trust the chef,” which allows the chef to make dishes beyond the regular menu according to the season and the chef’s preferences. This casual way of serving is based on a high degree of fit between users and chefs. Users trust the chef wholeheartedly and allow him to play freely, making this unique dining experience possible. The inspiration of Omakase is that if you want users to trust your service, you need to provide a master-level service first.
- Allow users to undo or return: Software products generally provide an “Undo” function that allows users to undo the previous operation. This method is also applicable to service or product design, allowing users the right to regret or undo operations moderately. For example, the e-commerce industry will enable users to return goods, which is a way to gain trust. As long as the benefits of customer trust outweigh the cost of return loss, e-commerce should “tolerate” user returns.
- If you want to establish trust between users and products, you need to provide flexible space, make users feel comfortable and have control, and trust will have a chance to be established. Of course, the relationship of trust between people and the system is a game. The more the system knows about the user, the less pointless thinking the user has. On the contrary, the more the user knows about the system, the more precise control the user has.
- The dilemma of future product or service design is balancing the trust relationship between people and the system. For a designer, not only do you need to think about how to make users trust your product, but you also need to be aware of protecting people (their privacy, etc.)
Law 9: One | Simplicity is about subtracting the obvious, and adding the meaningful.
- This principle tries to integrate the previous ones into three parts:
  - Away: Move things that users don’t care about further away. For example, Google’s search service has complex search operations in the backend, and the front end only provides input interactions and query results. SaaS solutions like Salesforce enable users to get services through a single digital page, while complex data and software are hosted in the cloud.
  - Open: Openness simplifies complexity. Of course, complete openness is unrealistic, but convenience can be brought through partial transparency. For example, Google Maps and Facebook open APIs allow more small and medium-sized developers to access the developed applications into large network services. Here, openness only opens a window, but it is enough to bring more diverse applications and services.
  - Power: The less you seek, the less you are bound (slightly esoteric). Use less, gain more. In the design field, there is a belief in producing relatively good solutions based on constraints. How to use limited resources wisely and creatively to create value is worth exploring.

Summary

To summarize some of my takeaways on what a great designer does:

Design is beyond window dressing products.
Designers must take holistic approach in problem-solving.
The best designers are obsessed with solving problems, not aesthetics.
Design is not about more, but less. It is assertive!
Design doesn't exist in a vacuum, it requires a thoughtful collaboration. Designers partner closely with engineers, researchers, product managers, and other stakeholders to bring work to life.
Design is the fight against entropy.
Human-centered design involves using the power of story to cultivate empathy for the human experience and excitement for potential solutions.
Designers solve tough problems but also define elegant solutions.
Design doesn't have a ceiling. There is always something to fix.
Experience is the best teacher of design elements.

Quotes

A designer is a planner with an aesthetic sense. - Bruno Munari

Design is the animating principle of all creative processes. - Vasari

Design can promote social togetherness-but it can also damage it. This is why the responsibility carried by designers is so great. - Dieter Rams

Design is a problem-solving activity. - Paul Rand

Free yourself from the ballast of too many things. A willingness for order-for simple, calm, restrained forms with longer, more aesthetic, useful lives-seems to me to be of far more importance than constantly trying to invent the next best thing. However, good design does not come through + the fulfillment of demands alone. Good everyday design should always be design that speaks for itself. - Dieter Rams

You'll become known for doing whatever others see you do. Particularly true in the world of designers. When designers work in isolation, only showing up to present their carefully crafted work, the perception of their role becomes that of "making pretty pictures." Designers must invest in working openly and transparently to shift their work's perception into that of strategy, research, and influence. If designers share regular updates on the what and why of their work, invite others to participate in design decisions, and enable more customer research and synthesis, the perception of design changes. Away from magically creating visuals to that of intentional, thoughtful, strategy and experience design. You can start today, right now, by sharing an update to your organization about what has been top of mind for you, how you're thinking through problems, and what you are most excited to contribute through your work. - Tanner Christensen

To me a true designer is a rebel. A creative, a rule breaker. Someone who can’t be confined, which is why they decided to take part in this profession. Yet today, the new designer is the opposite. Following rules, adhering to systems, guided by templates and guidelines. - Tobias van Schneider

The process that ensures that the designs match the needs and capabilities of the people for whom they are intended. - Donald A. Norman

Dignity, like understanding, is a general term, a principal of action. - Paul Rand

I’d like to close by talking about what it means to be a designer. It’s often overlooked (and somewhat out of fashion to mention) but craft remains the foundational skill of a designer. Good designers not only understand how to develop solutions, but how to develop elegant solutions. Deep knowledge of the materials at hand, be they physical, digital or virtual, allows for good designers to not simply solve problems, but to do so with finesse, with an eye on implications, impact and extensibility. When scrawling a doodle on a sticky note, an experienced designer is thinking not only of the idea itself, but three or four moves ahead. In truth this is an experience based skill which can only be honed over time, by those willing to dedicate their careers to these approaches. - Nick Foster

Creativity isn’t Design, just as Mathematics isn’t Economics. - Nick Foster

Creative confidence people are not just passive observers. They live in the active voice. They write the scripts of their own lives, and in doing so they have a greater impact on the world around them. They believe actions can make a positive difference. - Tom Kelley and David Kelley

The most effective way to practice design thinking is by showing, not telling. - Tom Kelley and David Kelley

Creative confidence is like a muscle-it can be strengthened and nurtured through effort and experience. Our goal is to help build that confidence in you. - Tom Kelley and David Kelley

Design is a sword against chaos. Design is the pixie dust for innovation. Design is the foundation for the pursuit of happiness. The closer you get to the base of the tree, the higher your level of design. - Julie Zhuo

Tao Te Ching by Stephen Mitchell

Sun, 24 Jul 2022 00:00:00 GMT

I. Brief Summary

Tao Te Ching (dao-de-jing) is a classic Chinese literature which was written about 2000 years ago by Lao Tzu. This is a translated version in English. To follow the Tao (way of all things) and realize their true nature is to embody humility, spontaneity, and generosity. It is not the rigidity that brings harmony in life but the softness. It's not the action that brings transformation, but the inaction. Master does not teach its students because they will find their own way. The Tao is always nameless. A master does not teach its students the art of living. This is another book on my list that has more depth per page. I will come back to it frequently.

II. Big Ideas

Tao is deep wisdom which is one of the wonders of the world.
- Doing not-doing which is seen as passivity, but nothing could be further from the truth. Right strokes and right movement happens by itself without any interference of the conscious will. This is the paradigm of non-action: the purest and most effective form of action. The game plays the game. The poem writes the poem.
- Nothing happens when we trust the superior intelligence of the body and universe.
- Softness is opposite of rigidity, and is synonymous with suppleness, adaptability, endurance.
- The more truly solitary we are, the compassionate we can be. The more we let go of what we love, the more present our love becomes.
There is a problem with spiritual teachers. They have to be blabbermouths. But their words are fingers pointing at the moon; if you watch the finger, you can't see the moon. The truth is right before our eyes, under our noses.
Act without doing anything.
Develop enough self-reliance to give up the idea of self.
The Master stays behind, that is why she is ahead. The Master is satisfied wherever she is, she is neither behind nor ahead.
Detachment results in clarity and clarity expresses love.
Water is source of all life. It overflows into everything and it moves everywhere. Our lives are fluid like water.
Do your work and step back. Let it go.
Let the body become until you see light. That is, until your heart is at peace.
Let the events take their course.
The true teacher realizes that there is nothing to teach that is why she can teach anyone who wants to learn.
Emptying your mind doesn't mean suppressing your thoughts, but stepping back from them. When mind is empty then only it can respond to natural things without prejudice.
- If good happens, good; if bad happens, good.
- When you erase the blackboard, then only you can write something new.
Unless your know yourself and accept yourself, you can't let go of yourself. When you know yourself, you know others. But knowing others is not intelligence. Knowing yourself is wisdom.
Peace means wholeness.
A Master has no goal or agenda. Master exist to go along for a ride.
You can never lose the Tao, but you can find it.
The greatest love seems indifferent because it has no preference.
Success and failure are equally irrelevant to Master because her mind heart rests in the Tao.
Master does not care for fame.
Master knows we have nothing to fear, but fear itself.
The mark of a genuine person is straightforwardness. He has nothing to hide nor defend.
Those who talk don't know and those who know don't talk. The former signals ignorance, not the openness of not-knowing.
A Master never governs her people because she knows power does not signify Tao. To govern people is teaching them Tao.
A Master is above people not to feel superior but looking from a higher vantage point, she can see more.
There are 3 treasures: compassion, frugality and daring not to be the first one. Whoever has compassion can be brave. Whoever has frugality can be generous. Whoever dares not to be first in the world can become the leader of the world.
The less rigid, the readier for life or death. This is called discipline of life.
The greatest help is wholeheartedly trusting people to resolve their own problems.
Master never blames others. He seeks within to reason for his failure, so he can fix his mistake.
Master has no possession, the more he does for others, the happier he is. The more he gives to others, the happier he is.

III. Quotes

Where is the way to the Way? What a question!
He who knows doesn't talk, but words are no hindrance for him. He uses them as he would use gardening tools.
Coming in is life, going out is death.
Free from desire, you realize the mystery. Caught in desire, you see only the manifestations. Yet mystery and manifestations arise from the same source. This source is called darkness. Darkness within darkness. The gateway to all understanding.
When people see some things as beautiful, other things become ugly. When people see some things as good, other things become bad. Being and non-being create each other. Difficult and easy support each other. Long and short define each other. High and low depend on each other. Before and after follow each other. Therefore the Master acts without doing anything and teaches without saying anything. Things arise and she lets them come; things disappear and she lets them go. She has but doesn't possess, acts but doesn't expect. When her work is done, she forgets it. That is why it lasts forever.
If you overesteem great men, people become powerless. If you overvalue possessions, people begin to steal.
The Master leads by emptying people's minds and filling their cores, by weakening their ambition and toughening their resolve.
Practice not-doing, and everything will fall into place.
The Tao is like a well: used but never used up.
The Master stays behind; that is why she is ahead. She is detached from all things; that is why she is one with them.
The supreme good is like water, which nourishes all things without trying to.
In dwelling, live close to the ground. In thinking, keep to the simple. In conflict, be fair and generous. In governing, don't try to control. In work, do what you enjoy. In family life, be completely present.
When you are content to be simply yourself and don't compare or compete, everybody will respect you.
Fill your bowl to the brim and it will spill. Keep sharpening your knife and it will blunt. Chase after money and security and your heart will never unclench. Care about people's approval and you will be their prisoner. Do your work, then step back. The only path to serenity.
Colors blind the eye. Sounds deafen the ear. Flavors numb the taste. Thoughts weaken the mind. Desires wither the heart. The Master observes the world but trusts his inner vision. He allows things to come and go. His heart is open as the sky.
Success is as dangerous as failure. Hope is as hollow as fear. What does it mean that success is a dangerous as failure? Whether you go up the ladder or down it, you position is shaky. When you stand with your two feet on the ground, you will always keep your balance. What does it mean that hope is as hollow as fear? Hope and fear are both phantoms that arise from thinking of the self. When we don't see the self as self, what do we have to fear?
Do you have the patience to wait till your mud settles and the water is clear? Can you remain unmoving till the right action arises by itself? The Master doesn't seek fulfillment. Not seeking, not expecting, she is present, and can welcome all things.
Empty your mind of all thoughts. Let your heart be at peace.
Each separate being in the universe returns to the common source. Returning to the source is serenity. If you don't realize the source, you stumble in confusion and sorrow. When you realize where you come from, you naturally become tolerant, disinterested, amused, kindhearted as a grandmother, dignified as a king. Immersed in the wonder of the Tao, you can deal with whatever life brings you, and when death comes, you are ready.
When the body's intelligence declines, cleverness and knowledge step forth.
Throw away holiness and wisdom, and people will be a hundred times happier. Throw away morality and justice, and people will do the right thing. Throw away industry and profit, and there won't be any thieves.
Stop thinking, and end your problems.
Must you value what others value, avoid what others avoid? How ridiculous!
Since before time and space were, the Tao is. It is beyond is and is not. How do I know this is true? I look inside myself and see.
Express yourself completely, then keep quiet. Be like the forces of nature: when it blows, there is only wind; when it rains, there is only rain; when the clouds pass, the sun shines through.
When the ancient Masters said, "If you want to be given everything, give everything up."
He who stands on tiptoe doesn't stand firm. He who rushes ahead doesn't go far. He who tries to shine dims his own light. He who defines himself can't know who he really is. He who has power over others can't empower himself. He who clings to his work will create nothing that endures.
If you want to accord with the Tao, just do your job, then let go.
The Tao is great. The universe is great. Earth is great. Man is great. These are the four great powers. Man follows the earth. Earth follows the universe. The universe follows the Tao. The Tao follows only itself.
A good traveler has no fixed plans and is not intent upon arriving. A good artist lets his intuition lead him wherever it wants. A good scientist has freed himself of concepts and keeps his mind open to what is. Thus the Master is available to all people and doesn't reject anyone. He is ready to use all situations and doesn't waste anything. This is called embodying the light.
There is a time for being ahead, a time for being behind; a time for being in motion, a time for being at rest; a time for being vigorous, a time for being exhausted; a time for being safe, a time for being in danger. The Master sees things as they are, without trying to control them. She lets them go their own way, and resides at the center of the circle.
All things end in the Tao as rivers flow into the sea.
Knowing others is intelligence; knowing yourself is true wisdom. Mastering others is strength; mastering yourself is true power. If you realize that you have enough, you are truly rich. If you stay in the center and embrace death with your whole heart, you will endure forever.
If you want to shrink something, you must first allow it to expand. If you want to get rid of something, you must first allow it to flourish. If you want to take something, you must first allow it to be given. This is called the subtle perception of the way things are. The soft overcomes the hard. The slow overcomes the fast. Let your workings remain a mystery. Just show people the results.
The Tao never does anything, yet through it all things are done. When there is no desire, all things are at peace.
The Master doesn't try to be powerful; thus he is truly powerful. The ordinary man keeps reaching for power; thus he never has enough.
When the Tao is lost, there is goodness. When goodness is lost, there is morality. When morality is lost, there is ritual. Ritual is the husk of true faith, the beginning of chaos. Therefore the Master concerns himself with the depths and not the surface, with the fruit and not the flower. He has no will of his own. He dwells in reality, and lets all illusions go.
In harmony with the Tao, the sky is clear and spacious, the earth is solid and full, all creature flourish together, content with the way they are, endlessly repeating themselves, endlessly renewed. When man interferes with the Tao, the sky becomes filthy, the earth becomes depleted, the equilibrium crumbles, creatures become extinct. The Master views the parts with compassion, because he understands the whole. His constant practice is humility.
When a superior man hears of the Tao, he immediately begins to embody it. When an average man hears of the Tao, he half believes it, half doubts it. When a foolish man hears of the Tao, he laughs out loud. If he didn't laugh, it wouldn't be the Tao. Thus it is said: The path into the light seems dark, the path forward seems to go back, the direct path seems long, true power seems weak, true purity seems tarnished, true steadfastness seems changeable, true clarity seems obscure, the greatest are seems unsophisticated, the greatest love seems indifferent, the greatest wisdom seems childish. The Tao is nowhere to be found. Yet it nourishes and completes all things.
Ordinary men hate solitude. But the Master makes use of it, embracing his aloneness, realizing he is one with the whole universe.
The gentlest thing in the world overcomes the hardest thing in the world. That which has no substance enters where there is no space. This shows the value of non-action. Teaching without words, performing without actions: that is the Master's way.
Fame or integrity: which is more important? Money or happiness: which is more valuable? Success of failure: which is more destructive? If you look to others for fulfillment, you will never truly be fulfilled. If your happiness depends on money, you will never be happy with yourself. Be content with what you have; rejoice in the way things are. When you realize there is nothing lacking, the whole world belongs to you.
Whoever can see through all fear will always be safe.
Without opening your door, you can open your heart to the world. Without looking out your window, you can see the essence of the Tao. The more you know, the less you understand. The Master arrives without leaving, sees the light without looking, achieves without doing a thing.
In pursuit of knowledge, every day something is added. In the practice of the Tao, every day something is dropped.
If you close your mind in judgements and traffic with desires, your heart will be troubled. If you keep your mind from judging and aren't led by the senses, your heart will find peace. Seeing into darkness is clarity. Knowing how to yield is strength. Use your own light and return to the source of light. This is called practicing eternity.
The great Way is easy, yet people prefer the side paths. Be aware when things are out of balance. Stay centered within the Tao.
Those who know don't talk. Those who talk don't know. Close your mouth, block off your senses, blunt your sharpness, untie your knots, soften your glare, settle your dust. This is the primal identity. Be like the Tao. It can't be approached or withdrawn from, benefited or harmed, honored or brought into disgrace. It gives itself up continually. That is why it endures.
If you want to be a great leader, you must learn to follow the Tao. Stop trying to control. Let go of fixed plans and concepts, and the world will govern itself.
Give evil nothing to oppose and it will disappear by itself.
A great nation is like a great man: When he makes a mistake, he realizes it. Having realized it, he admits it. Having admitted it, he corrects it. He considers those who point out his faults as his most benevolent teachers. He thinks of his enemy as the shadow that he himself casts.
Thus, when a new leader is chosen, don't offer to help him with your wealth or your expertise. Offer instead to teach him about the Tao.
Act without doing; work without effort. Think of the small as large and the few as many. Confront the difficult while it is still easy; accomplish the great task by a series of small acts.
What is rooted is easy to nourish. What is recent is easy to correct. What is brittle is easy to break. What is small is easy to scatter.
Rushing into action, you fail. Trying to grasp things, you lose them. Forcing a project to completion, you ruin what was almost ripe. Therefore the Master takes action by letting things take their course. He remains as calm at the end as at the beginning. He has nothing, thus has nothing to lose. What he desires is non-desire; what he learns is to unlearn. He simply reminds people of who they have always been. He cares about nothing but the Tao. Thus he can care for all things.
The ancient Masters didn't try to educate the people, but kindly taught them to not-know. When they think that they know the answers, people are difficult to guide. When they know that they don't know, people can find their own way.
If you want to learn how to govern, avoid being clever or rich. The simplest pattern is the clearest.
All streams flow to the sea because it is lower than they are. Humility gives it its power.
I have just three things to teach: simplicity, patience, compassion. These three are your greatest treasures. Simple in actions and in thoughts, you return to the source of being. Patient with both friends and enemies, you accord with the way things are. Compassionate toward yourself, you reconcile all beings in the world.
All of the embody the virtue of non-competition. Not that they don't love to compete, but they do it in the spirit of play.
The generals have a saying: "Rather than make the first move it is better to wait and see. Rather than advance an inch it is better to retreat a yard." This is called going forward without advancing, pushing back without using weapons.
My teachings are easy to understand and easy to put into practice. Yet your intellect will never grasp them, and if you try to practice them, you'll fail.
Not-knowing is true knowledge. Presuming to know is a disease. First realize that you are sick; then you can move toward health.
Men are born soft and supple; dead, they are stiff and hard. Plants are born tender and pliant; dead, they are brittle and dry. Thus whoever is stiff and inflexible is a disciple of death. Whoever is soft and yielding is a disciple of life. The hard and stiff will be broken. The soft and supple will prevail.
Nothing in the world is as soft and yielding as water. Yet for dissolving the hard and inflexible, nothing can surpass it. The soft overcomes the hard; the gentle overcomes the rigid. Everyone knows this is true, but few can put it into practice. Therefore the Master remains serene in the midst of sorrow. Evil cannot enter his heart. Because he has given up helping, he is people's greatest help.
Failure is an opportunity. If you blame someone else, there is no end to the blame.
True words aren't eloquent; eloquent words aren't true. Wise men don't need to prove their point; men who need to prove their point aren't wise. The Master has no possessions. The more he does for others, the happier he is. The more he gives to others, the wealthier he is. The Tao nourishes by not forcing. By not dominating, the Master leads.

Build by Tony Fadell

Sat, 16 Jul 2022 00:00:00 GMT

I. Brief Summary

This book goes into my re-read section. It has pure wisdom on how to deal with product centric organization with actionable tactics. Building a long tenure in product development is both art and science. It is clear Tony Fadell is worth listening to because of his training from Steve Jobs but also post Apple where he built another world-class product called Nest. It is not luck when someone can do it twice. Fadell was responsible for iPod, iPhone and Nest thermostat. The book is a blueprint on how creative thinkers can bring ideas to the world. Not everyone has a luxury to be trained directly from world-class product builders, but this book has a lot to teach who are serious about product development.

II. Big Ideas

Part 1: Build Yourself
- The rigor that Tony talks about does not have to be around product that has a specific technology. It can be anything, a service or a store. It could be a recycling plant.
- When you are looking at the array of potential careers before you, the correct place to start is: what do I want to learn?
  - Not how much money do I want to make?
  - Not what title do I want to have?
  - Not what company has enough name recognition that your mom can brutally crush the other moms.
- Following curiosity rather than a business school playbook about how to make money. Assume that for much of your twenties your choices will not work out.
- It is better to ask for forgiveness, not permission. If it turns out to be the wrong move, well, making a mistake is the best way to not make that mistake again. Do, fail, learn. The critical thing is to have a goal.
- Your parents will always have suggestion for you but feel free to ignore them. The judgement is colored by what they want the best for you. But twenties is the time to take risks. In your 30s and 40s, the window begins to close for most people because of responsibilities.
- The worst that happens from taking risk is having to move back with your parents.
- “If you make it, they will come” does not always work. The world has to be ready to want it. Customers need to see that your product solves a real problem they have today.
- If you are not solving a real problem, you can't start a revolution. A glaring example is Google Glass or Magic Leap. On the other hand, take Uber. Take whatever job you can at a company that is solving a real problem. Don't focus too much about the title. Focus on work.
- On avoiding management consultants
  - These consulting companies are led by tentative and risk averse CEOs
  - They do massive audit, find the flaws, and present leadership with a new plan that will magically “fix” everything. This is a fairy tale.
  - Too many new grads start here because of pay and luxury to travel around the world with powerful executives to learn how to make a business successful. But there is only one problem. You don't learn how to build or run a company.
  - Steve Jobs on consultants: You do get a broad cut at companies but it's very thin. It's like a picture of a banana: you might get a very accurate picture but it's only two dimensions, and without the experience of actually doing it you never get three dimensional. So you might have a lot of pictures on your walls, you can show it off to your friends-I've worked in bananas, I've worked in peaches, I've worked in grapes-but you never really taste it.
  - To do great things, to really learn, you can't shout suggestions from the rooftop then move on while someone else does the work. You have to get your hands dirty. You have to care about every step, lovingly craft every detail. You have to be there when it falls apart so you can put it back together.
- As an individual contributor you need to occasionally do two things: look up and look around.
  - Look up: look beyond the next deadline or project and forward. Make sure the mission still makes sense.
  - Look around: get out of your comfort zone and talk to other functional teams. Get their concerns and perspectives.
  - CEO and executive team are focused on horizon. Managers keep their eyes focused 2-6 weeks out. Junior individual contributors spend 80 percent of their time looking straight down working on day to day. Your job isn't just doing your job but also to think from your CEO and manager's perspective. The destination lets you self-prioritize.
  - Talk to people who are closest to the customer.
Part 2: Build Your Career
- 6 things to know if you are thinking of becoming a manager:
  - You don't have to be a manager to be successful. Plenty of people go back to being an individual contributor.
  - Remember that once you become a manager, you'll stop doing the thing that made you successful in the first place. Your job is now communication, and more communication, recruiting, people management, budgets, reviews and conflict management.
  - Becoming a manager is a discipline. Management is a learned skilled, not a talent.
  - Being exacting and expecting great work is not a micromanagement. Your job is to make sure the team produces high-quality work.
  - Honesty is more important than style. Everyone has a style-loud, quiet, emotional, analytical, excited, reserved. You can succeed in any of these styles as long as you never shy away from respectfully telling the team the uncomfortable hard truth.
  - Don't worry that your team will outshine you. That should be your goal.
- When you are a manager, you are no longer responsible for the work, but responsible for human beings. That is why management is a job and hard.
- A superpower of a good manager is to be able to talk to different teams.
- Letting go is the hardest part of management. Letting team do their job and trusting them gives the team a breathing room. But you shouldn't give so much space that you are surprised when you see the product. Don't slide into mediocrity. Examining the product in great detail and caring deeply about quality of what your team is producing is not micromanagement.
- A good management practice is signing off on the process and then step away and letting team do the work.
- It is easy to let your 1:1s get into a friendly conversation, but should not come at the expense of diving into the agenda and figuring out what is working and what is not. 1:1s is a great way to get insights. And if you have to share something important with the person, don't wait. Tear off the band-aid. Be honest. Don't ignore the elephant in the room. Give them the reason why and remind them it is not to criticize but to help them grow.
- A great deal of management comes down to how you manage your own fears and anxieties. Your team amplifies your mood. This is why it is important to modulate yourself. But don't let that change your management style. If you get excited that means you get very excited. Stay true to your management style. If you are passionate, tell them why and explain your reasoning. This is why communicating is such a critical aspect of management.
- Helping people succeed is your job as a manager. You need to create a setting where they can surprise you. And where they can surpass you.
- You need to let go of taking pride in your individual daily accomplishments and start taking pride in the accrued wins of your team.
- Every decision has elements of data and opinion.
  - There hundreds of tiny decisions every day and then there are critical ones that pop-up once in a while. At that moment, you are faced with data vs opinion.
  - Data-driven: you can acquire, study, and debate facts and numbers that will allow you to be fairly confident in your choice. These decisions are relatively easy to make and defend your choices which most people on the team will agree with.
  - Opinion-driven: you have to follow your gut and your vision for what you want to do, without the benefit of sufficient data to guide you or back you up. These decisions are always hard and will always be questioned because everyone has an opinion.
  - Sometimes you have to double down on data and other times you have to look at all data but then trust your gut.
  - Data can't solve an opinion-based problem. No matter how much data you get, it will always be inconclusive. This leads to analysis-paralysis which is death by overthinking.
  - If you don't have enough data to make a decision, you'll need insights to inform an opinion. Insights can be key learnings about your customers or your market or your product space. This will give you intuitive feeling for what you should do.
  - Customer is always right, right? Except customer panels can't design for shit. People just can't articulate what they want clearly enough to definitely point in one direction or another, especially if they are considering something completely new or something they have never used before. Customers will always be more comfortable with what exists already, even if it is terrible.
  - Being vowed by consultants and excited about numbers eliminates of making decisions themselves. Instead of moving forward with design, you'd hear, “Well, let's just test it.” Nobody takes the responsibility of making bold decisions. You run a test on Monday and same test on Friday to get opinion X and Y. Meanwhile you are paying millions of dollars who take months and years to get things out the door. At best this data isn't a guide but a crutch.
  - If a product is new, there is nothing to compare it to, nothing to optimize, nothing to test. It is your job to define your target customer clearly, talk to them and what problems they had. It is your job to fix those problems. It is your job to get feedback about your designs. But then it is your job to use those insights to move forward and find a direction.
  - Not everyone on the team will agree but it is your responsibility as a leader or a manager to explain that this isn't democracy, this is an opinion-based decision and you are not going to reach the right choice by consensus. But this ins't a dictatorship. You can't give orders without explaining yourself. Tell the team about your process and how you reached the decision. Explain them why. They might disagree but at least they'll trust you. These type of leaders, by the way, are hard to find.
- Throughout your career, you'll encounter some real assholes.
  - Political assholes: the people who master the art of corporate politics, but then do nothing but take credit for everyone else's work. They don't make anything themselves and are absent from making tough decisions. But when something goes down, they are there to remind you, “I told you so.” These assholes usually build a coalition of budding assholes around them.
  - Controlling assholes: these are micromanagers who systematically strangle the creativity and joy out of the team. They resent any good idea and cannot be reasoned with. They get threatened by people who are more talented than them. They never give people credit for their work.
  - Asshole assholes: they suck at work and everything else. These are mean, jealous and insecure jerks who you'd avoid at a party, but who inevitably sit immediately next to you at the office. They cannot deliver and are deeply unproductive. They will lie, craft gossip and manipulate others.
  - Mission-driven assholes: these people who are crazy passionate and also a little crazy. Steve Jobs fall under this category. They speak most frankly, trampling the politics and steamroll right over the delicate social order of “how things are done around here.” Much like true assholes, they are neither easygoing nor easy to work with. Unlike true assholes, they care. They give a damn. They listen. They incredibly work hard and push their team to be better.
  - When you are faced with assholes (controlling assholes): kill ’em with kindness, ignore them, try to ignore around them or quit.
  - Political assholes are a different beast. They are a mafia because of their coalition with others.
  - Most people aren't assholes. And even if they are, they are also human. Start with kindness. Try to make peace. Assume the best.
- Quit when you are no longer passionate about the mission or you've tried everything. But leave without a bad taste. People won't remember how you started, but they'll remember how you left. And don't just complain and quit because things are hard. Try everything you have in your arsenal.
Part 3: Build Your Product
- Make the intangible tangible. We are wired to focus our attention on tangible things that we can see and touch to the point that we overlook the importance of intangible experiences and feelings.
- You should be able to map out and visualize exactly how a customer discovers, considers, installs, uses, fixes and even return your products. It all matters. These are all incredibly important part of user journey. Treat everything as one unit, one brand. All of it is one thing.
- You have to help customers come over the following questions:
  - Why should I care?
  - Why should I buy it?
  - Why should I use it?
  - Why should I stick with it?
  - Why should I upgrade or buy the next version?
- Use personas and distinct personas such as man vs woman. Start with two human beings and then expand. That is how prototyping works.
- Use moment of frustration into a moment of delight. Nest had this problem where customers had to self-install so customers would have to look around for a screwdriver. To drive adoption, Nest created its own screwdriver which sped up the adoption journey. It ate their margins but it wasn't a straight COGS line item because it saved so much time on customer support. And it wasn't just a hardware tool, but a marketing tool (I still have mine). And not only one screw head, but they added a few more so customers could use it for other things at home. People could use it practically for anything which also increased customer loyalty. When a company gives that kind of care and attention to every part of the journey, people notice. This is a great case study of customer delight and made Nest special.
- Every product should have a story, a narrative that explains why it needs to exist and how it will solve customer's problems.
- A good story has 3 elements:
  - It appeals to people's rational and emotional sides.
  - It takes complicated ideas and makes them simple.
  - It reminds people of the problem that's being solved-it focuses on the why.
- Jobs used analogies which gives customers superpowers. For example, Nest's rewarded customers who signed up for energy saving program by calling it a Rush Hour Rewards. It was easy to understand.
- Your version (V1) product should be disruptive, not evolutionary. But disruption alone will not guarantee success, you can't ignore the fundamentals of execution because you think all you need is a brilliant disruption. Assuming V1 was at least a critical success, the second version of your product is an evolution of first. Refine what you've made.
  - Evolution: a small, incremental step make something better.
  - Disruption: a folk on the evolutionary tree, something fundamentally new that changes the status quo, usually by taking novel or revolutionary approach to an old problem.
  - Execution: actually doing what you've promised to do and doing it well.
- The key is to find the right balance, not so disruptive that you won't be able to execute, not so easy to execute that nobody will care. You have to choose your battles. And if you are building something disruptive, your competition will almost dismiss you in the beginning and will most likely laugh in your face. In the stages of grief, that is what we call denial. And when you take their market share, they get pissed that they come with all sort of things: undercut your pricing, try to embarrass you with advertising, use negative press and put in agreements with sales channels to lock you out of market. They'll even litigate you. Iteration is a key in disruption. Constant upgrades will lock your competition out because anytime they catch up, you are already 50 steps ahead. It will crush their spirits.
- You need constraints to make good decisions and the best constraint in the world is time. Besides time, force as many constraints as possible such as money and people. Don't go on hiring spree when you are in concept stage.
- Watch the project heartbeat. If the heartbeat is too fast which is a team constantly updating the product, the customers start tuning out. They don't have time to learn how the product works and certainly not master it. Google is a perfect example.
- Predictability is important because it allows your team to know when they should be heads down working. Predictable world creates reliance amongst all stakeholders including customers.
  - Predictability allows you to codify a product development process rather than starting from scratch every time. It allows you to create a living document with checkpoints, milestones, schedules, and plans that trains new employees and teaches everyone: this is how do it. This the framework for how to build a product.
  - Breaking the rhythm of your external heartbeat should be avoided at all costs, but sometimes it'll happen anyway.
- There are 3 profitability stages:
  - Not remotely profitable which is version 1.
  - Making unit economics or gross margins which is version 2. Keep in mind that fantastic unit economics are not enough to make a profitable company. You'll still be spending a lot to acquire customers and employees through sales and marketing.
  - Making business economics or net margins which is version 3. The net profit with each subscription or product sold. Getting to this stage takes a long time because learning takes time.
- If you don't understand how customer adoption maps onto product and company development, you are missing a very important part of the puzzle.
- After companies find product/market fit, they can start to focus on profitability.
  - Businesses that build with atoms are focused on COGS: cost of goods sold.
  - Businesses that build with electrons are focused on CAC: customer acquisitions cost.
  - Companies that build with both atoms and electrons have to worry about COGS and CAC, but should focus one at a time. First knock out COGS, then move on to CAC. Build the product, then add services. The iPod took 3 generations and 3 years before it reached profitable unit economics.
- Never undercut pricing on your valuable product. Jobs never wanted the phone to be subsidized. He wanted everyone to know its real price so they could value it appropriately.
Part 4: Build Your Business
- When coming across a great idea, practice delayed intuition which is to make better decisions, slow down.
- Most successful entrepreneurs are in their late thirties and forties. There's a reason why investor prefer to back second-time entrepreneurs even if they failed the first time around. It's because these founders spent their twenties screwing up and learning. They learn trial by fire. They bounce around like a pinball, constantly smacking their heads into something.
- Spend your time at your job understanding the business you are helping to build. Go from startup to a big company. Learn the problems that big companies face. Go beyond product, the organization, the processes, the governance, the politics.
- Having two co-founders work well. But there can be only one CEO.
- Every time you raise capital, you should think of it as a marriage: a long-term commitment between two individuals based on trust, mutual respect, and shared goals. Don't play games.
- B2C, B2B, B2B2C or some yet unimagined acronym, you can only serve one master. You can only have one customer. Understand your customer and your demographics.
- There are 2 kinds of work/life balance: true work/life balance and personal balance when you are working. Take a real break if it is the latter. Give your mind some time to breath.
- When in crisis mode, it doesn't matter if the crisis was caused by your mistake or your team or a fluke accident: accept responsibility for how it has affected customers and apologize. Keep your focus on how to fix the problem, not who to blame. As a leader, you will have to get into the weeds but let the team do their jobs without you breathing down their necks. Get advice from your mentor. And do not slack on communication. Clear your calendar on all non-essential things until crisis are reverted.
Part 5: Build Your Team
- What you are building never matters as much as who you are building it with.
- Growth will break your company. You need smart organizational design and communication style or you risk alienating the team and cratering the culture. Use breakpoints, they happen in the transitions between team sizes.
- Everything that needs to be created needs to be designed, not just products and marketing, but processes, experiences, organizations, forms, materials. At its core, designing simply means thinking through a problem and finding an elegant solution. Employ design thinking and avoid habituation. This will force you to think hard and differently about the problems and solutions. Design will force you have a beginner's mindset. Some of the following design questions while picking a name. Same process can be applied for other design exercise.
  - Who is your customer and where will they encounter this name?
  - What are you trying to get your customer to think or feel about your product?
  - What brand attributes or product features are most important to highlight with this name?
  - Is this product part of a family of products or is it stand-alone?
  - What will the next version be called?
  - Should the name be evocative of a feeling or idea or a straightforward description?
  - Once you come up with a list, begin to use names in context.
  - How does it work in a sentence?
  - How do you use it in print?
  - How do you use it graphically?
- Marketing cannot be just figured out at the very end. Use marketing to prototype your product narrative. The best marketing is just telling the truth. While good marketing is anchored in human connection and empathy, creating and implementing your marketing programs can and should be a rigorous and analytical process. Templates can be used mentioned in this chapter.
- What is product management? Why do different companies treat this role differently? It is because of the stupid abbreviation. Is it project management? Is it program management? Is it product marketing? Or is it product management?
  - Product management or product marketing manager should be one role and have same responsibility. They work with almost every part of the business to get the product spec'd built and brought to market. But more importantly product managers are the voice to the customer. They keep every team in check to make sure they don't lose sight of the ultimate goal-happy, satisfied customers. Product managers gives customer a voice on all teams.
  - Project managers coordinate tasks, meetings, calendars and assets to enable individual projects to get it done on time. Project managers are more than just glorified note takers. If the product manager is the voice of the product, the project manager is the voice of the project.
  - Program manager supervises group of projects and project managers focusing on long-term business objectives and short-term deliverables.
  - Responsibilities of product managers:
    - Spec out what the product should do and the road map for where it will go over time.
    - Determine and maintain the messaging matrix.
    - Work with engineering to get the product built according to spec.
    - Work with design to make it intuitive and attractive to the target customer.
    - Work with marketing to help them understand the technical nuances in order to develop effective creative to communicate the messaging.
    - Present the product to management and get feedback from the execs.
    - Work with sales and finance to make sure the product has a market and can eventually make money.
    - Work with customer support to write necessary instructions, help manage problems, and take in customer requests and complaints.
    - Work with PR to address public perceptions, write the mock press release, and often act as a spokesperson.
    - Work on less defined stuff: look for places where customer is unhappy and whatever else.
  - Greg Joswiak at Apple was a great product manager from whom Tony Fadell learned from. If Job was good at telling stories, Joswiak was good at product. He becomes the customer and starts poking holes at product from the end user perspective. No one cared about battery life when iPod was being built, but Joswiak did.
  - Product manager has to be a master negotiator and communicator. They have to influence people, build bridges and mend road maps. They have to know which battles are worth fighting for. This is why great product managers are hard to hire.
  - Product manager is a needle in a haystack. An almost impossible combination of structured thinker and visionary leader with incredible passion but also firm follow-through, who's a vibrant people person but fascinated with technology, an incredible communicator who can work with engineering and think through marketing and not forget the business model, the economics, profitability, PR. They have to be pushy but with a smile, to know when to hold fast and when to let one side.
- Rather than focusing on rewarding salespeople immediately after a transaction, vest the commission so they stick around for longer. Old sales model is no longer viable because during crisis, sales incentives are to sell more even if it is a broken product. If product is on pause, they'll be motivated to leave because of fully vested commissions. A customer-centric organization would not allow this.
- Law firms are about billable hours. Having a trusted lawyer in-house is better than a billable lawyer.
Part 6: Be CEO
- There's nothing to prepare you for CEO. CEOs job is to give a shit, to care.
- CEO sets the tone of the company.
- Most people are happy with 90 percent good. But going from 90 to 95 percent is halfway to perfect. Push for excellence and when you are top of the pyramid, it will trickle down.
- Do not fool yourself understanding the difference between benefits vs perks. An oversupply of perks not only hurt a company's bottom line, but also employee morale. Some people can become obsessed with what they can get rather than what they can do believing perks to be a right, not a privilege. Then when times get tough or when the perks don't scale, they become outraged that their “rights” are being taken away.
  - Jobs never gave out Apple products as free. He didn't want employees to devalue the very things they were working on.
  - Google has been trying to cut costs for years, but it is impossible to claw your way back.
  - Perks are a new sense of entitlement. Screw massages! You need money to build business.
- A CEO is not a king or queen. It's not a lifetime appointment. At some point, you have to step down.

III. Quotes

The world is full of mediocre, middle-of-the-road companies creating mediocre, middle-of-the-road crap, but I've spent my entire life chasing after the products and people that strive for excellence. I've been incredibly lucky to learn from the best-from bold, passionate people who made a dent in the world.
A good mentor won't hand you the answers, but they will try to help you see your problem from a new perspective. They'll loan you some of their hard-fought advice, so you can discover your own solution.
This book isn't trying to be a biography, I am not dead yet. It's a mentor in a box. It's an advice encyclopedia.
Your first job out of college connects in a straight line to your second and your third, that at each stage of your career you'll use your inevitable wins to propel yourself forward.
Adulthood is commonly thought of as the time when learning is over and living begins. Yes! I've graduated I am done! But learning never ends.
Traditional schooling trains people to think incorrectly about failure. You are taught a subject, you take a test, and if you fail, that's it. You are done. But once you are out of school, there is no book, no test, no grade. And if you fail, you learn.
The only failure in your twenties is inaction. The rest is trial and error. - Anonymous
The million of hidden decisions you'll discover when you leave home.
Joyful workplace could make a joyful product.
So even if the experience kicks your ass, the force of that kick will propel you into a new stage of your life. And you'll figure out what to do next.
Cool technology isn't enough. A great team isn't enough. Plenty of funding isn't enough. Too many people throw themselves at hot trends, anticipating a gold rush, and end up falling off a cliff.
If you are not solving a real problem, you can't start a revolution.
If there are gods of software design and coding, they are Bill Atkinson and Andy Hertzfeld.
I can't make you the smartest or the brightest, but it's doable to be the most knowledgeable. It's possible to gather more information than somebody else. - Bill Gurley
Don't get stuck between the elephant's toes so you can never see the whole beast. It's easy to mistake navigating process, red tape, job leveling, and politics for real personal growth.
Startups that blow all their funding on Ping-Pong instructors and free beer aren't focused on the right things.
The rush of imposter syndrome was almost overwhelming.
Even if your hands aren't on the product, they should still be on the wheel.
I did therapy and yoga to find balance, to change the way I reacted to the world, to better understand myself and my emotions and how others perceived them.
Even if every business book on Earth told me to be quiet, calming voice on the team, I couldn't do it all the time.
Most managers are afraid that the people who work for them are going to be better than them. But you need to think of being a manager more like being a parent or a mentor. What loving parents wants their child NOT to succeed? You want your kids to be more successful than you, right? - Kwon Oh-hyun, former CEO of Samsung Semiconductor
If you are a manager-congratulations, you are now a parent. Not because you should treat your employees like children, but because it's now your responsibility to help them work through failure and find success. And to be thrilled when they do.
The data wasn't guide. At best, it was a crutch. At worst, cement shoes. It was analysis paralysis.
A/B testing and user testing is not product design. It's a tool. A test. At best, a diagnosis. It can tell you that something is not working, but it won't tell you how to fix it. Or it can show you an option that solves one hyperlocal issue but breaks something else downstream.
You can A/B test where the “Buy” button should go on a Web page, whether it should be blue or orange, but you shouldn't be testing whether or not a customer should buy online.
In the case of every first-generation product, we could have been shoveling forever. There was never going to be enough data to make an assured choice.
We made decisions. I made decisions. This is in. This is out. This is how it's going to work.
Storytelling is at the heart of sales. And right now you are selling-your vision, your gut, your opinion.
Most decisions we make are data-informed, but they are not data-made.
Pushing greatness doesn't make you an asshole. Challenging assumptions doesn't make you an asshole.
There's a world difference between being emphatic and passionate to benefit the customer versus bullying someone to appease your own ego.
Your product isn't only your product. It's the whole user experience.
If they can't innovate, they'll litigate.
You need some constraints to force you to dig deep and get creative, to push envelopes you hadn't thought you open before.
If you wait for your product to be perfect, you will never finish.
Every project needs a heartbeat.
The heartbeats of companies that work with atoms rather than electrons are often way too slow. Because atoms are scary: you can't relaunch an atom.
We like to think that we are not ruled by schedules, that we can throw off the chains of habit at anytime, but most people are creatures of routine.
Your product has to learn how to crawl, and then walk, before it can run.
They were asking us to predict the future with near 100 percent confidence. They were asking for proof that a baby could run a marathon before it had even learned to walk. These guys didn't know much about babies. They knew even less about how to create a new business. That's why so many Kickstarter projects have failed.
You make the product. You fix the product. You build the business. Every product. Every company. Every time.
The best ideas are painkillers, not vitamins.
The why always has to be crisp and easy to articulate.
Once you have a really strong why, you have the germ of a great idea.
Throwing darts at a wall is not how you pick a great idea. Anything worth doing take takes time.
The world is full of people who have an idea and want to start a company.
Getting from 0 to 1 is a huge lift.
The calculus of risk and reward has to make sense.
The cake is a microcosm of the larger problems of growth.
It's either grow or die. Stasis is stagnation. Change is the only option.
Every organism starts as a single cell. That cell divides into two, four, sixteen. In the beginning each cell is the same, but quickly they break out and individualize. This one is going to be a nerve, this one a muscle. The more the organism grows, the more differentiated each cell has to be, more complicated the system becomes. But it also becomes more resilient, able to survive for years, decades. The same happens in business.
Being a good designer is more a way of thinking than a way of drawing. It's not just about making things pretty, it's about making them better.
Steve Jobs often said, the best marketing is just telling the truth.
When yet another CEO tells me they have no idea what a product manager does, it always makes me think of design in the eighties.
If you are selling brake systems to a car company, you'd better really understand brakes.
The superpower of every product manager is empathy.
Building a product is like making a song.
Freedom is a double-edged sword, but it is still a sword.
Free will screw you every time.
As the number of perks increase, people's reason for being at their job can begin to blur as well.
Perks are frosting. High-fructose corn syrup. And nobody will begrudge you a little sugar, everyone likes sweets from time to time. But stuffing your face full of them from morning to night isn't exactly a recipe of happiness.

The Hidden Life Of Trees by Peter Wohlleben

Fri, 15 Jul 2022 00:00:00 GMT

I. Brief Summary

After reading this book, I recognize how misunderstood trees and forests are. Humanity has always struggled to understand things that reside in a slow lane or cannot be seen through our own eyes. Modern urbanization and reforestation might seem to be optically working, however, what forests need is-uninterrupted growth time for a very long period of time. To restore what we have ruined on this planet goes beyond an average human lifespan. Peter Wohlleben clearly shares his deep love of woods. He is a student of forestry. He explains the amazing processes of life, death, and regeneration of trees which he has studied deeply that most are unaware of.

II. Big Ideas

Trees are mostly misunderstood because they live on a different timescale than us. One of the oldest trees on Earth, a spruce in Sweden, is more than 9,500 years old. That is 115 times longer than the average human lifetime.
The most astonishing thing about trees is how social they are. Trees establish friendships with their surrounding neighbors via their root systems. Assistance is delivered via fungal networks around the root tips which facilitates nutrient exchange between trees. A tree is not a forest. The give and take is vital for working together. This helps in creating consistent local climate that moderates extremes of heat and cold. For this to happen, the community must remain intact no matter what. Every tree is valuable to community and worth keeping around as long as possible. The sick are supported and nourished until they recover. There are loner trees who are incapable of working with one another.
How do trees communicate? They use scent. When trees are in danger from being abused by Giraffes, they start pumping toxins. Other surrounding trees start to get message as well. Chemical signals can also be found through the fungal networks.
Trees struggle with each other for local resources. But only with different species. Trees synchronize their performance so that they are all equally successful. The equalization of producing same levels of sugar, photosynthesizing takes place underground through the roots. Whoever is running short gets help. It's a social security system for forests to ensure individual members of society don't fall far too behind. Forest is more productive when the trees are packed together. This is because a tree can be only as strong as the forest that surrounds it. A chain is only as strong as its weakest link.
Reproduction is planned at least a year in advance. Wind and bees come into play equally.
An easy way to estimate the age of a young beech tree is to count the small nodes on its branches. These nodes are tiny swellings that look like a bunch of fine wrinkles. The number of nodes corresponds with age of the tree.
Young trees are so keen on growing quickly, but their own mothers do not approve of rapid growth. They shade their offsprings with their enormous crowns, and the crowns of all the mature trees close up to form a thick canopy over the forest floor. This method used in this upbringing is light deprivation. Wouldn't parents want their offsprings to become independent as quickly as possible? Trees would answer with a resounding no. Scientists have determined that slow growth when the tree is young is a prerequisite if a tree is to live to a ripe old age. The patience is being tested. If the tree is wider than its tall, then the young tree is in waiting mode.
The large crowns of mature trees are exposed to turbulent winds, torrential rains, and heavy loads of snow. To prevent impact of these forces, the roots cling to earth and to rocks. It is only with increasing age that the trunk thickens and becomes solid enough that a normal amount of snow can no longer wreak havoc. Only the pine has the cheek to greedily redirect its crown toward the light. This is why the pine has the highest rate of breakage because of snow.
Thirst is harder for trees to endure than hunger because they can satisfy their hunger whenever they want using photosynthesis. A mature beech tree can send more than 130 gallons of water a day coursing through its branches and leaves.
Wound and tear can be destructive for trees as they become portals for fungal spores and other unwanted guests.
If trees are capable of learning, where do they store, and how do they access information? Fungi! Getting into a partnership with them has a price. Fungi demand sugar and carbohydrates as a form of payment.
Water moves up through capillary action and transpiration. The narrower the vessel, the higher the liquid can rise against gravity.
Skin is to human as bark is to trees. They gradually age. Without bark, a tree would dry out. An open wound in bark can cause damage to trees. More light can be harmful. More light, more sun, more ultraviolet radiation.
Can trees think? When a root feels its way forward in the ground, it is aware of stimuli. The only difference between us and them is the amount it takes to process the information.
Erosion is one of the forest's most dangerous natural enemies.
The assertion that burning wood is climate neutral is based on misunderstood concept. The forest is a gigantic carbon dioxide vacuum that constantly filters out stores this component of the air. When trees die, most of the carbon dioxide remains in the ecosystem. Today's fossil fuels come from trees that died about 300 million years ago. Just because trees are growing more rapidly than they used to does not mean carbon dioxide is being balanced out. Growth fueled by hefty additions of excess nitrogen from agricultural operations is unhealthy. Remember if you are a tree, slow growth is the key to growing old.
Forests are good at creating microclimate for the same reason people do. When we run, we sweat which allows us to cool down. The same goes for trees. Evaporation leads to cooling, in turn leads to less evaporation. This is why forests should not be disturbed. Whoever sweats a lot must also drink a lot.
How does water go to forest? The essential characteristics of land is that it is higher than water. Gravity causes water to flow down to the lowest point, which should cause the continents to dry out. The only reason this doesn't happen is supplies of water provided by cloud which form over the oceans are blown over land by wind. This mechanism works only closer to coastal areas. The more inland you go, the drier it gets. Each summer, trees use up to 8,500 cubic yards of water per square mile, which releases into the air through transpiration. The water vapor creates new clouds that travel farther inland to release their rain. This helps get water to most remote areas. Amazon basin is a perfect example of this water pump system. But there are requirements for this system to work. From ocean to the farthest corner, there must be forest. And more importantly, the coast forests are the foundations for this system. Researchers have found this system breaks when forests are cleared. The fallout of Amazon in Brazil is already apparent because coastal forests are cleared out for urban cities. This is why forest ecosystems are critical in slowing down climate change.
Rain can put you in the most wonderful mood while you are walking. Just need the right clothes, so it is not unpleasant.
The forest ecosystem is held in a delicate balance. Every being has its niche and its function, which contribute to the well-being of all. Every species want to survive, and each takes from the others what it needs. All are basically ruthless, and the only reason everything doesn't collapse is because there are safeguards against those who demand more than their due. This is why forest have an innate behavior that protects itself from overexploitation.
Wood fibers conduct sound well which is why they are used for violins and guitars. But this has an underlying function in a forest. Whenever there is a danger, the residents of forest use this acoustic feature as an alarm system.
Planting trees in urban areas is challenging because the mechanics of planting, transferring and trimming makes these trees act like street kids. When the roots are pruned while transferring them from a nursery to its final destination, the brain-like structures are cut off along with the sensitive tips. Trees then lose their sense of direction underground. Irrigating giant trees takes an enormous amount of water and time. One day, the pampering stops. Living high on the hog for decades spoils them. There are no family members who can rush to help these urban trees. So they go out and establish in their new territory, and many times, they'll find underground wastewater pipes. And when it storms, the streets get filled with water. The culprit is sentenced to death. The offending tree is cut down, and its successor is planted. Another issue with urban planting is that the urban microclimate is heavily influenced by heat-inducing asphalt and concrete keeping the temperatures elevated. And if that wasn't enough, salt during winter and unsolicited fertilizer from dogs cause injury to trunks and kill roots.
There are species of trees that like to grow far from forests. What's surprising is how much betulin there is in birch bark. It has antibacterial and antiviral properties. These species are on constantly in defensive mode which causes them to overproduce these toxins. They can't balance between sustainable growth and producing healing compounds. Species that live in social groups don't entertain this option because every individual belongs to a community that look after one another. Overtaxing on resources due to lack of community can eventually these isolated species out.
Forest air is the epitome of healthy air. People who want to take a deep breath of fresh air or engage in physical activity in a particularly agreeable atmosphere step out into the forest. The air is cleaner under the trees because trees act as huge filters.

III. Quotes

Life in the slow lane is clearly not always dull.
A tree's most important means of staying connected to other trees is a “wood wide web” of soil fungi that connect vegetation in an infinite network that allows the sharing of an enormous amount of information and goods.
The wolves [in Yellowstone] turned out to be better stewards of the land than people, creating conditions that allowed the trees to grow and exert their influence on the landscape.
Forests hide wonders that we are only just beginning to explore.
The modern industry produces lumber.
When you know that trees experience pain and have memories and that tree parents live together with their children, then you can no longer just chop them down and disrupt their lives with large machines.
Forests are superorganisms with interconnections much like ant colonies.
Trees live in the really slow lane, even when they are in danger.
The trees release their potential heirs into the world on tiny wings.
Trees maintain an inner balance. They budget their strength carefully, and they must be economical with energy so that they can meet all their needs.
The forest is not sick, but it is vulnerable.
The cares are stacked against those free spirits who think they can meander left or right as the mood takes them and dawdle before they stretch upwards.
The trees who don't know the meaning of restraint and are lavish in their water use, and it is usually the largest and most vigorous trees that pay the price for this behavior.
Nature is a strict teacher.
Trees are not known for their speed.
So many questions remain unanswered. Perhaps we are poorer for having lost a possible explanation or richer for having gained a mystery. But aren't both possibilities equally intriguing.
Does that mean that beings that live life in the slow lane are automatically worth less than ones on the fast track?
We don't know how long it will take until true forest soil is created once again, but we do know that a hundred years is not enough.
In a very simple, widely circulated image of natural cycles, trees are poster children for a balanced system.
If we want to use forests as a weapon in the fight against climate change, then we must allow them to grow old, which is exactly what large conservation groups are asking us to do.
As foresters like to say, the forest creates its own ideal habitat.
An organism that is too greedy and takes too much without giving anything in return destroys what it needs for life and dies out.
A single tree contains millions of calories in the form of sugar, cellulose, lignin, and other carbohydrates. It also contains water and valuable minerals. Did I say a grocery store?
Many trees take pains to budget carefully, alders flaunt their wealth. Ash and elders behave in a similar manner.
How do trees register that the warmer days are because of spring and not late summer? Trees must have a memory.
What good are extra provisions if you can't shed your leaves and have to spend the whole winter in mortal danger?
Growth speeds up, and instead of adding a few fractions of an inch each year, the tree is adding about 20 inches. This takes energy, which is then not available for fending off illness and pests. The trunk, which appears to be in the very best of health, finds itself increasingly under attack because it doesn't have the energy to mobilize a defense.
We like to apply our own situations to others, we overlook the fact that an intact forest has completely different priorities.
It takes not 1 but 150 years to grow such a mighty structure, but once it's up there, hardly any other plants-except for other trees can reach it, and the rest of its life is worry free.
In short, this is what we call evolution. It helps organisms to adapt to changing environmental conditions and, therefore, guarantees the survival of species. The shorter the interval before the next generation, the more quickly animals and plants can adapt. Trees seem completely uninterested in this scientifically established imperative. They simply live to be ancient on average many hundreds, but sometimes even thousands, of years old.
But just as people spark fires, they also rush to put them out.
Chlorophyll, however, has one disadvantage. It has a so-called green gap, and because it cannot use this part of the color spectrum, it has to reflect it back unused. This weak spot means that we can see this photosynthetic leftover, and that's why almost all plants look deep green to us. What we are really seeing is waste light, the rejected part that trees cannot use. Beautiful for us; useless for trees. Nature that we find pleasing because it reflects trash?
Only people who understand trees are capable of protecting them.

Walking by Henry David Thoreau

Wed, 22 Jun 2022 00:00:00 GMT

I. Brief Summary

Henry David Thoreau was a profound American thinker and a philosopher from 1800s. In this short essay, he stresses the importance of nature and wilderness. Those elemental lessons are as critical today as they were several hundred years ago.

II. Big Ideas

Thoreau considers the nature of freedom beyond civil or political freedom. True freedom for humans lie within nature and wilderness.
Civilization has many champions, but nature has a few.
Walking in the wild enables humans to embrace nature because it slows a human down. It's not about hurrying but taking time to explore one's surrounding.
Going on a daily walk is going on a daily spiritual voyage, leaving the mind's usual preoccupations behind. The woods have no place for it.
An empty mind is when you are ready for a walk.
Walking is a noble art and continuation of humankind's past.
Thoreau is not talking about walk due to sickness or an evening stroll, but rather going on for long walks. He himself demanded at least four hours of walk a day to preserve his health and spirits. Walking has nothing to do with speed or exercise.
What good are our feet for if we don't put them to use. Walking refines human sensibility far better than sitting idle indoors.
He stresses on walking beyond villages and highways. A village is a space through which everyone travels, and yet no one lives there actually undergoes a journey. This state of suspension is not true living.
He goes off on landscapes that are turned into real estate plots. Dividing the land and assigning ownership is horrific because it ruins the woods. Thoreau fears the day when fences will multiply and men will devise ways to trap people onto highways and away from unknown woods. Civilization will encroach upon all wild forests, and America’s free lands will become unrecognizable, claimed by greedy individuals.
Thoreau feels that nature’s magnetism tends to guide walkers along the right direction.
The east leads to the past-the history, art, and literature of the Old World-while the west leads to the forest, the future, and the pioneering spirit of the New World. The east is the source of light, while the west is the land of fruit.
Thoreau hopes that generations of Americans will understand that the civilized draw strength from the wild.
All good things being wild and free, Thoreau rejoices in the wildness even of domestic animals. The taming or domestication turns humans and animals into mindless locomotives or machines. Just as animals are not meant to be tamed, neither are humans. Yet the driving thrust of civilization has been to wean humanity away from its wild origins. Social norms turn children into preoccupied adults and curb all curiosity and adventure of spirit. Education curbs and burdens instead of encouraging inner genius to grow.
As Thoreau travels deeper into a landscape, away from the noise of politics and commerce, he enters an inner wildness of spirit. He notices birds he never noticed before, hears unheard music. That is why it is important to be present in the moment. To be in this attentive state itself is an education and an inspiration.
Thoreau finishes his essay with an account of a November sunset he witnessed recently. The sunset was so moving as to be a transformational experience. The light Thoreau saw was of a quality he had never seen before and would never see again. Thus, he realized that each sunset is unique and represents a journey in itself.

III. Quotes

I am alarmed when it happens that I have walked a mile into the woods bodily, without getting there in spirit.
A truly good book is something as natural, and as unexpectedly and unaccountably fair and perfect, as a wild flower discovered on the prairies of the West or in the jungles of the East. Genius is a light which makes the darkness visible, like the lightning’s flash, which perchance shatters the temple of knowledge itself, and not a taper lighted at the hearth-stone of the race, which pales before the light of common day.
We should go forth on the shortest walk, perchance, in the spirit of undying adventure, never to return; prepared to send back our embalmed hearts only, as relics to our desolate kingdoms. If you are ready to leave father and mother, and brother and sister, and wife and child and friends, and never see them again; if you have paid your debts, and made your will, and settled all your affairs, and are a free man; then you are ready for a walk.
I think that I cannot preserve my health and spirits, unless I spend four hours a day at least-and it is commonly more than that-sauntering through the woods and over the hills and fields, absolutely free from all worldly engagements. You may safely say, A penny for your thoughts, or a thousand pounds. When sometimes I am reminded that the mechanics and shopkeepers stay in their shops not only all the forenoon, but all the afternoon too, sitting with crossed legs, so many of them-as if the legs were made to sit upon, and not to stand or walk upon-I think that they deserve some credit for not having all committed suicide long ago.
Life consists with Wildness. The most alive is the wildest. Not yet subdued to man, its presence refreshes him. One who pressed forward incessantly and never rested from his labors, who grew fast and made infinite demands on life, would always find himself in a new country or wilderness, and surrounded by the raw material of life. He would be climbing over the prostrate stems of primitive forest trees.
Give me a wildness whose glance no civilization can endure.
Above all, we cannot afford not to live in the present. He is blessed over all mortals who loses no moment of the passing life in remembering the past.
The walking of which I speak has nothing in it akin to taking exercise, as it is called, as the sick take medicine at stated hours …but it is itself the enterprise and adventure of the day.
In short, all good things are wild and free.
What is most of our boasted so-called knowledge but a conceit that we know something, which robs us of the advantage of our actual ignorance?
Let me live where I will, on this side is the city, on that the wilderness, and ever I am leaving the city more and more, and withdrawing into the wilderness.
Hope and the future for me are not in lawns and cultivated fields, not in towns and cities, but in the impervious and quaking swamps.
A man’s ignorance sometimes is not only useful, but beautiful, while his knowledge, so called, is oftentimes worse than useless beside being ugly. Which is the best man to deal with, he who knows nothing about a subject, and what is extremely rare, knows that he knows nothing, - or he who really knows something about it, but thinks that he knows all?
My desire for knowledge is intermittent, but my desire to bathe my head in atmospheres unknown to my feet is perennial and constant. The highest that we can attain to is not Knowledge, but Sympathy with Intelligence.
Roads are made for horses and men of business. I do not travel in them much, comparatively, because I am not in a hurry to get to any tavern or grocery or livery-stable or depot to which they lead.
What business have I in the woods, if I am thinking of something out of the woods?

The War of Art by Steven Pressfield

Sun, 19 Jun 2022 00:00:00 GMT

I. Brief Summary

Pressfield investigates this inner voice which he calls “resistance” which prevents us from exploring our creative talent. Resistance is our biggest enemy which needs to be deeply respected because resistance will show up everywhere there is a creative battle. Pressfield offers unique ways to understand and overcome resistance. The best way to overcome resistance is to show up every day no matter how you feel or events happening around you. Some ideas from this book can be extreme because Pressfield for example labels family as a distraction (which I disagree with). But let that not be a distraction, the underlying message is still true which may allow one to cope through resistance. I never knew why creative pursuits were challenging until now, but more I read about practices of other influential artists, I understand that it is not unique to a particular person, but we all go through it, and frankly resistance never goes away.

II. Big Ideas

The central thesis of this book is resistance is an enemy of all creatives. And every soul that has a body feels resistance. This by definition makes everyone creative. The ones who are empowered to pursue are the ones who are able to overcome resistance. To overcome resistance, a creative needs to suspend procrastination.
Hitler was an artist that started WWII because he was procrastinating, and, as a result of this, nobody has seen his paintings. (Seriously, Google his art. He sucked at being a decent human being but was a pretty good artist!). If we all pursued our creative outlet, so many of us can be set free and prevent Hitler esque events in the world. We can eliminate drugs, jail and misery.
Pressfield shows us we need to face our fears and not let those fears overtake us, not give into the resistance. Fear infects our creativity and prevents us from extracting the creative forces we need to create. Most importantly, as artists, we must be open to rejections, judgments and failures. All artists, even those that are best known to us, have experienced rejection. Use these rejections as motivation to improve your talents and skills and inspire you to love and embrace your craft even more.
Professionals vs Amateur
- He argues in order to fight resistance, an artist must turn into a professional. This allows the artist to take his or her art seriously. The intent is to not create art passively otherwise procrastination will lead you right back to resistance. Amateurs are not aware of this. They play for fun while professionals play for keeps.
- Turning pro means treating your dream job like it’s your only job (even if it isn’t yet.)
- Be in love with it so much that you’re willing to dedicate your life to it.
- Commit full-time.
- Professionals don’t wait for inspiration to strike. Instead, they bring it about on their own, by developing the habit of consistency.
- Pros work hard day after day, because they love to, they need to, and they want to.
- Qualities of professionals:
  - We show up every day.
  - We show up no matter what.
  - We stay on the job all day.
  - We are committed over the long haul.
  - The stakes for us are high and real.
  - We accept remuneration for our labor.
  - We do not overidentify with our jobs.
  - We master the technique of our jobs.
  - We have a sense of humor about our jobs.
  - We receive praise or blame in the real world.
Tiger Woods has a coach. The greatest golfer has a teacher. A coach he turns to for advice and constructive criticism. And he does this because he knows that even though he’s the best-he can always get better.
Hierarchies vs Territories
- Inspired by how animal kingdom operates. By how they rank within a Hierarchy-such as, say, a hen in a pecking order, or a wolf in a pack. By their connection to a Territory-like a home base or home court, a hunting ground or turf they’re comfortable operating within.
- Hierarchies and territories are important because they provide us-(both humans as well as animals)-with psychological security. They help maintain order and a certain degree of organization. They help us understand our place and where we stand in the world. But there’s a sharp distinction between these two paradigms-the Hierarchy vs a Territory.
- Most people naturally tend to lean towards the Hierarchy paradigm. This is because it’s easier for us to slip into when we’re growing up (popular vs geeks in high school). Eventually, as we grow into adulthood, most of us allow the hierarchy to remain in place only in a different way (buy this beer, get this job, drive this car, and everyone will love you.) We allow social hierarchies to place a ceiling on how much we earn and how high we climb. Corporations are hierarchies. Governments are hierarchies. High school was the ultimate hierarchy.
- But Hierarchies have proven themselves ineffective for the individual seeking to live a more fulfilling life doing work that matters to him/her. Ultimately, says Pressfield, “for the artist to define himself hierarchically is fatal.”
- Hierarchies stifle creativity. An individual who defines himself by his place in a pecking order will:
  - Compete against all others in the order, seeking to elevate his station by advancing against those above him, while defending his place against those beneath.
  - Evaluate his happiness/success/achievement by his rank within the hierarchy, feeling most satisfied when he’s high and most miserable when he’s low.
  - Act toward others based upon their rank in the hierarchy, to the exclusion of all other factors.
  - Evaluate his every move solely by the effect it produces on others. He will act for others, dress for others, speak for others, think for others…”
- Claim your territory:
  - Territorial thinking is about doing work for its own sake. It’s about doing what you do because you really enjoy doing it-and being paid lots of money is a bi-product of your work, as opposed to the end goal of your work.
  - It’s also about the environment you feel most powerful/creative/motivated to work within. Stevie Wonder’s territory is the piano. Arnold Schwarzenegger’s is the gym. When Bill Gates pulls into the parking lot at Microsoft, he’s on his territory and when Pressfield sits down to write, he’s on his territory.
- Territory provides sustenance:
  - A territory sustains us without any external output. A territory is a closed feedback loop. Our role is to put in effort and love; the territory absorbs this and gives it back to us in the form of well-being. When experts tell us that exercise (or any other effort requiring activity) banishes depression, this is what they mean.
  - A territory can only be claimed alone. You can team with a partner, you can work out with a friend, but you only need your self to soak up your territory’s juice.
  - A territory can only be claimed by work. When Arnold Schwarzenegger hits the gym, he’s on his own turf. But what made it his own are the hours and years of sweat he put in to claim it. The territory doesn’t give, it gives back.
  - A territory returns exactly what you put it in. Territories are fair. Every bit of energy you put in goes infallibly into your account. The territory never devalues. A territory never crashes. What you deposited, you get back, dollar for dollar."
  - Your territory is your calling. It’s your “gym”, your “playground”, your “notebook”, your “microphone”. It’s that place you know you need to be in order to do your best work. I you don’t know it-figure it out. If you’ve figured it out - then claim it-not just once, but every single day.
Going beyond resistance is the higher realm. That’s where the angels, the Muses come in. This is the opposite force of resistance. Angels who forward the weight of artists. Whether in form of spirit, religion or higher realm, invoking the Muses in favor of you will create equal force against the resistance.

III. Quotes

Creative work is a gift to the world and every being in it. Don’t cheat us of your contribution. Give us what you’ve got.
If you find yourself asking yourself (and your friends), "Am I really a writer? Am I really an artist?" chances are you are. The counterfeit innovator is wildly self-confident. The real one is scared to death.
Are you paralyzed with fear? That’s a good sign. Fear is good. Like self-doubt, fear is an indicator. Fear tells us what we have to do. Remember one rule of thumb: the more scared we are of a work or calling, the more sure we can be that we have to do it.
Our job in this life is not to shape ourselves into some ideal we imagine we ought to be, but to find out who we already are and become it.
We must do our work for its own sake, not for fortune or attention or applause.
The most important thing about art is to work. Nothing else matters except sitting down every day and trying.
The Principle of Priority states (a) you must know the difference between what is urgent and what is important, and (b) you must do what’s important first.
This is the other secret that real artists know and wannabe writers don’t. When we sit down each day and do our work, power concentrates around us. The Muse takes note of our dedication. She approves. We have earned favor in her sight. When we sit down and work, we become like a magnetized rod that attracts iron filings. Ideas come. Insights accrete.
The artist committing himself to his calling has volunteered for hell, whether he knows it or not. He will be dining for the duration on a diet of isolation, rejection, self-doubt, despair, ridicule, contempt, and humiliation.
Are you a born writer? Were you put on earth to be a painter, a scientist, an apostle of peace? In the end the question can only be answered by action.
Creative work is not a selfish act or a bid for attention on the part of the actor. It's a gift to the world and every being in it. Don't cheat us of your contribution. Give us what you've got.
We fear discovering that we are more than we think we are. More than our parents/children/teachers think we are. We fear that we actually possess the talent that our still, small voice tells us. That we actually have the guts, the perseverance, the capacity. We fear that we truly can steer our ship, plant our flag, reach our Promised Land. We fear this because, if it’s true, then we become estranged from all we know. We pass through a membrane. We become monsters and monstrous.
Fear is good. Like self-doubt, fear is an indicator. Fear tells us what we have to do. Remember our rule of thumb: The more scared we are of a work or calling, the more sure we can be that we have to do it.
It’s better to be in the arena, getting stomped by the bull, than to be up in the stands or out in the parking lot.
Of any activity you do, ask yourself: If I were the last person on earth, would I still do it?
Someone once asked Somerset Maughham if he wrote on a schedule or only when struck by inspiration. “I write only when inspiration strikes,” he replied. “Fortunately it strikes every morning at nine o'clock sharp.”
Resistance is always lying and always full of shit.
The most pernicious aspect of procrastination is that it can become a habit. We don't just put off our lives today; we put them off till our deathbed.
Never forget: This very moment, we can change our lives. There never was a moment, and never will be, when we are without the power to alter our destiny. This second we can turn the tables on Resistance. This second, we can sit down and do our work.
The professional has learned that success, like happiness, comes as a by-product of work. The professional concentrates on the work and allows rewards to come or not come, whatever they like.
The artist cannot look to others to validate his efforts or his calling. If you don't believe me, ask Van Gogh, who produced masterpiece after masterpiece and never found a buyer in his whole life.
The sign of the amateur is overglorification of and preoccupation with the mystery. The professional shuts up. She doesn't talk about it. She does her work.
The professional learns to recognize envy-driven criticism and to take it for what it is: the supreme compliment. The critic hates most that which he would have done himself if he had had the guts.
Resistance by definition is self-sabotage.
The amateur believes he must first overcome his fear; then he can do his work. The professional knows that fear can never be overcome.
Resistance is directly proportional to love. If you're feeling massive Resistance, the good news is that it means there's tremendous love there too.
The more resistance you experience, the more important your unmanifested art/project/enterprise is to you - and the more gratification you will feel when you finally do it.
It's not the writing part that's hard. What's hard is sitting down to write. What keeps us from sitting down is Resistance.
Resistance is not a peripheral opponent. Resistance arises from within. It is self-generated and self-perpetuated. Resistance is the enemy within.
Whatever you can do, or dream you can, begin it. Boldness has genius, magic, and power in it. Begin it now. - W. H. Murray
The best and only thing that one artist can do for another is to serve as an example and an inspiration.
The paradox seems to be, as Socrates demonstrated long ago, that the truly free individual is free only to the extent of his own self-mastery. While those who will not govern themselves are condemned to find masters to govern over them.
Resistance cannot be seen, touched, heard, or smelled. But it can be felt.
To yield to Resistance deforms our spirit. It stunts us and makes us less than we are and were born to be.
In other words, any act that rejects immediate gratification in favor of long-term grown, health, or integrity. Or, expressed another way, any act that derives from our high nature instead of our lower. Any of these will elicit Resistance.
Resistance will tell you anything to keep you from doing your work.
Resistance is the most toxic force on the planet.
We're wrong if we think we're the only ones struggling with Resistance. Everyone who has a body experiences Resistance.
Most of us have two lives. The life we live, and the unlived life within us.
The awakening an artist must be ruthless, not only with herself but with others.
The artist must be like that Marine. He has to know how to be miserable. He has to love being miserable.
If you find yourself criticizing other people, you're probably doing it out of Resistance. When we see others beginning to live their authentic selves, it drives us crazy if we have not lived out our own.
Resistance has no conscience.
Amateur’s are weekend warriors. Pros are there every day of the week.
We're never alone. As soon as we step outside the campfire glow, our Muse lights on our shoulder like a butterfly. The act of courage calls for infallibly that deeper part of ourselves that supports and sustains us.

The Most Important Thing by Howard Marks

Fri, 17 Jun 2022 00:00:00 GMT

I. Brief Summary

Howard Marks, the chairman and cofounder of Oaktree Capital Management, is renowned for his insightful assessments of market opportunity and risk. After four decades spent ascending to the top of the investment management profession, he is today sought out by the world's leading value investors, and his client memos brim with insightful commentary and a time-tested, fundamental philosophy. Marks's wisdom need to be sought out attentively for seasoned and as well as amateur investors. His ability to understand what drives the market while articulating those lessons to others is worth paying attention to. Learning from a practitioner who also understands academia is a worthwhile pursuit. This book in many ways is redundant because it spells out the foundational lessons of investing, specifically active investment management. However, Howard Mark has his own way of spinning those lessons and sharing them with public. I enjoy his writing very much. The main takeaway of this book is markets are psychologically driven, and if, and when an investor understands that, an investor can benefit tremendously. Experience, second-level thinking, fundamentals of human psychology, understanding risk and avoiding herd mentality are hugely beneficial in independent thinking when it comes to investing. This book has gone into my re-read section.

II. Big Ideas

To achieve superior investment results, your insight into value has to be superior. Thus you must learn things others don't, see things differently or do a better job of analyzing them-ideally, all three.
Your view of value has to be based on a solid factual and analytical foundation, and it has to be held firmly. Only then will you know when to buy and sell. Only a strong sense of value will give you the discipline needed to take profits on a highly appreciated asset that everyone thinks will rise nonstop, or the guts to hold and average down in a crisis even as prices go lower every day. Of course, for your efforts in these regards to be profitable, your estimate of value has to be on target.
The relationship between price and value holds the ultimate key to investment success. Buying below value is the most dependable route to profit. Paying above value rarely works out as well.
What causes an asset to sell below its value? Outstanding buying opportunities exist primarily because perception understates reality. Whereas high quality can be readily apparent, it takes keen insight to detect cheapness. For this reason, investors often mistake objective merit for investment opportunity. The superior investor never forgets that the goal is to find good buys, not good assets.
In addition to giving rise to profit potential, buying when price is below value is a key element in limiting risk. Neither paying up for high growth nor participating in a "hot" momentum market can do the same.
The relationship between price and value is influenced by psychology and technicals, forces that can dominate fundamentals in the short run. Extreme swings in price due to those two factors provide opportunities for big profits or big mistakes. To have it be the former rather than the latter, you must stick with the concept of value and cope with psychology and technicals.
Economies and markets cycle up and down. Whichever direction they're going at the moment, most people come to believe that they'll go that way forever. This thinking is a source of great danger since it poisons the markets, sends valuations to extremes, and ignites bubbles and panics that most investors find hard to resist.
Likewise, the psychology of the investing herd moves in a regular, pendulum like pattern from optimism to pessimism; from credulousness to skepticism; from fear of missing opportunity to fear of losing money, and thus from eagerness to buy to urgency to sell. The swing of the pendulum causes the herd to buy at high prices and sell at low prices. Thus, being part of the herd is a formula for disaster, whereas contrarianism at the extremes will help to avert losses and lead eventually to success.
In particular, risk aversion- an appropriate amount of which is the essential ingredient in a rational market is sometimes in short supply and sometimes excessive. The fluctuation of investor psychology in this regard plays a very important part in the creation of market bubbles and crashes.
The power of psychological influences must never be underestimated. Greed, fear, suspension of disbelief, conformism, envy, ego and capitulation are all part of human nature, and their ability to compel action is profound, especially when they're at extremes and shared by the herd. They'll influence others, and the thoughtful investor will feel them as well. None of us should expect to be immune and insulated from them. Although we will feel them, we must not succumb; rather, we must recognize them for what they are and stand against them. Reason must overcome emotion.
Most trends-both bullish and bearish-eventually become overdone, profiting those who recognize them early but penalizing the last to join. That's the reasoning behind my number one investment adage: "What the Wise man does in the beginning, the fool does in the end." The ability to resist excesses is rare, but it's an important attribute of the most successful investors.
It's impossible to know when an overheated market will turn down, or when a downturn will cease and appreciation will lake its place. But while we never know where we're going, we ought to know where we are. We can infer where markets stand in their cycle from the behavior of those around us. When other investors are unworried, we should be cautious; when investors are panicked, we should turn aggressive.
Not even contrarianism, however, will produce profits all the time. The great opportunities to buy and sell are associated with valuation extremes, and by definition they don't occur every day. Were bound to also buy and sell at less compelling points in the cycle, since few of us can be content to act only once every few years. We must recognize when the odds are less in our favor and tread more carefully.
Buying based on strong value, low price relative to value, and depressed general psychology is likely to provide the best results. Even then, however, things can go against us for a long time before turning as we think they should. Underpriced is far from synonymous with going up soon. Thus the importance of my second key adage: "Being too far ahead of your time is indistinguishable from being wrong." It can require patience and fortitude to hold positions long enough to be proved right.
In addition to being able to quantify value and pursue it when it's priced right, successful investors must have a sound approach to the subject of risk. They have to go well beyond the academics' singular definition of risk as volatility and understand that the risk that matters most is the risk of permanent loss. They have to reject increased risk bearing as a surefire formula for investment success and know that riskier investments entail a wider range of possible outcomes and a higher probability of loss. They have to have a sense for the loss potential that's present in each investment and be willing to bear it only when the reward is more than adequate.
Most investors are simplistic, preoccupied with the chance for return. Some gain further insight and learn that it's as important to understand risk as it is return. But it's the rare investor who achieves the sophistication required to appreciate correlation, a key element in controlling the riskiness of an overall portfolio. Because of differences in correlation, individual investments of the same absolute riskiness can be combined in different ways to form portfolios with widely varying total risk levels. Most investors think diversification consists of holding many different things; few understand that diversification is effective only if portfolio holdings can be counted on to respond differently to a given development in the environment.
While aggressive investing can produce exciting results when it goes right-especially in good times-it's unlikely to generate gains as reliably as defensive investing. Thus, a low incidence and severity of loss is part of most outstanding investment records. Oaktree's motto, "If we avoid the losers, the winners will take care of themselves," has served well over the years. A diversified portfolio of investments, each of which is unlikely to produce significant loss, is a good start toward investment success.
Risk control lies at the core of defensive investing. Rather than just trying to do the right thing, the defensive investor places a heavy emphasis on not doing the wrong thing. Because ensuring the ability to survive under ad- verse circumstances is incompatible with maximizing returns in good times, investors must decide what balance to strike between the two. The defensive investor chooses to emphasize the former.
Margin for error is a critical element in defensive investing. Whereas most investments will be successful if the future unfolds as hoped, it takes margin for error to render outcomes tolerable when the future doesn't oblige. An investor can obtain margin for error by insisting on tangible, lasting value in the here and now, buying only when price is well below value; eschewing leverage; and diversifying. Emphasizing these elements can limit your gains in good times, but it will also maximize your chances of coming through intact when things don't go well. My third favorite adage is "Never forget the six-foot-tall man who drowned crossing the stream that was five feet deep on average. * Margin for error gives you staying power and gets you through the low spots.
Risk control and margin for error should be present in your portfolio at all times. But you must remember that they're "hidden assets. " Most years in the markets are good years, but it's only in the bad years-when the tide goes out-that the value of defense becomes evident. Thus, in the good years, defensive investors have to be content with the knowledge that their gains, although perhaps less than maximal, were achieved with risk protection in place...even though it turned out not to be needed.
One of the essential requirements for investment success- and thus part of most great investors' psychological equipment- is the realization that we don't know what lies ahead in terms of the macro future. Few people if any know more than the consensus about what's going to happen to the economy, interest rates and market aggregates. Thus, the investor's time is better spent trying to gain a knowledge advantage regarding "the know- able": industries, companies and securities. The more micro your focus, the greater the likelihood you can learn things others don't.
Many more investors assume they have knowledge of the future direction of economies and markets- and act that way-than actually do. They take aggressive actions predicated on knowing what's coming, and that rarely produces the desired results. Investing on the basis of strongly held but incorrect forecasts is a source of significant potential loss. Many investors, amateurs and professionals alike- assume the world runs on orderly processes that can be mastered and predicted. They ignore the randomness of things and the probability distribution that underlies future developments. Thus, they opt to base their actions on the one scenario they predict will unfold. This works sometimes-winning kudos for the investor-but not consistently enough to produce long term success. In both economic forecasting and investment management, it's worth noting that there's usually someone who gets it exactly right...but it's rarely the same person twice. The most successful investors get things "about right" most of the time, and that's much better than the rest.
An important part of getting it right consists of avoiding the pitfalls that are frequently presented by economic fluctuations, companies' travails, the markets' manic swings, and other investors' gullibility. There's no surefire way to accomplish this, but awareness of these potential dangers certainly represents the best starting point for an effort to avoid being victimized by them.
Neither defensive investors who limit their losses in a decline nor aggressive investors with substantial gains in a rising market have proved they possess skill. For us to conclude that investors truly add value, we have to see how they perform in environments to which their style isn't particularly well suited. Can the aggressive investor keep from giving back gains when the market turns down? Will the defensive investor participate substantially when the market rises? This kind of asymmetry is the expression of real skill. Does an investor have more winners than losers? Are the gains on the winners bigger than the losses on the losers? Are the good years more beneficial than the bad years are painful? And are the long- term results better than the investor's style alone would suggest? These things are the mark of the superior investor. Without them, returns may be the result of little more than market movement and beta.
Only investors with unusual insight can regularly divine the probability distribution that governs future events and sense when the potential re. turns compensate for the risks that lurk in the distribution's negative left-hand tail. This simple description of the requirements for successful investing-based on understanding the range of possible gains and the risk of untoward developments-captures the elements that should receive your attention. I commend the task to you. It'll take you on a challenging, exciting and thought-provoking journey.

III. Quotes

I like to say, “Experience is what you got when you didn’t get what you wanted.
There are old investors, and there are bold investors, but there are no old bold investors.
“Prices are too high” is far from synonymous with “the next move will be downward.” Things can be overpriced and stay that way for a long time...or become far more so.
Investment success doesn’t come from “buying good things,” but rather from “buying things well.”
There’s a big difference between probability and outcome. Probable things fail to happen-and improbable things happen-all the time.” That’s one of the most important things you can know about investment risk.
We have to practice defensive investing, since many of the outcomes are likely to go against us. It’s more important to ensure survival under negative outcomes than it is to guarantee maximum returns under favorable ones.
Here’s the key to understanding risk: it’s largely a matter of opinion.
Investing is a popularity contest, and the most dangerous thing is to buy something at the peak of its popularity. At that point, all favorable facts and opinions are already factored into its price, and no new buyers are left to emerge.
Every once in a while, an up-or-down-leg goes on for a long time and/or to a great extreme and people start to say "this time it's different." They cite the changes in geopolitics, institutions, technology or behavior that have rendered the "old rules" obsolete. They make investment decisions that extrapolate the recent trend. And then it turns out that the old rules still apply and the cycle resumes. In the end, trees don't grow to the sky, and few things go to zero.
There’s only one way to describe most investors: trend followers. Superior investors are the exact opposite. Superior investing, as I hope I’ve convinced you by now, requires second-level thinking-a way of thinking that’s different from that of others, more complex and more insightful.
Selling for more than your asset’s worth. Everyone hopes a buyer will come along who’s willing to overpay for what they have for sale. But certainly the hoped-for arrival of this sucker can’t be counted on. Unlike having an underpriced asset move to its fair value, expecting appreciation on the part of a fairly priced or overpriced asset requires irrationality on the part of buyers that absolutely cannot be considered dependable.
The most dangerous thing is to buy something at the peak of its popularity. At that point, all favorable facts and opinions are already factored into its price and no new buyers are left to emerge.
Once in a while, however, the future turns out to be very different from the past. It’s at these times that accurate forecasts would be of great value. It’s also at these times that forecasts are least likely to be correct. Some forecasters may turn out to be correct at these pivotal moments, suggesting that it’s possible to correctly.
People should like something less when its price rises, but in investing they often like it more.
The biggest investing errors come not from factors that are informational or analytical, but from those that are psychological.
Risk means uncertainty about which outcome will occur and about the possibility of loss when the unfavorable ones do.
Everything you needed to know in the years leading up to the crash could be discerned through awareness of what was going on in the present.
If everyone likes it, it's probably because it has been doing well. Most people seem to think that outstanding performance to dates presages outstanding future performance. Actually, it's more likely that outstanding future performance to date has borrowed from the future and thus presages subpar performance from her on out.
Buying something for less than its value. In my opinion, this is what it’s all about-the most dependable way to make money. Buying at a discount from intrinsic value and having the asset’s price move toward its value doesn’t require serendipity; it just requires that market participants wake up to reality. When the market’s functioning properly, value exerts a magnetic pull on price.
An accurate estimate of intrinsic value is the essential foundation for steady, unemotional and potentially profitable investing.
Most people strive to adjust their portfolios based on what they think lies ahead. At the same time, however, most people would admit forward visibility just isn't that great. That's why I make the case for responding to the current realities and their implications, as opposed to expecting the future to be made clear.
Charlie Munger gave me a great quotation on this subject, from Demosthenes: “Nothing is easier than self-deceit. For what each man wishes, that he also believes to be true.” The belief that some fundamental limiter is no longer valid-and thus historic notions of fair value no longer matter-is invariably at the core of every bubble and consequent crash. In fiction, willing suspension of disbelief adds to our enjoyment.
Skepticism and pessimism aren’t synonymous. Skepticism calls for pessimism when optimism is excessive. But it also calls for optimism when pessimism is excessive.
Prosperity brings expanded lending, which leads to unwise lending, which produces large losses, which makes lenders stop lending, which ends prosperity, and on and on. Look around the next time there’s a crisis; you’ll probably find a lender.
When risk bearing doesn’t work, it really doesn’t work, and people are reminded what risk’s all about.
The correctness of a decision can’t be judged from the outcome. Nevertheless, that's how people assess it. A good decision is one that’s optimal at the time it’s made, when the future is by definition unknown. Thus, correct decisions are often unsuccessful, and vice versa.
If your behavior is conventional, you’re likely to get conventional results-either good or bad. Only if your behavior is unconventional is your performance likely to be unconventional, and only if your judgments are superior is your performance likely to be above average.
It ain’t what you don’t know that gets you into trouble. It’s what you know for sure that just ain’t so.
If you've settled on the value approach to investing and come up with an intrinsic value for a security or asset, the next important thing is to hold it firmly. That's because in the world of investing, being correct about something isn't at all synonymous with being proved correct right away.
The desire for more, the fear of missing out, the tendency to compare against others, the influence of the crowd and the dream of the sure thing-these factors are near universal. Thus they have a profound collective impact on most investors and most markets. The result is mistakes, and those mistakes are frequent, widespread and recurring.
This paradox exists because most investors think quality, as opposed to price, is the determinant of whether something's risky. But high quality assets can be risky, and low quality assets can be safe. It's just a matter of the price paid for them... Elevated popular opinion, then, isn't just the source of low return potential, but also of high risk.
In good years, defensive investors have to be content with the knowledge that their gains, although perhaps less than maximal, were achieved with risk protection in place, even though it turned out not to be needed.
Patient opportunism, buttressed by a contrarian attitude and a strong balance sheet, can yield amazing profits during meltdowns.
It’s frightening to think that you might not know something, but more frightening to think that, by and large, the world is run by people who have faith that they know exactly what’s going on.
Good builder is able to avoid construction flaws, while a poor builder incorporates construction flaws. When there are no earthquakes, you can’t tell the difference.
The market can remain irrational longer than you can remain solvent.

The Little Book Of Common Sense Investing by John C Bogle

Mon, 30 May 2022 00:00:00 GMT

Brief Summary

I've been lucky enough to work at Morningstar which is known for its fund and stock ratings. During my tenure there, I got an opportunity to hear John Bogle at one of the Morningstar Investment's Conference. Shortly after, he passed away. People who believe in Bogle are known as Bogleheads. I am now one of them! John C. Bogle is truly a legend and when you read his writings, you'll understand why. Meeting the average stock performance is hard, let alone beating the market. Beyond picking stocks, there is construction of the optimal portfolio, sizing, timing and all the uncontrollable variables that market presents including tax as a cost. When you add all of these things together, the effort you put in does not justify the outcome unless you are beating the market by many folds. Passive investing is still superior because it allows you to ignore the bells and whistles of the market which allows you to sleep peacefully at night. Accepting what market produces for you should be considered satisfactory. This book is a master class on how to think and invest for long-term especially in the traditional index funds. John C. Bogle wrote this book shortly before he passed away. He was an American hero and his legacy lives on through Vanguard (the leader in low cost index funds).

Big Ideas

Investing is simple, but not easy. Bogle, the creator of Vanguard which created the first index mutual fund in 1974 was lonely in the fight at first. But as time passed on, the idea caught on fire.
- Paul A Samuelson, Nobel laureate in economic sciences and professor at MIT once said: Bogle's reasoned percepts can enable a few millions of us savers to become in twenty years the envy of our suburban neighbors-while at the same time we have slept well in these eventful times.
- The record of an investor in the first index mutual fund: $15,000 invested in 1976 would be valued at $913,000 in 2016.
In the book, Bogle shares commentary provided by legendary investors and industry experts on the value of investing in low cost index funds. To my surprise, I was baffled, but not surprised on the spirit of investing in these funds. Even the great investors and market commentors such as Jim Cramer have bowed down to Bogle's wisdom.
- “It’s bad enough that you have to take market risk. Only a fool takes on the additional risk of doing yet more damage by failing to diversify properly with his or her nest egg. Avoid the problem-buy a well-run index fund and own the whole market.” - William Bernstein
Investing in low cost, broad index funds eliminates the risk of picking individual stocks, the risk of emphasizing certain market sectors, and the risk of manager selection.
Long-term investing serves you far better than short-term speculation, about the value of diversification, about the powerful role of investments costs, about the perils of relying on a fund's past performance and ignoring the principle of reversion (or regression) to the mean (RTM) in investing. Wall Street will never teach you this or want you to learn these things.
The average annual total return on stocks was 9.5 percent from 1900 to 2016. The investment return alone was 9.0 percent (actual returns made by corporate America)-4.4 percent from dividend yield and 4.6 percent from earnings growth. That difference of 0.5 percentage points per year was from speculative return. Each dollar initially invested in stocks in 1900 grew to $43,650 by 2015. Combining investment return and speculative return yields to total stock market returns.
- An astounding revelation on dividends. Excluding dividend income, an initial investment of $10,000 in the S&P 500 on January 1 1036, would have grown to more than $1.7 million as 2017 began. But dividends reinvested, that investment would've grown to some $59.1 million. This is the magic of free compounding-an astounding gap of $57.5 million.
  - Dividends per share on the 500 Index fell from $28.39 in 2008 to $22.41 in 2009, but reached a new high of $45.70 in 2016 (60% above the 2008 peak).
In the long run, stock returns depend almost entirely on the reality of the investment returns earned by corporations. It is economics that controls long-term equity returns; the impact of emotions, so dominant in the short term, dissolves.
The arithmetic of investment return is so basic: earnings and dividends generated by American businesses that are responsible for the returns in the long-term. While the price illusion in short-term loses touch. It is reality that rules in the long run.
- “One game is the real market, where giant publicly held companies compete. Where real companies spend real money to make and sell real products and services, and, if they play with skill, earn real profits and pay real dividends. This game also requires real strategy, determination, and expertise; real innovation and real foresight. Another game is expectations market. Here prices are not set by real things like sales margins or profits. In the short-term stock prices go up only when the expectations of investors rise, not necessarily when sales, margins, or profits rise.” - Roger Martin, dean of the Rotman School of Management of the University of Toronto.
Past returns do not foretell the future.
- “It is dangerous to apply to the future inductive arguments based on past experience, unless one can distinguish the broad reasons why past experience was what it was.” - John Maynard Keynes
Occam's razor: when there are multiple solutions to a problem, choose the simplest one. As applicable to investing as to the scientific world.
- Choose the simplest of all solutions-buy and hold a diversified, low-cost portfolio that tracks the stock market.
On average, an astonishing 90 percent of actively managed mutual funds underperformed their benchmark indexes over the preceding 15 years. Why? After subtracting all costs, an average investor is left with disappointing returns that does not meet the low-cost provider returns. Those costs are the relentless rules/factors of humble arithmetic. Following costs make the difference between investment success and failure:
- Investment expenses:
  - Management fees
  - Portfolio turnover
  - Brokerage commissions (ask/bid spread)
  - Sales loads
  - Advertising costs
  - Operating costs
  - Legal fees
- Inflation
- Counterproductive investor behavior
  - Bad timing (investing at peak or vice-versa)
  - Adverse fund selections
  - Factor investing
  - Tax liabilities on high turnover
- Taxes
  - Federal
  - State
  - Local
Wall Street is in the business of generating revenue for itself so as long as something is making money, they will sell you. And if a fund that has failed to meet its success, they will merge it into a larger fund eliminating historical track records or liquidate. Morgan Stanley is a great example of that.
As they say it, ETFs are a great substitution of traditional index funds. Then there are factor funds, smart beta and so on. Wall Street will continue to create alternative products that will want the piece of your pie by interrupting your compounding. But the best returns lie when you are not interrupting compounding. The more the managers and brokers take, the less the investors take.
Money flows into most funds after good performance, and goes out when bad performance follows. The dual penalty of faulty timing and adverse selection is very costly. These penalties add up. And don't forget inflation. The value of all those dollars take a huge tumble.
The beauty of index fund lies not only in its low expenses, but in its elimination of all those tempting fund choices that promises so much and deliver so little. Emotions need never enter the equation.
Past returns do not signal future returns. Last few decades have been exceptionally great in generating market returns, but the good times will not roll forever. Investors need to readjust their expectations for future returns.
- Reversion to the mean impacts mutual fund performance
- Yesterday's winners are tomorrow's losers.
Risk tolerance = risk capacity + risk willingness
Your index fund should not be your manager's cash cow. It should be your own cash cow.
Low cost also applies to bonds. Three types of bond funds:
- Short-term
- Intermediate
- Long-term

Quotes

The magic of compounding investment returns. The tyranny of compounding investment costs.
Before the deduction of the costs of investing, beating the stock market is a zero-sum game. After the deduction of the costs of investing beating the stock market is a loser's game.
Weak managements ultimately fall victim to the creative destruction that is the hallmark of competitive capitalism.
Simply buy a Standard & Poor's 500 Index fun or a total stock market index fund. Then, once you have bought your stocks, get out of the casino and stay out.
You don't need to participate in its expensive foolishness.
Get rid of all your Helpers. Then your family will again reap 100 percent of the pie that corporate America bakes for you.
When greed hold sway, very high P/Es are likely. When hope prevails, P/Es are moderate. When fear is in the saddle, P/Es are typically very low.
Stock returns are so volatile is largely because of the emotions of investing, reflected in those changing P/E ratios.
The stock market is a giant distraction to the business of investing.
It is a take told by an idiot, full of sound and fury, signifying nothing. - William Shakespeare
Owning the stock market over the long term is a winner's game, but attempting to beat the stock market is a loser's game.
We investors as a group get precisely what we don't pay for. If we pay nothing, we get everything.
Where returns are concerned, time is your friend. But whose costs are concerned, time is your enemy.
Fund performance comes and goes. Costs go on forever.
The average fund owner is designed not for precision, but for direction.
Inflamed by heady optimism and greed, and enticed by wiles of mutual fund marketers, investors poured their savings into equity funds at the bull market peak.
When counterproductive investor emotions are magnified by counterproductive fund industry promotions, little good is apt to result.
Fund investors have been chasing past performance since time immemorial, allowing their emotions, perhaps, even their greed, to overwhelm their reason.
Investor emotions plus fund industry promotions equals trouble.
The beauty of passive low-cost broad market index fund is if the managers take nothing, the investors receive everything (market's return).
Don't look for the needle, buy the haystack.
Whatever you decide, please don't ignore one of the least understood factors that shape mutual fund performance: reversion to the mean (RTM).
Picking winning funds based on past performance is hazardous duty.
The old saying that “past performance is no guide to the future” is not a piece of compliance jargon. It is the math. - Buttonwood
Buying funds based purely on their past performance is on the of the stupidest things an investor can do.
The temptation to chase past returns.
ETFs are a dream come true for entrepreneurs and brokers.
Simplicity beats complexity.
The greatest enemy of a good plan is the dream of a perfect plan. Stick to a good plan.
Investors should be satisfied with the reasonably good return obtainable from a defensive portfolio.

Creative Confidence by Tom Kelley and David Kelley

Sat, 28 May 2022 00:00:00 GMT

I. Brief Summary

IDEO founder and Stanford d.school creator David Kelley and his brother Tom Kelley unleash their experiences and wisdom to be more creative and confidence in the business world. They show us how to effortlessly dance between the creativity of elementary school and the pragmatism of the business world. This book has gone into my re-read list.

II. Big Ideas

What is creative confidence?
- People's imagination, curiosity, and courage can be renewed quickly with just a small amount of practice and encouragement.
- We don't have to generate creativity from scratch. We just need to reignite in people that they are capable of imagination and nudge them to brave enough to act on those ideas. That combination of thought and action defines creative confidence: the ability to come up with new ideas and the courage to try them out.
- It turns our creativity isn't some rare gift to be enjoyed by the lucky few. It just needs to be unblocked.
- Creative confidence is a way of experiencing the world that generates new approaches and solutions.
Self-efficacy does not mean arrogance or over-confidence (let this sink in, important lesson to take away).
- People with creative confidence have a greater impact on the world around them-whether that means getting involved with their child's school, turning a storage room into a vibrant innovation space, or harnessing social media to recruit more bone marrow donors.
- As legendary psychologist and Stanford professor Albert Bandura has shown, our belief systems affect our actions, goals, and perception. Individuals who come to believe that they can effect change our most likely to accomplish what they set out to do.
- Bandura calls that conviction “self-efficacy.” People with self-efficacy set their sights higher, try harder, preserve longer, and show more resilience in the face of failure.
Chapter breakdowns:
- Flip | From Design Thinking To Creative Confidence
  - Human-centered design can lead to breakthrough innovations.
  - A creative mindset can be a powerful force for looking beyond the status quo. For example, a GE executive turning scary looking MRI machines into a playful machine that kids were no longer afraid of. While competitors focused on the never-ending battle surrounding technical specifications (scanning speed, resolution, etc), this GE executive found a whole new way to improve the lives of patients and their families.
  - Imagine a Venn diagram: find a sweet spot of feasibility (technical), viability (business) and desirability (people).
  - Cool technology alone is not enough. If it were, we'd all be riding Segways and playing robotic dogs.
  - Being human centered design is at the core of innovation process. Deep empathy for people makes observations powerful sources of inspiration. Go stand beside surgeons in operating rooms, wash clothes by hand, and stay at guests in housing projects. Get your hands dirty if you want to be befriend empathy.
  - People with strong analytical skills tend to snap instantly into problem-solving mode. They leap for the finish line and start defending their answers. Whereas creative thinkers, are careful not to rush to judgement. They recognize that there are many possible solutions and willing to go wide first, identifying a number of possible approaches before converging on the ideas most worth implementing.
- Dare | From Fear to Courage
  - One of the scariest snakes in the room is the fear of failure, which manifests itself in such ways as fear of being misjudged, fear of getting started, fear of the unknown.
  - Experiment ending in failure is not a failed experiment-as long as constructive learning is gained. In fact, every failure can be crucial to success in innovation. Because the faster you find weakness during an innovation cycle, the faster you can improve what needs fixing.
    - The Wright brothers launched a first successful flight. But that overlooks the hundreds of experiments and failed flight trials in the years that led up to that first successful flight.
  - Creative people simply do more experiments. They take more shots at the goal. That is the surprising compelling mathematics of innovation: if you want more success, you have to be prepared to shrug off more failure.
  - Number of product cycles you go through (mileage) trumps the number of years of experiences. This rapid innovation cycles will give you familiarity with process and confidence in your ability to assess new ideas. And that confidence results in reduced anxiety in the face of ambiguity when you are bringing new ideas into the world.
  - Acknowledging mistakes is also a part of learning and moving on.
  - Letting go of comparison prevents questioning our self-worth and embracing creativity. Once insecurity takes hold, it can create a vicious cycle. Give other people credit when it's due. Pay attention to signs that someone around you is feeling undervalued or has lost his or her self-confidence. Because when you don't address insecurity, it's like the family secret that everyone knows about no one talks about. The conversation may be uncomfortable and painful but worth it in the long-term.
  - Resilience is often thought of as a solo effort-the lone hero who falls and rises up again to do battle. In reality, however, reaching out to others is usually a strategy of success. It doesn't have to be an admission of weakness. We need others to help us bounce back from adversity and hardship.
- Spark | From Blank Page to Insight
  - To keep thinking fresh, constantly seek out new sources of information.
  - Conduct cross-pollination by sourcing inspiration from different cultures and organizations.
  - Relaxed attention lies between meditation, where you completely clear your mind, and the laserlike focus you apply when tackling a tough math problem. Our brains can make cognitive leaps when we are not completely obsessed with a challenge, which is why good ideas sometimes comes to us while we are in the shower, or taking a walk, or a long drive. So, if you find yourself stuck on a problem, take twenty minutes or so off the grid; let your mind disengage temporarily.
  - Build empathy in the midst of abundance data. Empathy is a gateway to better and sometimes surprising insights that can help distinguish your idea or approach. At IDEO, we hire design researchers with social science backgrounds and advanced degrees in the fields like cognitive psychology, anthropology, or linguistics, people who are sophisticated at gathering and synthesizing insights from interviews and observations.
  - Do observations in the field. They are a powerful complement to interviews, turning up surprises and hidden opportunities. When you spot a contradiction between what you see and what you expect, it's a sign that you should dig deeper.
  - No matter how high you rise in your career, no matter how much expertise you gain, you still need to keep your knowledge and insights refreshed. Otherwise you may develop a false confidence that might lead you to the wrong decision. Informed intuition is useful only if it is based on information that's accurate and up to date. As Mark Twain said, “it's not what you don't know that gets you into trouble, it's what you know for sure that ain't so.” Don't be fooled by what you think you know for sure about the industry, business and customers.
- Leap | From Planning to Action
  - This was the best chapter in my book. There is so much wisdom in this chapter that helps you move the needle. If you are seeking to have bias for action, this chapter is a must-read!
  - Basic elements of action mindset:
    - Do something.
    - Minimize planning and maximize action.
    - Prototype quickly and cheaply.
    - Put constraints on both time and money.
  - To embrace high level of experimentation, don't get stuck in the planning stage.
  - Innovation is all about turning ideas into action. Isaac Newton's first law of motion suggests that “a body in rest tends to stay at rest; a body in motion tends to stay in motion.” Newton's principle of inertia at work is applicable to people and organizations as well. Some people remain stuck while others move forward. To overcome inertia, good ideas alone are not enough. Learning by doing serves better.
  - Creative confidence people are not just passive observers. They live in the active voice. They recognize waiting for a perfect plan or forecast might take forever, so they move forward.
  - Don't turn talk a substitute for action. This is called knowing-doing gap. The space between what we know we should do and what we actually do. This can lead to company paralysis.
  - As Yoda says: do or do not; there is no try.
  - If you want to make something great, you need to start making. Striving for perfection can get in the way during the early stages of the creative process so don't get stuck at the planning stage.
  - Action catalysts: get help, create peer pressure, gather an audience, do a bad job, or lower the stakes.
  - Use constraint to fuel creative action. We would all love more of everything but that is not realistic. Work on a shoestring budget. This will open up thinking and force rapid iteration.
  - Prototype for an experimentation because prototype embodies your idea. It gives something to show and talk about it with other people. Use videos, tools such as foam or clay or a storyboard.
  - This lesson is extracted out from the book Art & Fear. A ceramics instructor divided his pottery class into two groups. One half the students would be graded on quality and the second half class would be graded on quantity. Throughout the course, the quality students funneled their energy into crafting a perfect piece without ever shipping one. While the quantity students constantly made pots nonstop. At the end of the course, the best pieces came out from students whose goal was quantity, the ones who spent the most time actually practicing their craft.
- Seek | From Duty to Passion
  - There is always a tension with a heart on one side and the dollar on the other. Heart represents humanity and the dollar sign represents the financial well-being which keeps the light on. There are many ways to balance the two. Start a side project and follow your curiosity and passion.
- Team | Creatively Confident Groups
  - You need teamwork the right combination of leadership and grassroot activism to achieve innovation at scale.
  - Change within organizations and institutions is seldom a solo activity.
  - Nurture a creative culture across the board. Behavior change is hard, but it takes an entire organization to cultivate creative culture.
  - Implement karaoke confidence which depends on open conversation, and absence of fear of failure and judgement. Here's how to do it:
    - Keep your sense of humor.
    - Build on the energy of others.
    - Minimize hierarchy.
    - Value team camaraderie and trust.
    - Defer judgement at least temporarily.
  - Prevent egoistic language because language is the crystallization of thought.
    - Remove the words, That won't work! or We've tried that before. Instead, use How might we...?
    - Remove ego because no one person is responsible for the final outcome. This one is mine is countercultural in a creative organization.
  - Create environment and space that welcomes open conversation and collaboration.
  - Leaders are multipliers or diminishers. Leaders can't dictate culture, but they can certainly nurture it. Steve Jobs was a multiplier. Here's how to multiply the impact of your team:
    - Be a talent magnet.
    - Find a worthy challenge.
    - Encourage spirited debate.
    - Give team members ownership.
  - Warren Bennis, one of today's leading thinkers on the art of leadership, spent years studying groundbreaking groups such as Walt Disney Studios, Xerox PARC and Lockheed's Skunk Works. Highlights from his learnings:
    - Great groups believe they are on a mission from God. Beyond mere financial success, they genuinely believe they will make the world a better place.
    - Great groups are more optimistic than realistic. They believe they can do what no one else has done before.
    - Great groups ship. They are places of action, not think tanks or retreat centers devoted solely to the generation of ideas. They have dreams with deadlines.
  - Prototyping is both a powerful innovation tool and a powerful cultural value.
- Move | Creative Confidence To Go
  - This chapter consists of handy tools that will help you move. For example, Mindmaps, Empathy Maps, Like/Wish, Speed Dating, Nickname Warm-up, Customer Journey Map, and more.

III. Quotes

Creative confidence is like a muscle-it can be strengthened and nurtured through effort and experience. Our goal is to help build that confidence in you.
Creative confidence is a way of seeing that potential and your place in the world more clearly, unclouded by anxiety and doubt.
We think of creativity as using your imagination to create something new in the world.
In the business world, creativity manifests itself as innovation.
For the people we've worked with, opening up the flow of creativity is like discovering that you've been driving a car with the emergency brake on-and suddenly experiencing what it feels like when you release the brake and can drive freely.
In our experience, everybody is the creative type.
Creative energy is one of our most precious resources.
A growth mindset is a passport to new adventures.
Effort is the path to mastery, so let's at least give it a try.
Designers always act with intention.
Everything in modern society is the result of a collection of decisions made by someone.
Failure sucks, but instructs.
We believe the lessons learned from failures may make us smarter-even stronger.
Relentless practice creates a database of experience that you can draw upon to make more enlightened choices.
Success has many fathers, but failure is an orphan.
When our self-worth isn't on the line, we are more willing to courageous and risk sharing our raw talents and gifts.
A sketch is worth a thousand words.
Courage is only the accumulation of small steps.
Do the thing you fear, and the death of fear is certain.
Daydreaming gets a bad rep, but prolific mind wanderers score higher on tests of creativity.
The first step toward a great answer is to reframe the question.
Nurture the kind of prepared mind that seizes the moment when an epiphany occurs.
Creative confidence people are not just passive observers. They live in the active voice. They write the scripts of their own lives, and in doing so they have a greater impact on the world around them. They believe actions can make a positive difference.
The most effective way to practice design thinking is by showing, not telling.
Don't turn talk a substitute for action.
Show, don't tell.
The most innovative companies in the 21st century have transitioned from command-and-control organizations to a participatory approach that involves collaboration and teamwork.
Few people think about it or are aware of it. But there is nothing made by human beings that does not involve a design decision somewhere. - Bill Moggridge

On Storytelling

Fri, 20 May 2022 00:00:00 GMT

A realization that occurred to me recently that so much of the stuff is just made up. In the end, we are all storytelling animals. We make up stories to feel less lonely and use narratives to navigate through our emotions and chaotic world. But just not limited to coping through life, but stories are important to unite communities and people. Stories are also powerful in selling new ideas to the world.

Apple’s employee shared a story when he encountered Steve Jobs in a break room. Jobs shared the importance of storytelling.

I worked at NeXT the summer of 94. I was in the break room with 2 colleagues when Jobs walked in and started making a bagel. We were sitting at a table eating ours when he out of the blue asked us "Who is the most powerful person in the world?" I said Mandela since I had just been there as an international observer for the elections. In his confident fashion he stated "NO!...you are all wrong...the most powerful person in the world is the story teller." At this point I was thinking to myself "Steve, I love you but there is a fine line between genius and loco..and I think I am witnessing this right now". Steve continued, "The storyteller sets the vision, values and agenda of an entire generation that is to come and Disney has a monopoly on the storyteller business. You know what? I am tired of that bullshit, I am going to be the next storyteller" and he walked out with his bagel. - Tomas Higbey

Steve Jobs famously said that we live in a world where things are made up. I did not understand that until recently because I was not equipped enough to process what Jobs meant. But now everywhere I look, more stories are to be found. “Making up” has negative connotation, but my interpretation is that stories allow us to stretch our imaginations. And if people can stretch their imaginations, they can conquer a lot of things in life despite the task being challenging.

Crafting inspirational stories enable good behavior, communities to be change makers and enable decision makers. Storytelling has been critical in our evolutionary process.

If you're going to have a story, have a big story, or none at all. - Joseph Campbell

Sapiens

Yuval Noah Harari, the author of Sapiens argues how important storytelling was in the success of us as humans, and in the success and survival of societies.

There are no gods in the universe, no nations, no money, no human rights, no laws, and no justice outside the common imagination of human beings.

A man can be convinced to die fighting for his nation for the promise of heaven; a monkey cannot be.

Biochemistry: Our mental and emotional world is governed by biochemical mechanisms that have been shaped over millions of years of evolution. According to Harari, our subjective state of mind is not governed by external things such as wages and political rights. It is determined by complex systems of nerves, neurons and various biochemical substances such as serotonin, dopamine and oxytocin. Consequently, events such as winning the lottery, buying a new house, being promoted or finding love do not create happiness. People only become happy as a result of one thing: chemical reactions when different hormones flow through our body and electrical signals trigger various parts of our brain. Biologists are not super-fanatical, however; they recognize that psychological and sociological factors also play a role, but biochemistry is the most important factor.

Unlike animals, humans live in a three-part reality. In the ‘double’ reality experienced by animals, they perceive objective items such as trees, rocky outcrops and rivers in combination with subjective experiences such as fear, joy and need. Our three-part reality also includes narratives about money, gods, nations and various operations such as companies and organizations.

Cognitive revolution: Our basic skills have not changed significantly since the Stone Age, but the networks of different narratives have grown stronger and stronger and characterized our history from the Stone Age to our Digital Age. We have to understand how narratives about Jesus, France, Apple and Arsenal have become so influential. Our history gravitates around a network of such storytelling. It all started with the cognitive revolution 70,000 years ago. This was when Homo Sapiens gained the ability to tell about things that only existed in their imagination: fictions.

Based on this, Homo Sapiens were able to build and create communities based on a common belief among far more individuals than previously. Good stories provide power: it is the imagination of the collective, the ability to believe in something that is purely imaginary, that has helped to ensure that Homo Sapiens have dominated development. The individual or individuals who had and have the ability to tell good stories consequently gain power. Harari refers to this as culture-building.

Without generally accepted narratives and descriptions of items such as money, nations and businesses, it is impossible, according to Harari, for complex human societies to exist. Chicago Bulls are only able to play basketball because everyone believes in and accepts the rules drawn up by NBA. And we can only get excited about Apple launching yet another new iPhone or feel safeguarded by a legal framework.

Yet these narratives are just tools, and Harari is clear that they should not be an end in themselves. If we forget that the narratives are just fiction, we lose touch with reality. Private businesses, money and nations only exist in our imagination. We invented them to serve us. The difference between a trademark and a brand is nothing more than emotion.

Trust is the byproduct of stories: Belief creates community. And a community needs trust to hold on to a story that unites them. Look at US Constitution. We fight over it, defend it and protect it. It is nothing but a piece of paper that has been foundational to American values. The foundation of religion, patriotism or human rights is based upon storytelling. So is commerce and business. And if one story erodes, another one arises. The cycle of spinning narratives continues.

Harari illustrate his point he talks about what he calls the most successful fictional story told- money. “Not everyone believes in God, or accepts the ideals of human rights or concepts like nationalism, but almost everybody believes in money. Osama bin Laden hated America, its politics, area and culture. But he was quite fond of American dollars. In fact, he had no objection to that story.”

Money is an ultimate entity that requires trust. If that trust is broken, the entire system collapses.

Storytelling animal

Jonathan Gottschall has written a wonderful book on this topic as well. The author of The Storytelling Animal investigates on the importance of storytelling and why we are wired the way we are. He has come to a similar conclusion that spinning stories is embedded in our DNA for survival and unification. Below are a few quotes from the book that captures the importance of storytelling.

Story is the glue of human social life.

Story is for a human as water is for a fish.

We are, as a species, addicted to story. Even when the body goes to sleep, the mind stays up all night, telling itself stories.

Human minds yield helplessly to the suction of story. No matter how hard we concentrate, no matter how deep we dig in our heels, we just can’t resist the gravity of alternate worlds.

If you are a doubter, try to be more tolerant of the myths-national and religious-that help tie culture together.

Don’t let moralists tell you that fiction degrades society’s moral fabric.

Humans evolved to crave story. This craving has, on the whole, been a good thing for us. Stories give us pleasure and instruction. They simulate worlds so we can live better in this one.

Stories are pleasurable because they allow us to escape. Life is hard; Neverland is easy.

Fiction is a powerful and ancient virtual reality technology that simulates the big dilemmas of human life.

Storytelling is the spine of televised sports.

Below are major key takeaways from the book:

Children are creatures of stories.
There are deep structures lead by gender roles.
Stories are trouble seeking.
Fiction help us escape.
We practice telling stories during our sleep.
We dream stories during both day and night.
There are dark side to stories.
Religion has played a vital role in storytelling.
When we read nonfiction, we read with our shields up (critical & skeptical). But when we are absorbed in a story, we drop our intellectual guard.
For every hero, there is a villain in a story.

Gottschall's sums up the entire book with a master formula towards the end:

Story = Character + Predicament + Attempted Extrication. This is story’s master formula, and it is intensely strange.

The best story wins

When a topic is complex, stories are like leverage. - Morgan Housel

Every investment is valued by taking a number from today and multiplying it by a story about tomorrow. - Morgan Housel

Morgan Housel is one of the greatest storyteller of our times. He explains that the person who tells the most compelling story wins, not who has the best idea, or the right answer. The best story captures people’s attention. To illustrate this point, Housel asks to take a look at Tesla which is worth many folds more than Ford or GM, not because of its innovation or a good business, but because Elon Musk is good at getting people’s attention. The best story wins.

This might drive someone crazy if they think the world operates on facts and objectivity. Great ideas explained poorly can go nowhere while old or wrong ideas told compellingly can ignite a revolution. Morgan Freeman or Neil deGrasse Tyson can narrate a grocery list and bring the audience to tears while an inarticulate scientist might cure disease and go unnoticed.

The best arguments in the world won’t change a single person’s mind. The only thing that can do that is a good story. - Richard Powers

Richard Feynman was one of the greatest physicists, but an astounding storyteller. So was Albert Einstein. Facts and objectivity cannot alone win, but they knew how to leverage on great stories. Ken Burns, an American filmmaker once said:

The common stories are 1+1=2. We get it, they make sense. But the good stories are about 1+1=3.

That is leverage!

Elements of a good story

There are several organizations and people who have defined guardrails and frameworks to tell a great story.

NPR

NPR (National Public Radio) is a public radio that does a great job of simplifying complex topics into a narrative form. Key lessons are:

Tightly focus your idea
Make that focus clear to listeners
Tell your audience what to expect (You’ll learn XX or discover what happens to this character/place/policy/etc.)
Create a sense of movement or momentum
Show, not tell
Before diving deep into a story, do the following:
- Ask a question
- Dive immediately into the narrative
- Introduce a mystery
- Establish the concept first
- Get personal

Pixar

Pixar storyboard artist Emma Coats has compiled a list of storytelling rules she learned while working for the animation video. Pixar films have inspired me for ages, so I find a lot of inspiration and wisdom in this list.

You admire a character for trying more than for their successes.
You have keep in mind what’s interesting to you as an audience, not what’s fun to do as a writer. They can be v. different.
Trying for theme is important, but you won’t see what the story is actually about til you’re at the end of it. Now rewrite.
Once upon a time there was __ . Every day, __ . One day __ . Because of that, __ . Because of that, __ . Until finally __ .
Simplify. Focus. Combine characters. Hop over detours. You’ll feel like you’re losing valuable stuff but it sets you free.
What is your character good at, comfortable with? Throw the polar opposite at them. Challenge them. How do they deal?
Come up with your ending before you figure out your middle. Seriously. Endings are hard, get yours working up front.
Finish your story, let go even if it’s not perfect. In an ideal world you have both, but move on. Do better next time.
When you’re stuck, make a list of what WOULDN’T happen next. Lots of times the material to get you unstuck will show up.
Pull apart the stories you like. What you like in them is a part of you; you’ve got to recognize it before you can use it.
Putting it on paper lets you start fixing it. If it stays in your head, a perfect idea, you’ll never share it with anyone.
Discount the 1st thing that comes to mind. And the 2nd, 3rd, 4th, 5th – get the obvious out of the way. Surprise yourself.
Give your characters opinions. Passive/malleable might seem likable to you as you write, but it’s poison to the audience.
Why must you tell THIS story? What’s the belief burning within you that your story feeds off of? That’s the heart of it.
If you were your character, in this situation, how would you feel? Honesty lends credibility to unbelievable situations.
What are the stakes? Give us reason to root for the character. What happens if they don’t succeed? Stack the odds against.
No work is ever wasted. If it’s not working, let go and move on - it’ll come back around to be useful later.
You have to know yourself: the difference between doing your best & fussing. Story is testing, not refining.
Coincidences to get characters into trouble are great; coincidences to get them out of it are cheating.
Exercise: take the building blocks of a movie you dislike. How d’you rearrange them into what you DO like?
You have to identify with your situation/characters, can’t just write ‘cool’. What would make YOU act that way?
What’s the essence of your story? Most economical telling of it? If you know that, you can build out from there.

Minto pyramid

Barbara Minto invented the Pyramid Principle. Her framework - Situation, Complication, Question, and Answer - became the foundation of modern executive communication. It might change your life how you conduct business and tell stories.

The Minto Pyramid Principle came out of a frustration Barbara had while working at McKinsey (where she spent ten years, as the very first female management consultant). While at McKinsey, she noticed that people were awful at crafting persuasive arguments. They didn’t know how to structure their arguments, and they spent too much time upfront building up their case with data and facts. By the time they got to their final recommendation, the audience had already tuned out or been distracted by the details.

What Barbara realized is that unlike a movie, where you want to build tension and wait until the very end for the big reveal, but in a business context you should do exactly the opposite: give away the punchline.

Your colleagues aren’t looking to be entertained. They are busy. They want to get shit done. The solution: start with the answer. This is what is known Minto Pyramid Principle:

Start with the recommendation/answer/ask upfront
Back up that recommendation with a handful of supporting arguments
Back up each of those supporting arguments up with data

Elements of rhetorical devices

A is B, A is like B, A is as B or comparing A with B. Head hurts. I know. But, rhetorical devices are powerful weapons in your writing and storytelling arsenal.

The greatest thing by far is to be a master of metaphor; it is the one thing that cannot be learnt from others; and it is also a sign of genius, since a good metaphor implies an intuitive perception of the similarity in the dissimilar. - Aristotle

Aristotle got it right! Metaphors can make words come to life and ignite our understanding about the world. Metaphors are so powerful because of a simple fact of human psychology-we react more willingly to the emotional than the rational. Truth is at the heart of metaphor. Metaphors make our writing more concise because we don't have to spend time explaining something. They can help us enhance our writing with vivid images. Metaphors create a shortcut to instant and memorable understanding.

Readers and listeners are naturally delighted when we use metaphors because something new is discovered. Metaphors can surprise the brain because we can interrupt our reader's expected train of thought and make them sit up and pay attention. They deepen the reading experience. It has the potential to engage the imagination so intensely that readers experience a story, rather than consuming it passively. Metaphors can invoke sensory detail and amplify reader's attention.

Metaphor challenges our creativity and let our imagination loose. They are the fundamental language of poetry. We should read more poetry. Poetry is rich in imagery and metaphorical language. By reading it, we can train our brain into thinking metaphorically. The more we read, the better we'll be able to conjure up elegant metaphors. A metaphor is a concise, memorable, and often colorful way to express emotions.

A favorite metaphor that I enjoy a lot, “Books are the mirrors of soul.” - Virginia Wolf

This comparison game we play with analogy, simile and metaphor to enliven our ordinary communication. The rhetorical devices are paired up with logic to make sense of complex issues of the world. Both simile and metaphor are figures of speech, and both operate by comparing the thing with something else in a figurative way (not literal). This is why simile and metaphor can be confusing. Whereas, an analogy is a logical device for an argumentative purpose. An analogy is a comparison between two similar things. Metaphors and similes are just one way to express that comparison.

A metaphor is almost always more forceful than an analogy, but we have to rely on the reader or listener's intuition to infer what we really mean. An analogy is clear and straightforward about what we mean, but it doesn't always have the same force as a metaphor, nor is it so easy to visualize.

Logic alone, though, cannot persuade an audience to believe what we are saying. Logic must work together with another discipline called rhetoric, or style, to communicate our ideas in a convincing way. Logic and rhetoric, moreover, are usually at odds with each other because the one appeals to our reason and the other to our emotions. How to orchestrate the creative forces of communication is the job before us.

Logic is an invention of man and may be ignored by the universe. - Will Durant

Let's explore some of the rhetorical devices-metaphor, simile and analogy which we use in our day-to-day communication. The meaning of three things are inconsistent from place to place. Using the first principles, we will compare the three rhetorical devices and then end with the importance of metaphors.

Metaphors

A is B.

Metaphor, a literary technique, which originated from the Greek word metapherein meaning to transfer.

A metaphor is a figure of speech which states that one thing is another thing (A is B) but the two things are not strictly comparable. A metaphor equates two things as one. It can shed light on unfamiliar concepts and also provide humor.

Take metaphor literally and we will find them very strange. For example, the branches of a family tree are not literal branches, but they have the same relationship to each other that real branches have to each other. The defining thing about a metaphor is that it is not literal.

Similes

A is like B, or A is as B.

Simile, a literary technique, which originated form the Latin word similis meaning similar or like. The comparison will typically contain, like or as.

A simile compares two different things in order to create a new meaning. Simile is a type of metaphor just like sarcasm is a type of irony. A simile highlights a quality by comparing it to something else to make the thing stand out more vividly.

For example, the world sucks my soul like a vampire drinks the blood of his victims or he is brave as a lion.

Analogy

Comparing A with B.

Analogy, an argumentative technique, which originated from classical Latin analogia, meaning ratio or proportion. Analogies are great to internalize difficult concepts. They help you relate things to what you already know and that helps build the base.

Analogy is comparable to metaphor and simile that it shows how two different things are similar. Analogy most often involves reference to something familiar or readily understood, in order to illustrate and explain something more complex and less readily understood. Rather than a figure of speech, analogy is a logical argument. One will use analogy to demonstrate how two things are alike by pointing out shared characteristics, with the goal of showing that if two things are similar in some ways, they are similar in other ways as well. The introduction of the analogy invites the brain to reuse existing knowledge about the second thing in order to better understand the first thing.

For example, if you live in the US and you've never heard of canton before, a helpful analogy to explain canton-“Cantons in Switzerland are like states in the USA.” Here, cantons are analogous to states, and the comparison can help us understand an unfamiliar term.

Elements of good communication

Communication is an attitude of openness towards the other. It is an art that drives winning teams. It must be continuously practiced. Mutual understanding is hard but the difference between great and excellence might come down to how effectively everyone communicates. Poor communication is toxic and leads to more work.

Communication implies responsibility-on the part of the listener and on the part of the speaker. This is effective communication.
Listening is key for both the listener and speaker. Listen without interrupting. Leverage both ears.
We communicate to share ideas or influence others.
Repetition is a key while influencing others around you.
- Here's what I think
- Here's why
- Here's an example
- Remind everyone again what the point you are making
Strive for connection over perfection by daring to be dull. Answer the question. Give the feedback requested.
Communicate the big elephant in the room without blaming someone.
Speak from facts. State when your opinions are your opinions. Leave nothing to chance or assumptions.
What you call or label something matters. Using different taxonomy in different groups is poison because there is no shared understanding.
Facial expression and body language are part of communication.
Learn to speak slower.
- When you talk too quickly, other people may think you’re unsure of yourself, and your message becomes difficult to understand.
- Filler language is a product of speed.
- The people who are supremely confident are the ones that feel like they have the license to take things deliberately and thoughtfully.
- Slowing down your speaking cadence starts with slowing down your breathing. The faster you breathe, the faster you speak. Your voice is a wind instrument.
- Make broad gestures when you speak-big hand motions, slowly walking across the floor and align your speech to those movements.
Communication is logical and so is emotional.
Be direct, succinct and kind in your message. People don’t have the energy, time, or desire to try to read smoke signals to figure out what you want them to say or do.
Good communication requires empathy.
Be authentic and have fun. No one wants to hear a robot speak.
- Drop the "good/great" question.
- Drop the "does that make sense?" after answering your question.
Don't be a victim when someone shares their perspective in a conversation.
Don't be passive-aggressive towards a person that is genuinely sharing his/her perspective.
Disagreements are welcomed. Respect is maintained during these disagreements.
Group learning is valued.
Thoughtful responses should be welcomed. Offer more time if someone asks for it. Urgency is overrated.
Do not polarize the group by oversimplifying the nuances to get out of decision-making or doing the actual work.
Able to adapt when new information is shared.
Humor is the easiest way to captivate people when you're speaking to them or making a concept memorable.
Long form communication goes a long way than a traditional meeting because it helps everyone without repeating yourself.
Long form communication helps you think deeply and broadly.
Meetings should be a last resort.

Effective meetings

The last point brings me to next topic on how to run effective meetings if you are going to use them. Meetings aren't work. This social aspect of work is required for complex decision-making where no single person holds the entire context regarding a topic being discussed. Disciplined meetings are run by responsible players on the team to ensure no one's time is wasted. Tips on how you run meetings:

If you are in a managerial role-your job is to gather information, relay information or make a decision as a team. And everyone on the team is being paid to attend the meeting to make progress on items that need decisions. Regard attendance as showing up for work.
Consider yourself a chairperson of a meeting. You are responsible for the effectiveness of every meeting. If they are not running smoothly, the chairperson is to be blamed, not the attendees or the subordinates.
Call meeting if you know what you want to accomplish and whether it requires a meeting. If you know what you want to accomplish, but if it can be done via email or a chat, then a meeting is not justified. Asynchronous communication is justified.
As a chairperson, you must identify who should attend and convince people on why they should come. You need to follow up with everyone on importance of their attendance.
Keep your attendee list short. Decision-making is not a spectator sport.
Ensure attendees are not joining the meetings late. It is almost criminal for one person to show up late and waste and everyone else's time. Wasted time is wasted dollar of your organization. It is equivalent to stealing a computer. As a chairperson it is your responsibility to not let someone steal everyone's time.
As a chairperson, send out an agenda a day before which clearly states the purpose of the meeting and the responsibility of each attendee for a desired outcome.
As a chairperson, it is your responsibility to be a timekeeper and keep the discussion moving.
Be cautious of tabling items if a decision needs to be reached. It is okay to table items if further insight or people are needed to make a decision. However, it is a responsibility of a decision maker to make decisions if there are varying opinions on how to get something done. Coming together and not making any decision in spite of all information being available is costly.
Once the meeting is over, the chairperson is responsible to send out notes on what was discussed and the outcomes for each one of the agenda items. Ensure each outcome is timestamped and accessible for everyone on the team, so the team can go back and visit. This should be done within a reasonable time.

Effective email

Below are the elements required for a good email to emphasize rigorous thinking and delivering the right level of detail to ensure communication is effective and strategically aligned with expectations of decision makers.

Summarize the draft in 1–3 bullet points. Provide 2–3 specific, actionable recommendations in concise bullet points. Each recommendation should address one of the areas:
- Structure: Evaluates how clearly the email is organized to ensure the executive can quickly locate key information.
- Clarity: Considers conciseness and ease of understanding, ensuring each sentence provides value without unnecessary detail.
- Level of Detail: Balances information with brevity, avoiding overwhelming detail while providing enough context for decision-making.
- Tone: Reflects a confident, professional tone that acknowledges challenges without downplaying them, guiding the executive's emotional response as appropriate.

For example:

Recommendation: Add a specific action-oriented next step instead of asking for general feedback.
Original: “Please let me know if you’d like me to dive deeper into any of these areas.”
Suggested Rewrite: “I recommend focusing on (1) optimizing math module instructions and (2) enhancing module load times for mobile retention. These changes address our key engagement issues, with expected improvements based on initial testing (e.g., 4% increase in mobile retention). Let me know if you’d like us to proceed with this approach for our next iteration.”

Follow the principles below for writing effective emails

Be Concise and Focused: Ensure every sentence adds value. Use bullet points or numbered lists to highlight key information for easy scanning.
Maintain Clear Structure: Organize content into logical sections with clear headings or bullets so that critical information is immediately accessible.
Use Action-Oriented Language: Clearly state required actions, expected outcomes, and deadlines. Be specific about what needs to be done, by whom, and when.
Adopt a Professional Tone: Communicate with confidence and clarity. Be transparent about challenges, presenting both risks and solutions to foster trust.
Provide Specific Recommendations: Offer a preferred course of action with supporting rationale, rather than posing open-ended questions. Use data to justify your recommendation and explain why it’s the best option.
Guide Emotional Response: Use tone and phrasing to signal the appropriate level of urgency or positivity, especially when delivering difficult messages.
Include the Right Level of Detail: Prioritize the most important information in the body of the email. Offer additional details-such as design files or data tables-as attachments or links.
Demonstrate Rigorous Thinking: Back up proposals with data, consider potential risks, and suggest alternatives. Ensure recommendations are logical and well-founded.
Ask Strategic Questions: When needed, frame questions to include potential upsides, downsides, and constraints, supporting well-informed decision-making.

The Storytelling Animal by Jonathan Gottschall

Thu, 31 Mar 2022 00:00:00 GMT

I. Brief Summary

Spinning fantasies has always been a human thing to do. Why? Because we are a storytelling animal. This is the premise of the book. But what are stories? Are dreams also stories? Why do we daydream and love spinning stories? Do stories have dark side to it? Jonathan Gottschall has done a great job of investigating these hard questions on the topic. Most successful stories are moral-they teach us how to live and bind us together around common values. It's not that we shape stories, but the stories shape us.

II. Big Ideas

Americans spend about nineteen hundred hours per year in the glow of television and movie screens. That’s five hours per day.
Why are humans addicted to Neverland? How did we become the storytelling animal. Neverland is a fictional place where we wander abouut stories. Neverland mostly remains an undiscovered and unmapped country. We do not know why we crave story. We don’t know why Neverland exists in the first place.
Children are creatures of stories
- To bar kids from Neverland would be an act of violence. Children over delight in stories and start shaping their own pretend worlds as toddlers. Story is so central to the lives of young children that it comes close to defining their existence.
- What do little kids do? Mostly they do story.
- To children, though, the best thing in life is play: the exuberance of running and jumping and wrestling and all the danger and splendor of pretend worlds. Children play at story by instinct. Put small children in a room together, and you will see the spontaneous creation of art.
- Children don’t need to be tutored in story. We don’t need to bribe them to make stories like we bribe them to eat broccoli.
- Why are children creatures of story? To answer this question, we need to ask a broader one first: why do humans tell stories at all? The answer may seem obvious: stories give us joy. But it isn’t obvious that stories should give us joy, at least not in the way it’s biologically obvious that eating or sex should give us joy. It is the joy of story that needs explaining.
- Children’s pretend play is clearly about many things: mommies and babies, monsters and heroes, spaceships and unicorns. And it is also about only one thing: trouble.
Gender role
- In a small masterpiece of kiddie anthropology, Boys and Girls: Superheroes in the Doll Corner, Paley tried to get her pupils to behave in a more unisex way. And it is a chronicle of spectacular and amusing failure. None of Paley’s tricks or bribes or clever manipulations worked. For instance, she tried forcing the boys to play in the doll corner and the girls to play in the block corner. Paley’s experiment culminated in her declaration of surrender to the deep structures of gender. She decided to let the girls be girls.
Stories are trouble seeking
- What do the stories have in common? They are short and choppy. They are all plot. They are marked by a zany creativity: flying choo-choos and talking ducks. And they are bound together by a fat rope of trouble.
- The play scholar Brian Sutton-Smith, who writes, “The typical actions in orally told stories by young children include being lost, being stolen, being bitten, dying, being stepped on, being angry, calling the police, running away or falling down. In their stories they portray a world of great flux, anarchy, and disaster.”
- Fiction-from children’s make-believe to folktales to modern drama-is about trouble. Aristotle was the first to note this, and it is now a staple in English literature courses and creative writing manuals.
Fiction help us escape
- If story were just pleasurable frippery, then evolution would have long ago eliminated it as a waste of energy. The fact that story is a human universal is strong evidence of biological purpose.
- Fiction may temporarily free us from our troubles, but it does so by ensnaring us in new sets of troubles-in imaginary worlds of struggle and stress and mortal woe. There is a paradox in fiction that was first noticed by Aristotle in the Poetics. We are drawn to fiction because fiction gives us pleasure. But most of what is actually in fiction is deeply unpleasant: threat, death, despair and anxiety.
The role of practice
- Nature designed us to enjoy stories so we would get the benefit of practice.
- According to evolutionary thinkers such as Brian Boyd, Steven Pinker, and Michelle Scalise Sugiyama, story is where people go to practice the key skills of human social life.
- The psychologist and novelist Keith Oatley calls stories the flight simulators of human social life. Just as flight simulators allow pilots to train safely, stories safely train us for the big challenges of the social world.
- It was found that heavy fiction readers had better social skills-as measured by tests of social and empathic ability-than those who mainly read nonfiction.
- Fiction is an ancient virtual reality technology that specializes in simulating human problems. Interesting theory. Is there any evidence for it beyond problem structure? But this model has flaws. As some critics have pointed out, fiction can make a terrible guide for real life. What if you actually tried to apply fictional solutions to your problems? You might end up running around like the comically insane Don Quixote or the tragically deluded Emma Bovary-both of whom go astray because they confuse literary fantasy with reality.
- But there’s another problem with Pinker’s idea. It seems to depend on explicit memory-the type of memory we can consciously access. The simulator model depends on implicit memory-what our brains know but “we” don’t. Implicit memory is inaccessible to the conscious mind. It is behind all the unconscious processing that goes into driving a car, or swinging a golf club, or even navigating the rocky shoals of a cocktail party.
Dreaming stories during both day and night
- We are at our most creative at night. When we sleep, the untired brain dreams richly, wildly, and at great length. Consciousness is altered in dreams but not extinguished. We just have a limited ability to remember the adventures we consciously experience throughout the night.
- Whenever the mind is not absorbed in a mentally demanding task-say writing a paragraph like this one or doing some difficult calculations-it will get restless and skip off into la-la land. Daydreaming is the mind’s default state. We daydream when driving, when walking, when cooking dinner, when getting dressed in the morning, when staring off into space at work.
- Every night of our sleeping lives, we wander through an alternate dimension of reality. In our dreams, we feel intense fear, sorrow, joy, rage, and lust. We commit atrocities; we suffer tragedies; sometimes we orgasm; sometimes we fly; sometimes we die. While the body lies dormant, the restless brain improvises original drama in the theaters of our minds.
- The novelist John Gardner compares fictional stories to “vivid and continuous dreams,” but it’s just as accurate to call dreams “vivid and continuous stories.” Researchers conventionally define dreams as intense “sensorimotor hallucinations with a narrative structure.” Dreams are, in effect, night stories: they focus on a protagonist-usually the dreamer-who struggles to achieve desires.
- Fight or flight is the rule in dreaming consciousness, and it goes on and on, night after night, with all too rare respites in the glorious lull of fictive elation.” Although there is some controversy about how to interpret the data, most dream researchers generally agree with Hobson: Dreamland is not a happy place.
- Trouble is the fat red thread that ties together the fantasies of pretend play, fiction, and dreams, and trouble provides a possible clue to a function they all share: giving us practice in dealing with the big dilemmas of human life.
Dark side of stories
- Schizophrenia has been called “the central mystery of psychiatry.” Schizophrenics are prey to a variety of bizarre beliefs, delusions, and hallucinations. For a long time, it was possible to dismiss links between madness and creativity as purely anecdotal: Vincent van Gogh carving off his ear.
  - Fiction writers are fully ten times more likely to be bipolar than the general population, and poets are an amazing forty times more likely to struggle with the disorder.
  - In psychiatrist Arnold Ludwig’s massive study of mental illness and creativity, The Price of Greatness, he found an 87 percent rate of psychiatric disorders in eminent poets and a 77 percent rate in eminent fiction writers-far higher than the rates he found among high achievers in nonartistic fields such as business, science, politics, and the military. Even college students who sign up for poetry-writing seminars have more bipolar traits than college students generally.
  - Creative writers are also at increased risk of unipolar depression and are more likely to suffer from psychoses such as schizophrenia. It is, therefore, not surprising that eminent writers are also much more likely to abuse alcohol and drugs, spend time in psychiatric hospitals, and kill themselves.
  - People who are mentally ill tend to have more artists in their families. And artists tend to have more mental illness in theirs (along with higher rates of suicide, institutionalization, and drug addiction).
- Our hunger for meaningful patterns translates into a hunger for story. We automatically extract stories from the information we receive, and how-if there is no story there-we are only too happy to invent one.
  - Our tendency to impose stories where they do not exist, and nothing reveals it like a good conspiracy theory. Conspiracy theories-feverishly creative, lovingly plotted-are in fact fictional stories that some people believe. Conspiracy theorists connect real data points and imagined data points into a coherent, emotionally satisfying version of reality. They fascinate us because they are ripping good yarns, showcasing classic problem structure and sharply defined good guys and villains. They offer vivid, lurid plots that translate with telling ease into wildly popular entertainment.
  - In conspiracy theories, we have the storytelling mind operating at its glorious worst.
  - As David Aaronovitch explains in his book Voodoo Histories, Conspiracy theories originate and are largely circulated among the educated and middle class. The imagined model of an ignorant, priest-ridden peasantry or proletariat, replacing religious and superstitious belief with equally far-fetched notions of how society works, turns out to be completely wrong. It has typically been the professors, the university students, the managers, the journalists, and the civil servants who have concocted and disseminated the conspiracies.
  - Conspiratorial thinking is not limited to the stupid, the ignorant, or the crazy. It is a reflex of the storytelling mind’s compulsive need for meaningful experience. Conspiracy theories offer ultimate answers to a great mystery of the human condition: why are things so bad in the world? They provide nothing less than a solution to the problem of evil. In the imaginative world of the conspiracy theorist, there is no accidental badness. To the conspiratorial mind, shit never just happens.
Religion
- The world’s priests and shamans knew what psychology would later confirm: if you want a message to burrow into a human mind, work it into a story.
- Throughout the history of our species, sacred fiction has dominated human existence like nothing else. Religion is the ultimate expression of story’s dominion over our minds. The heroes of sacred fiction do not respect the barrier between the pretend and the real. They swarm through the real world, exerting massive influence. Based on what the sacred stories say, believers regulate the practices of their lives: how they eat, how they wash, how they dress, when they have sex, when they forgive, and when they wage total war in the name of everything holy.
- Even now, in this brave age of brain science and genomics, God is not dead, dying, or really even ailing. Nietzsche would be disappointed.
- The conventional secular explanation of religion is that humans invent gods to give order and meaning to existence.
  - Humans are born curious, and they must have answers to the big, unanswerable questions: Why am I here? Who made me? Where does the sun go at night? Why does giving birth hurt? What happens to “me” after I die-not my raggedy old carcass, but me, that endlessly chattering presence inside my skull?
  - This is, in essence, a by-product explanation of religion, and it is the one that most current evolutionary thinkers embrace.
  - We have religion because, by nature, we abhor explanatory vacuums. In sacred fiction, we find the master confabulations of the storytelling mind.
- People have been pretty nasty throughout history, and over the past half millennium or so, Westerners have just been better at being nasty than anyone else. But this more balanced, if bleak, view of human history isn’t taught in our schools either. Throughout most of our history, we’ve taught myths.
Pros and cons of the intellectual guard
- When we read nonfiction, we read with our shields up. We are critical and skeptical. But when we are absorbed in a story, we drop our intellectual guard. Now extrapolate. We humans are constantly marinating ourselves in fiction, and all the while it is shaping us, changing us.
- They argue that entering fictional worlds “radically alters the way information is processed.” The more absorbed readers are in a story, the more the story changes them. Fiction readers who reported a high level of absorption tended to have their beliefs changed in a more “story-consistent” way than those who were less absorbed. Highly absorbed readers also detected significantly fewer “false notes” in stories-inaccuracies, infelicities-than less transported readers.
- But it is the opposite for depressed people. Depressed people have lost their positive illusions; they rate their personal qualities much more plausibly than average. They are able to see, with terrible clarity, that they are not all that special. According to the psychologist Shelley Taylor, a healthy mind tells itself flattering lies. And if it does not lie to itself, it is not healthy. Why? Because, as the philosopher William Hirstein puts it, positive illusions keep us from yielding to despair: The truth is depressing. We are going to die, most likely after illness; all our friends will likewise die; we are tiny insignificant dots on a tiny planet.
  - Psychotherapy helps unhappy people set their life stories straight; it literally gives them a story they can live with. And it works.
Hero vs villain in stories
- Fiction almost never gives us morally neutral presentations of violence. When the villain kills, his or her violence is condemned. When the hero kills, he or she does so righteously. Fiction drives home the message that violence is acceptable only under clearly defined circumstances-to protect the good and the weak from the bad and the strong.
MMORPG (massively multiplayer online role-playing game)
- In MMORPGs, players become characters in an unfolding story. They move through a physically vast and culturally rich virtual world that they share with thousands of other players. The virtual worlds have their own laws and customs. They have their own linguistic dialects, with vocabularies that can be very difficult for the uninitiated (called “noobs”) to master. (Some verbs: to gank, to grief, to nerf, to buff, to debuff, to twink, to gimp, to pwn.) They have warring tribes and thriving economies.
- Imagine an average guy named Bob. Bob works in retail-shelving product, sweeping floors, manning the register. He drives through a bleak concrete landscape of big-box stores and fast-food joints. When he bowls, he bowls alone. He is not involved in civic life. He is in no real sense a member of a community, and his life is meaningless. His job asks so little of him, and he produces nothing of lasting value. But after work, Bob goes online and finds everything that is missing from his life. In MMORPG land, Bob has friends; he may even have a wife. He doesn’t live.
- WoW (world of warcraft) achieves what it does because it bundles the creativity of many hundreds of collaborators: programmers, writers, social scientists, historians, visual artists, musicians, and others. Most great art is created by individuals, but WoW is the product of hundreds of creative people weaving the power of story art together.
- Commentators frequently blame MMORPGs for an increasing sense of isolation in modern life. But virtual worlds are less a cause of that isolation than a response to it. Virtual worlds give back what has been scooped out of modern life. The virtual world is in important ways more authentically human than the real world. It gives us back community we want.
Story = Character + Predicament + Attempted Extrication. This is story’s master formula, and it is intensely strange.

III. Quotes

In short, it seems that the great dream of every statistician-of one day reading a copy of Hamlet handed over by an immortal supermonkey-is just a fantasy.
We are, as a species, addicted to story. Even when the body goes to sleep, the mind stays up all night, telling itself stories.
This book is about the primate Homo fictus (fiction man), the great ape with the storytelling mind. You might not realize it, but you are a creature of an imaginative realm called Neverland.
Story is for a human as water is for a fish.
While your body is always fixed at a particular point in space-time, your mind is always free to ramble in lands of make-believe.
As Wordsworth said, you have to murder in order to dissect.
It’s about how a set of brain circuits-usually brilliant, sometimes buffoonish-force narrative structure on the chaos of our lives.
Lord! When you sell a man a book you don’t sell him just twelve ounces of paper and ink and glue-you sell him a whole new life. Love and friendship and humour and ships at sea by night-there’s all heaven and earth in a book, in a real book I mean. - Christopher Morley, Parnassus on Wheel
Human minds yield helplessly to the suction of story. No matter how hard we concentrate, no matter how deep we dig in our heels, we just can’t resist the gravity of alternate worlds.
attention. If the storyteller is skilled, he simply invades us and takes over. There is little we can do to resist.
Like Tom Sawyer whitewashing the fence, authors trick readers into doing most of the imaginative work. Reading is often seen as a passive act: we lie back and let writers pipe joy into our brains. But this is wrong. When we experience a story, our minds are churning, working hard.
Writers sometimes compare their craft to painting. Each word is a daub of paint. Word by word-brushstroke by brushstroke-the writer creates images that have all the depth and crispness of real life.
The writer is not, then, an all-powerful architect of our reading experience. The writer guides the way we imagine but does not determine it. A film begins with a writer producing a screenplay. But it is the director who brings the screenplay to life, filling in most of the details. So it is with any story. A writer lays down words, but they are inert. They need a catalyst to come to life. The catalyst is the reader’s imagination.
Even in an age of anxiety about the demise of the book, publishing books is still big business.
Similarly, we like biographies partly for the same reason we like novels: they both follow richly characterized lead protagonists through the struggles of their lives. And the most popular form of biography-the memoir-is notorious for the way it plays loose with facts in search of the grip of fiction.
In other words, we spend about half of our waking hours-one-third of our lives on earth-spinning fantasies.
The imagination is an awesome mental tool. While our bodies are always locked into a specific here and now, our imaginations free us to roam space-time. Like powerful sorcerers, all humans can see the future-not a clear and determined future, but a murky, probabilistic one.
Storytelling is the spine of televised sports.
Science, I argue, can help us make sense of storytelling. But some say that science is a grand story (albeit with hypothesis testing) that emerges from our need to make sense of the world. The storylike character of science is most obvious when it deals with origins: of the universe, of life, of storytelling itself.
The human imperative to make and consume stories runs even more deeply than literature, dreams, and fantasy. We are soaked to the bone in story.
If you feel as if your brain is being twisted into a knot, you’re not alone. I don’t know for sure whether story is an evolutionary adaptation or a side effect.
There is a yawning canyon between what is desirable in life (an uneventful trip to the grocery story) and what is desirable in fiction (a catastrophic trip). In this gap, I believe, lies an important clue to the evolutionary riddle of fiction.
Stories are pleasurable because they allow us to escape. Life is hard; Neverland is easy.
Stories the world over are almost always about people (or personified animals) with problems. The people want something badly-to survive, to win the girl or the boy, to find a lost child. But big obstacles loom between the protagonists and what they want. Just about any story-comic, tragic, romantic-is about a protagonist’s efforts to secure, usually at some cost, what he or she desires.
Whenever people come together in groups, they will potentially mate with one another, befriend one another, or fight one another.
Fiction is a powerful and ancient virtual reality technology that simulates the big dilemmas of human life.
As sleep researcher William Dement put it, “We experience a dream as real because,” from the brain’s perspective, “it is real.”
Since memories of our dreams are usually burned away with the morning light, they can’t be worth much to us.
Although the stories that sound-minded people tell themselves rarely go awry in the spectacular fashion of paranoid schizophrenics’, they often do go awry. This is part of the price we pay for having storytelling minds.
The storytelling mind is allergic to uncertainty, randomness, and coincidence. It is addicted to meaning. If the storytelling mind cannot find meaningful patterns in the world, it will try to impose them. In short, the storytelling mind is a factory that churns out true stories when it can, but will manufacture lies when it can’t.
We live or die by the artist’s vision, sane or cracked. - John Gardner, On Moral Fiction
When we read nonfiction, we read with our shields up. We are critical and skeptical. But when we are absorbed in a story, we drop our intellectual guard.
Some critics argue that most memoirs, not just the brazenly fraudulent ones, should be shelved in the fiction section of bookstores. Memoirists don’t tell true stories; they tell “truthy” ones.
Put differently, the past, like the future, does not really exist. They are both fantasies created in our minds. The future is a probabilistic simulation we run in our heads in order to help shape the world we want to live in. The past, unlike the future, has actually happened. But the past, as represented in our minds, is a mental simulation, too. Our memories are not precise records of what actually happened.
It’s not that we are all-around optimists; we describe ourselves in much more positive terms than other people, even our friends.
All of this research shows that we are the great masterworks of our own storytelling minds-figments of our own imaginations.
Story is the glue of human social life.
These are undeniably nervous times for people who make a living through story. The publishing, film, and television businesses are going through a period of painful change. But the essence of story is not changing. The technology of storytelling has evolved from oral tales, to clay tablets, to hand-lettered manuscripts, to printed books, to movies, televisions, Kindles, and iPhones.
Futurology is a fool’s game.
Of course, people will always have to unplug from their stories to visit the bathroom and the refrigerator.
Humans evolved to crave story. This craving has, on the whole, been a good thing for us. Stories give us pleasure and instruction. They simulate worlds so we can live better in this one.
Read fiction and watch it. It will make you more empathic and better able to navigate the world.
Don’t let moralists tell you that fiction degrades society’s moral fabric.
If you are a doubter, try to be more tolerant of the myths-national and religious-that help tie culture together.
Story is, for my girls, psychologically compulsory. It is something they seem to need in the way they need bread and love.

Ready Player One by Ernest Cline

Sat, 12 Mar 2022 00:00:00 GMT

I. Brief Summary

I was motivated to read this book because everyone around me in the real world is talking about metaverse. I thought there was no better way to immerse myself in than read Ready Player One. It's about a kid on the street with humble beginnings, Wade Watts (avatar name, Parzival) who felt alive in this virtual utopia known as OASIS. The game was created by James Halliday who was a billionaire, but also a game creator. Halliday leaves his entire $250 billion fortune to the player who can find the Easter egg hidden in OASIS. Wade Watts spent years studying Halliday's life and practicing his favorite games and songs. The book was nostalgic with so much playfulness and humor.

II. Big Ideas

There is no "single player" game in real life. Though everyone played as a solo gunter (people participating on the quest were called gunters) in the beginning, but as the game goes on, Parzival soon realized to achieve a common goal in the fastest way possible to fight the enemy (IOI army), he needed a team. He collaborated with his friends Artemis, Aech, Daito, and Shoto to win the utopia quest.
Wade was running and hiding away constantly but he wanted to meet the girl he felt in love with in the virtual world. He couldn't see or touch Artemis until the game was over. In the end, he met all of his friends and the emotions he felt seeing them in person were nothing close to being in the virtual world. Deep connections in reality are real. We should not try to escape them.
Ogden Morrow (Halliday's business partner and friend) and James Halliday were introducing OASIS to an assembled crowd. Morrow continued to speak eloquently about their new virtual world. Halliday wanted to get to the meat of it. Halliday told Morrow to stop talking about their invention. Instead, Halliday wanted people to see what they’d created. Show is better than tell.

III. Quotes

I need to tell you one last thing before I go. Something I didn’t figure out for myself until it was already too late...I created the OASIS because I never felt at home in the real world. I didn’t know how to connect with the people there. I was afraid, for all of my life. Right up until I knew it was ending. That was when I realized, as terrifying and painful as reality can be, it’s also the only place where you can find true happiness. Because reality is real. Do you understand?...Don’t make the same mistake I did. Don’t hide in here forever.
Going outside is highly overrated...You'd be amazed how much research you can get done when you have no life whatsoever.
Whenever I saw the sun, I reminded myself that I was looking at a star. One of over a hundred billion in our galaxy. A galaxy that was just one of billions of other galaxies in the observable universe. This helped me keep things in perspective.
Being human totally sucks most of the time. Videogames are the only thing that make life bearable.
Stop talking about it and show it.
No one in the world ever gets what they want and that is beautiful.
These three words were always the last thing an OASIS user saw before leaving the real world and entering the virtual one: READY PLAYER ONE.
For me, growing up as a human being on the planet Earth in the twenty-first century was a real kick in the teeth. Existentially speaking.
Now that everyone could vote from home, via the OASIS, the only people who could get elected were movie stars, reality TV personalities, or radical televangelists.
Like most gunters, I voted to reelect Cory Doctorow and Wil Wheaton (again). There were no term limits, and those two geezers had been doing a kick-ass job of protecting user rights for over a decade.
I was just another sad, lost, lonely soul, wasting his life on a glorified videogame.
So now the polar ice caps are melting, sea levels are rising,

and the weather is all messed up. Plants and animals are dying off in record numbers, and lots of people are starving and homeless. And we’re still fighting wars with each other, mostly over the few resources we have left.

Some time later, she leaned over and kissed me. It felt just like all those songs and poems had promised it would. It felt wonderful. Like being struck by lightning.
I lost myself in the game within the game.
Virtual sex, no matter how realistic, was really nothing but glorified, computer-assisted masturbation.
For a bunch of hairless apes, we've actually managed to invent some pretty incredible things.
One person can keep a secret, but not two.

Connect by Carole Robin Ph.D.

Mon, 31 Jan 2022 00:00:00 GMT

I. Brief Summary

A guide to manage conflicts and build fulfilling relationships with colleagues, friends and family based on a course, Interpersonal Dynamics, taught at Stanford's Graduate School of Business.

II. Big Ideas

Deep connections require a great deal of effort. Exceptional is also not an end state, because relationships can always grow deeper. Instead, think of exceptional relationships as living, breathing organisms that are always changing, always in need of tending, and always, always capable of taking your breath away.
Exceptional relationships can be developed. They have six hallmarks. The first three center around self-disclosure. Why are we still talking about this, when many would say we’ve become a culture of oversharers? Because there is a difference between a presented image and sharing who you really are.
- You can be more fully yourself, and so can the other person.
- Both of you are willing to be vulnerable.
- You trust that self-disclosures will not be used against you.
- You can be honest with each other.
- You deal with conflict productively.
- Both of you are committed to each other’s growth and development.
Challenging someone can actually be a powerful way of supporting them, and yet few people feel confident they can do it well. Someone with whom you have an exceptional relationship calls you on behaviors that really bother them, and when they do, you know it’s a chance for learning, not something against which you have to put up your guard. They know that in helping you understand the impact of your behavior, they are showing commitment to your relationship and helping you grow.
But a fear of conflict can lead you to bury irritants that, if raised and successfully dealt with, could actually deepen the relationship. Conflicts left unspoken can still cause harm. In an exceptional relationship, it’s easier to raise and resolve issues so that they don’t lurk and result in long-term damage. You see such challenges as opportunities to learn, which decreases the chance that these same difficulties will appear again.
Curiosity plays a huge role within conflict management. The ring between “Comfort” and “Danger” is known as the Zone of Learning. Going outside your comfort zone is fundamental to learning. A learning mindset has several characteristics. One is a willingness to let go of the idea that your way of doing things is always best. Another is being game to try new things and take the risk of making mistakes. And a third is seeing mistakes as learning opportunities rather than something to be embarrassed about and hide. Curiosity is key. Thinking, I wonder why this isn’t working, is much more productive than blaming another person when something goes awry.
Every time you disclose something personal, you risk being misunderstood; the fear that the disclosure will result in judgment or rejection is very real. Others are impacted by judgmental statements by parents (“You are a lazy person”) that they hold on to for years, causing them to be extremely sensitive to any comment that might reinforce that judgment.
Emotions give rise to facts. The important distinction is between cognitions (thoughts), which tell what is, and emotions (feelings), which tell how important it is. The other benefit of emotions is that they actually give meaning to facts. Feelings also can indicate the intensity of an experience. Emotions provide color, drawing others to us in a way that being utterly unemotional and rational does not. If emotions are so valuable, why do we downplay them? In many cultures, logic and rationality hold sway as the coin of the realm. We also tend to stigmatize “being emotional” and are advised not to “wear our emotions on our sleeves.” Men, in particular, are socialized not to display emotion, while women who work in male-dominated environments often feel conflicted about how much emotion to show for fear of being seen as too sensitive and insufficiently tough, or as “dramatic.”
What comes first, safety or disclosure? Taking the risk when you don’t know the outcome is central to building deep personal relationships. On this journey, you have to trust the process, believing that in the long run, by disclosing first, you are more likely to build trust, gain acceptance, and achieve the relationship you most want. This is what “having agency” is all about.
If advice is so often useless, why do people continue offering it? Perhaps because another’s issues seem so much easier to solve than our own. Perhaps because we want the chance to exhibit our analytical skills. Or perhaps we want to be the Lone Ranger who rides into the distressed town, resolves the issue to the townsfolk’s adoration, and then rides away after leaving the silver bullet!
On personal relationships such as your partner-all relationships have trade-offs, but for a relationship to be sustainable, each person has to have enough of their needs met, and each must give things up. Over time, the benefits have to exceed the costs. The best relationships continue to evolve as each person discovers new needs, seeks different benefits, and learns to deal with and let go of prior limitations.
Ten ways you give away influence:
- Assuming that your needs are secondary to the other’s
- Not listening to your feelings
- Letting yourself be interrupted
- Backing down when someone disagrees with you
- Avoiding conflict-not disagreeing with the other, keeping things nice
- Not giving feedback, assuming the problem is probably yours
- Being concerned about being liked/approved of and seeing that as most important
- Minimizing the importance of your comments
- Not taking credit for your accomplishments
- Not pointing out a problem unless you have a solution
There are four critical stages when it comes to addressing complex issues.
- First is getting the other person to take the issue seriously.
- Second, they have to be willing to fully share what’s going on for them.
- Third, you want to arrive at a mutually satisfying solution, not just settle for the minimum that will end the discussion.
- Fourth, you need to determine if the relationship is in need of some repair work, because when the discussion has been contentious, it is easy for each person to feel bruised and the relationship to suffer. Each stage is helped by following the feedback model, and each stage can be sabotaged by violating it.
Feedback starts a conversation. It doesn’t end it. Once you’ve shared your feelings, the work begins. Emotions are central to the feedback model, so it’s crucial that we not only have access to them but actually express them instead of using one of the following justifications for staying silent. When you own your part in a disagreement, it often makes it easier for the other person to own theirs. Together, you can search for a solution that more closely fits each person’s needs. One final key point to consider is that feedback says as much about the giver as the receiver. When someone’s feedback is about the other’s motives or intentions-“The problem is that you want to win every argument”-the implication is that the problem is all about the other person.
One emotion that is especially difficult to manage well is anger. Most people don’t realize that anger is a secondary emotion. When someone feels too exposed to express certain emotions, such as hurt, rejection, or envy, it often feels safer to express anger. This is especially true of men, who have been socialized not to express vulnerability. The transfer from a more basic, vulnerable feeling to anger can be so automatic that the person who is upset is unaware of the underlying feelings.

III. Quotes

In these relationships, you feel seen, known, and appreciated for who you really are, not an edited version of yourself.
Relationships exist on a continuum.
Be yourself, everybody else is taken. - Oscar Wilde
Editing and spinning who you are not only costs you your ability to be authentic but leads others to create their own spin.
Your assumptions are your windows on the world. Scrub them off, every once in a while, or the light won’t come in. - Alan Alda
The important distinction is between cognitions (thoughts), which tell what is, and emotions (feelings), which tell how important it is.
The only way for a leader to legitimize self-disclosure is to model it.
We’re so accustomed to disguising ourselves to others that in the end we become disguised to ourselves. - François de La Rochefoucauld
Hiding one part can lead to hiding much more, resulting in progressive impoverishment.
You can’t grow closer with someone who never ventures beyond small talk.
Open-ended questions widen the scope of the conversation by generating options.
Those empathetic statements are likely to encourage the other to express their feelings more fully.
Reciprocity is a crucial element in self-disclosure, but whose job is it to disclose first?
Saying “I’m sorry” is often a critical component of repair, but many people can’t bring themselves to say the phrase.
Once we make up a story, an attribution is an easy leap.
Your emotions are your emotions, and if you’re feeling angry, you’re feeling angry. It’s what you do with that anger that can be problematic.
Defensiveness can lead to escalation and prevent both parties from learning.
Feedback given with the intention of being helpful is always positive.
All feedback is data. But it is all data, and more data is better than less.
Behavior is something we can change, and feedback on it is an opportunity to improve.
Behavior is something you can point to-words, gestures, and even silence are all forms of behavior.

On Rigorous Thinking

Sat, 01 Jan 2022 00:00:00 GMT

Striving for rigorous thinking over lazy thinking should be everyone’s goal. Rigorous thinking enforces people to defend their thesis and advocate their ideas. The ideas are backed by data rooted in reality. Lazy thinking is a black box of logic where people don’t know why something works.

Adult life is more than just a multiple-choice test. Go beyond “what?” and ask “how?” and “why?” Finding answers to “What are the main causes of lack of critical thinking?” can be answered with a quick web search. But this type of knowledge is superficial. To build rigorous knowledge, we need to go beyond simple facts and web search. We can all improve critical thinking by asking a few extra questions each day.

To be a successful investor, scientist, writer or a founder, it is not enough to follow the same prediction. Therefore, critical & independent thinking becomes important. Rigorous thinking implies being critical of information presented to you. Rigorous thinking implies being able to think for yourself. If everyone is hiking the same trail, should you be following the same trail? That is the essence of Rigorous and independent thinking.

Logical perspective is called upon us everyday while making critical decisions. However, the noise around us makes it very difficult to separate fact from opinion. Politics, religion and stock market direction yield useless discussion because they do not go anywhere. Beliefs become part of people’s identity and they are hard to mold once they harden.

We are constantly bombarded with new information, day in and day out, via our smartphones, our browsers, advertisements, digital news, and more. Take a look around you and you’ll find yourself surrounded by a data overload, but a drought of original thought. You are marinating yourself in the conventional wisdom. We take opinions as facts and as a single source of truth. It even seems at times like we have forgotten how to question and reason.

Liberal arts and humanity is not given the same importance as math and science in higher education today. It should be a reminder for us all that we are molded by our way of thinking. In that case, you can bet the decay of society will start accelerating if there is a broader decay of rigorous and independents thinking.

Great thinkers

Ralph Waldo Emerson on solitude:

He who should inspire and lead his race must be defended from travelling with the souls of other men, from living, breathing, reading, and writing in the daily, time-worn yoke of their opinions.

Emerson is suggesting to lead and avoid heading towards the cliff led by a common herd. To avoid falling over the cliff, you need to make solitude as your dear friend. Solitude and leadership is contradictory but that is the essence of leadership. Being able to think for yourself and make hard decisions for common good is required out of great leaders. [2]

Charlie Munger’s tip on improving the ability to hold opposing views:

Well I do have a tip at times in my life I've put myself to a standard that I think has helped me. I think I'm not really equipped to comment on this subject until I can state the arguments against my conclusion better than the people on the other side. If you do that all the time, if you're looking for disconfirming evidence and putting yourself on a grill to make that, that's a good way to help her move ignorance. What happens is that every human being tends to believe way more than he should in what he's worked hard to find out or what he's announced publicly that he already believes. In other words while we shout our knowledge out we're really pounding it in without we're not enlarging it and I was always aware of that and so I've accepted these damned annual meetings I'm pretty quiet.

I never allow myself to have an opinion on anything that I don’t know the other side’s argument better than they do.

George Orwell on lies from his 1984 book:

And if all others accepted the lie which the Party imposed-if all records told the same tale-then the lie passed into history and became truth. ‘Who controls the past’ ran the Party slogan, ‘controls the future: who controls the present controls the past.'

Emerson, Munger and Orwell are pushing for independent thinking and challenging conventional wisdom. Unfortunately, in our society thinking from the fundamentals or the source material is rare. We instead form conclusions after taking in layers and layers of overlapping information and opinions, without basing our reasoning on those essential fundamentals. Also rare is a deep, multi-faceted education, which contains a breadth of learning.

Socratic method

To ask continual questions, Socrates, a Greek philosopher who sought to get to the bottom of his students’ views used continual questions until a contradiction was exposed. This challenges the initial assumption of his students. Asking continual questions is known as the Socratic Method.

The Socratic Method pushes for critical thinking and finding holes in assumptions. Questions to promote critical thinking:

Why does X cause Y to happen?
How will making a decision impact others?
What is the hardest part of this problem you are working on?
How can you overcome constraints you are dealt with?
Can you back your thesis with a set of data points?
How did you know this?
Why did you fail and what did you learn from it?
What important truth do very few people agree with you on?
Where does conviction and ambition come from? How can you get more of it?
Why ask great questions?

Timeful vs timeless advice

Be critical of timeful vs timeless advice.

If one is equipped to think critically, can a person challenge conventional wisdom? One can start with understanding the basic elements of conventional wisdom. Buying a home to build wealth, for example, was relevant for a specific era, but might not be for many today.

Outsourcing decisions to recent history might sound novel and convenient, but can be dangerous because you have failed to explore why it’s conventional in the first place. Compounding doesn’t have the same magnitude of wealth accumulation when buying a home. Why is that? The elements of yesterday do not comply with elements today. Interest rate environment was different in the 70s than today. That is just one possible explanation. But one should compile all these elements and then try to answer the same question.

Challenging these types of conventional wisdom allows you to differentiate between timeliness and timelessness of advice. On a final note, we need to teach that doubt is not to be feared but welcomed and discussed. It’s OK to say, “I don’t know” and question everything, because that is when the independent thinkers inherent in all of us can rise.

Writing essays for critical thinking

We are taught in schools to write essays with introductions and conclusions. But a real essay should be for pure observations. Since high schools imitate universities, the entire experience of education is rooted in writing essays around English literature and defending the thesis. Defending a thesis comes from law, but that is pointless when writing essays for thinking.

Traditional essays do not allow to explore questions, but rather explore answers to a specific question. A quick web search can point me to all possible answers. I can beautify my essay with a flavor of rhetoric and perfect grammar. Paul Graham has written an excellent piece on this topic.

It's no wonder if this seems to the student a pointless exercise, because we're now three steps removed from real work: the students are imitating English professors, who are imitating classical scholars, who are merely the inheritors of a tradition growing out of what was, 700 years ago, fascinating and urgently needed work.

The other big difference between a real essay and the things they make you write in school is that a real essay doesn't take a position and then defend it. That principle, like the idea that we ought to be writing about literature, turns out to be another intellectual hangover of long forgotten origins.

Defending a position may be a necessary evil in a legal dispute, but it's not the best way to get at the truth, as I think lawyers would be the first to admit. It's not just that you miss subtleties this way. The real problem is that you can't change the question.

An essay is supposed to be a search for truth. It would be suspicious if it didn't meander.

If there's one piece of advice I would give about writing essays, it would be: don't do as you're told. Don't believe what you're supposed to. Don't write the essay readers expect; one learns nothing from what one expects. And don't write the way they taught you to in school.

Paul Graham on independent mindedness

There's room for a little novelty in most kinds of work, but in practice there's a fairly sharp distinction between the kinds of work where it's essential to be independent-minded, and the kinds where it's not. I wish someone had told me about this distinction when I was a kid, because it's one of the most important things to think about when you're deciding what kind of work you want to do. Do you want to do the kind of work where you can only win by thinking differently from everyone else? I suspect most people's unconscious mind will answer that question before their conscious mind has a chance to.

Independent-mindedness seems to be more a matter of nature than nurture. If you're naturally independent-minded, you're going to find it frustrating to be a middle manager. And if you're naturally conventional-minded, you're going to be sailing into a headwind if you try to do original research.

People are often mistaken about where they fall on the spectrum from conventional- to independent-minded. Conventional-minded people don't like to think of themselves as conventional-minded. By the time they reach adulthood, most people know roughly how smart they are (in the narrow sense of ability to solve pre-set problems), because they're constantly being tested and ranked according to it. But schools generally ignore independent-mindedness, except to the extent they try to suppress it. So we don't get anything like the same kind of feedback about how independent-minded we are.

The conventional-minded are often fooled by the strength of their opinions into believing that they're independent-minded. But strong convictions are not a sign of independent-mindedness. Rather the opposite.

Paul Graham's suggestion on how to practice independent mindedness:

Ignore conventional beliefs. It is hard to be a conformist if you don't know what you are supposed to confirm to. A common technique practiced by nerds.
Surround yourself with others who are independent minded. Surrounding yourself with conventional thinkers will yield conventional thinking while surrounding yourself with independent minded will yield surprises.
Cultivating conversations from people with different views will lead to multi-disciplinary thinking which allows you to import ideas from one to another.
Reading history can influence time and space. Focusing not only on what happened, but try to get into the heads of people who lived in the past (hard to do however).
Cultivate an attitude of skepticism. When you hear someone say something, stop and ask yourself “Is that true?”
Stand back and watch how other people get their ideas. When you stand back at a sufficient distance, you can see ideas spreading through groups of people like waves. The best place to find undiscovered ideas is where no one else is looking.

There are 3 components of independent mindedness: fastidiousness about truth, resistance to being told what to think, and curiosity.

Being fastidiousness about truth by using degree of beliefs.

For most people, degree of belief rushes unexamined toward the extremes: the unlikely becomes impossible, and the probable becomes certain. To the independent-minded, this seems unpardonably sloppy. They're willing to have anything in their heads, from highly speculative hypotheses to (apparent) tautologies, but on subjects they care about, everything has to be labelled with a carefully considered degree of belief.

Resistance to being told what to think.

The big mistake people make about it is to think of it as a merely negative quality. The language we use reinforces that idea. You're unconventional. You don't care what other people think. But it's not just a kind of immunity. In the most independent-minded people, the desire not to be told what to think is a positive force. It's not mere skepticism, but an active delight in ideas that subvert the conventional wisdom, the more counterintuitive the better. Think how often your reaction to a novel idea is to laugh. I don't think it's because novel ideas are funny per se, but because novelty and humor share a certain kind of surprisingness. But while not identical, the two are close enough that there is a definite correlation between having a sense of humor and being independent-minded - just as there is between being humorless and being conventional-minded.

Curiosity.

To the extent that we can give a brief answer to the question of where novel ideas come from, it's curiosity. That's what people are usually feeling before having them. Everyone I know who's independent-minded is deeply curious, and everyone I know who's conventional-minded isn't. If you're sufficiently curious, you don't need to clear space in your brain, because the new ideas you discover will push out the conventional ones you acquired by default.

Selective skepticism

There is skepticism as a permanent attitude and there is selective skepticism. A distinction between both is necessary. Selective skepticism is necessary in sound reasoning and discovery of truth. But being permanent skeptics can damage our perception of the real-world.

We shouldn't respond everything with doubt. There are situations where we should use selective skepticism. Selective skepticism is a useful tool when investigating the truth. It is useful to find enough information to validate a hypothesis or an argument. We should be reluctant to accept any conclusions at face value. Especially when a premise is questionable. Or a premise is being made by a questionable individual. This kind of healthy skepticism is necessary.

But skepticism as a permanent attitude can impair our perception of the real-world. Someone with this view will refuse to accept any sound reasoning. Or fail to understand the reasoning process. The extreme skeptic will claim there is no standard for sound reasoning so he or she will reject any truth. The whole purpose of logic is to discover the truth. It can be deadly if an individual does not bother to search for truth.

So, what should we do? Besides, being a selective skeptic, we can strive to be an optimist. But be aware of naive optimism. A naive optimist is someone who makes positive estimates without sufficient evidence. This represents an illogical position because a naive optimist acts out of prejudice. Their mind is already made up about a particular matter before they have engaged in other alternatives. Being a naive optimist clouds our observation if we ignore reality.

Embrace reality and seek to improve it. We can fix problems by keeping our minds open to various possibilities. A narrow-minded person will not consider alternatives because they do not meet their assumptions. An open-minded person will seek all possible alternatives and relevant information.

Being a permanent skeptic, naive optimist, or narrow-minded will cloud our observations. So what must we do? Do what scientists do: strive for objectivity. Scientists try to describe the world as it is, not as they want it to be. Selective skeptics will seek to answer whys and hows questions by using method of scientific integrity.

A sound reasoning can eliminate all prejudices by deploying selective skepticism in necessary situations.

Selective skepticism and sound reasoning can eliminate all prejudices in necessary situations.

There are in fact two things: science and opinion; the former begets knowledge, the latter ignorance. - Hippocrates

It does not make any difference how beautiful your guess is. It does not make any difference how smart you are, who made the guess, or what his name is-if it disagrees with experiment it is wrong. - Richard Feynman

Sit down before facts like a child, and be prepared to give up every preconceived Notion, follow humbly wherever and to whatever abysses Nature leads, or shall learn nothing. - Thomas Henry Huxley

Avoid tribes

In modern culture, we all associate ourselves to a certain tribe. Primitive humans would not be surprised to see this phenomenon today. This has been going on since ancient times.

Ideologies (ideas) become part of who we are. People get invested in their ideologies, especially if they get invested publicly and identify with their own ideologies. So there are many forces against changing your mind. Flip-flopping is a bad word to people. It shouldn't be. Within sciences, people who give up and change their mind get good points. It's a rare quality of a good scientist, but it's an esteemed one.

Being tribal causes intense ideologies. Intense ideologies cabbages up one’s mind. You start out as a kid with orthodox ideologies, you keep pounding on, gradually ruining your mind. Preachers will keep preaching their views. It happens daily, in every corner of life. The only core ideology is to not get hung up on what you already know or believe in. Listen to both sides because everyone comes from different experiences.

The solution to prevent intense ideologies is to get involved in more of tribal ideologies, not avoid them. Primarily, ego gets in the way because we think we know what is right and wrong. Staying neutral is what many choose but the world is not neutral. This is immensely powerful from an aspect of social learning. Tribes are schools of storytelling, connection, sense making, evolution, persuasion, human behavior and many other things. If any of these things are useful to you, you have to get involved. You can't learn these things from books or any other platform.

Examples of tribes include scientology, crossfit, blockchain, church, religion, etc. The way to free yourself from the control of an entity is to keep researching from the source of truth. At the core of tribes are usually patterns to be found around.

There are two things that are distilled in our society to prevent us from getting involved-institutions and ego (confirmation bias). Institutions like school, work or religion prevent us from thinking broadly. Second, ego gets in the way because we are so married to our own ideologies. If you really want to learn, join these tribes and exit.

Progressive enrichment of tribe membership should be everyone's goal. This allows us to think and learn incrementally.

Latticework of mental models

Use mental models to ask the right questions. You’ll learn to disassemble and reassemble ideas in such a way that they form something new from something old. Address and assess differing views as a means to form your own conclusions. You can use mental models as a guide book to your learning, rather than as a rule book.

Read widely and deeply, drawing lines between many disciplines and concepts so that the principles that apply to one can benefit you in another. For example, engineering principles can be applied to economics and vice versa. Independent thinkers approach a high-level of abstract thinking that allows them to draw upon their breadth of learning and reach their own novel solutions and ideas.

It is easy to pay homage to Charlie Munger’s widely-lauded latticework of mental models, but when you live it, you’ll see why he is right. Knowing the key drivers and major ideas from a variety of fields is a huge source of leverage. It is difficult to study broadly and deeply, but the two are not mutually exclusive.

Mental models will broaden your thinking so that you can make wise and informed decisions. Modern education systems hinder students when it comes to approaching problems from a broad, multidisciplinary perspective. Mental Models will help you gain that perspective and a basis for broad rational thinking.

Questions

I have always admired people who can ask great questions. Those who ask great questions possess the key to genuine curiosity. Question is a powerful tool to learn anything. If I ask enough questions, I am certainly positive that I can trace back to the first question ever asked, but that is an exercise for never.

What is a question?

My interest lies on how to master the art of asking quality questions to learn anything in life. But what is a question? Wikipedia describes it as:

A question is an utterance which typically functions as a request for information, which is expected to be provided in the form of an answer.

Wikipedia goes on further that at linguistically level, a question can be defined on three levels:

At the level of semantics, a question is defined by its ability to establish a set of logically possible answers.
At the level of pragmatics, a question is an illocutionary category of speech act which seeks to obtain information from the addressee.
At the level of syntax, the interrogative is a type of clause which is characteristically associated with questions, and defined by certain grammatical rules.

On the last point, questions are often conflated with interrogatives, which are the grammatical forms typically used to achieve them. Rhetorical questions, for example, are interrogative in form but may not be considered true questions as they are not expected to be answered.

The purpose of this deep dive is to explore open-ended questions for better conversations and drive personal growth for curious people.

What is a quality question?

What is the purpose of asking high quality questions? A quality question “reframes” the knowledge allowing to build further conviction or “refactors” an existing belief. It allows you to think about the current information and finding the gaps which triggers further questions. Most questions would never change your existing mental models or body of knowledge, but great quality questions will allow you to question your current beliefs which then allows you to adapt your beliefs over time.

If you are reading a murder novel, asking “who was the murderer?” is a less fruitful question than “why did the dogs in the house didn't bark?” The second question is a good indicator of a curious mind. The first question alone is less directional towards the answer. A good question cuts to the heart of anomaly, the answer to which would crack the larger problem open.

Socratic approach to questioning

The trial of Socrates was a controversial case because the citizen of Athens knew him as an intellectual and moral citizen of their society. However, Socrates was sentenced to death due to the consequence of asking politico-philosophic questions of his students. Plato captured the presentation of the trial and death of Socrates that inspired many people. Plato called him “the wisest and most just of all men” who demonstrated the defects of democracy.

The Socratic approach to questioning has stood the test of time. The Socratic method is an effective way to explore ideas in depth. It is based on the practice of disciplined, thoughtful dialogue. In this technique, the teacher professes ignorance of the topic in order to engage in dialogue with the students. With this “acting dumb,” the student develops the fullest possible knowledge about the topic.

Teachers promote independent thinking in their students and give them ownership of what they are learning. Higher-level thinking skills are present while students think, discuss, debate, evaluate, and analyze content through their own thinking and the thinking of those around them. Socratic method is used in many disciplines and institutions including the US Supreme Court.

In Plato's early dialogues, the elenchus is the technique Socrates uses to investigate, for example, the nature or definition of ethical concepts such as justice or virtue.

Socrates' interlocutor asserts a thesis, for example, “Courage is endurance of the soul.”
Socrates decides whether the thesis is false and targets for refutation.
Socrates secures his interlocutor’s agreement to further premises, for example “Courage is a fine thing” and “Ignorant endurance is not a fine thing.”
Socrates then argues, and the interlocutor agrees, these further premises imply the contrary of the original thesis; in this case, it leads to, “Courage is not endurance of the soul.”
Socrates then claims he has shown his interlocutor's thesis is false, and its negation is true.

The essential component of the Socratic method uses questions to examine the values, principles, and beliefs of people. The Socratic method focuses on moral education, on how one ought to live. The Socratic method demands a classroom environment characterized by productive discomfort. The Socratic method is better used to demonstrate complexity, difficulty, and uncertainty than at eliciting facts about the world.

Paul Graham on questions

Few grasp this. One of the biggest misconceptions about new ideas is about the ratio of question to answer in their composition. People think big ideas are answers, but often the real insight was in the question.
Part of the reason we underrate questions is the way they're used in schools. In schools they tend to exist only briefly before being answered, like unstable particles. But a really good question can be much more than that. A really good question is a partial discovery. How do new species arise?
Unanswered questions can be uncomfortable things to carry around with you. But the more you're carrying, the greater the chance of noticing a solution - or perhaps even more excitingly, noticing that two unanswered questions are the same.
Sometimes you carry a question for a long time. Great work often comes from returning to a question you first noticed years before - in your childhood, even - and couldn't stop thinking about. People talk a lot about the importance of keeping your youthful dreams alive, but it's just as important to keep your youthful questions alive.
This is one of the places where actual expertise differs most from the popular picture of it. In the popular picture, experts are certain. But actually the more puzzled you are, the better, so long as (a) the things you're puzzled about matter, and (b) no one else understands them either.
You have to be comfortable enough with the world being full of puzzles that you're willing to see them, but not so comfortable that you don't want to solve them.
It's a great thing to be rich in unanswered questions. And this is one of those situations where the rich get richer, because the best way to acquire new questions is to try answering existing ones. Questions don't just lead to answers, but also to more questions.
The best questions grow in the answering. You notice a thread protruding from the current paradigm and try pulling on it, and it just gets longer and longer. So don't require a question to be obviously big before you try answering it. You can rarely predict that. It's hard enough even to notice the thread, let alone to predict how much will unravel if you pull on it.
It's better to be promiscuously curious - to pull a little bit on a lot of threads, and see what happens. Big things start small. The initial versions of big things were often just experiments, or side projects, or talks, which then grew into something bigger. So start lots of small things.
Being prolific is underrated. The more different things you try, the greater the chance of discovering something new. Understand, though, that trying lots of things will mean trying lots of things that don't work. You can't have a lot of good ideas without also having a lot of bad ones.

Warren Berger on questions

I was a member of LTCWRK which is a community of curious people. Recently, a lecture was held by Warner Berger who is an author of several books on this particular topic. Some of my notes below from the lecture:

There are negative/dark side of questions:
- Questions can be confrontational.
- Questioning authority can have consequences.
- Questions get used for a lot of purposes. Not all of them are good.
  - Someone with an agenda especially political figure with an agenda.
  - They are not used for the purpose of learning but to drive an agenda which discourages an open debate.
Steve Jobs was the architect of questions. He used it as an everyday tool. He used the philosophy of Zen, the beginner’s mind which is to ask questions while emptying your mind. He used “why” every day to challenge himself and his employees to keep everyone on their toes.
Questions reveal vulnerability. We ask less questions as we age. People (leaders) want to preserve their identity, age and authority so they don’t ask enough questions. Humility comes into play while asking questions.
- Humility & confidence are both important elements of questions.
- You need confidence to ask questions, but you also need humility to be vulnerable to ask questions.
Kids don’t have egos, but adults do which prevents them to ask questions. This is why kids are better.
- It’s this tool that allows us to learn. It’s the question. What a beautiful thing.
- Kids are not afraid to use it. They are good at open-ended questions.
- But we can do something better than kids. We can moderate our questions that are less annoying.
If you don’t ask questions, you are putting on an act.
All innovation comes from big open-ended questions. Ask yourself, “what are some of the radical things we can do?”
A good question has some element of curiosity. The way to determine if a question is authentic if it has the following elements:
- Good faith
- Purpose of curiosity & learning
- Open mindedness
Frameworks to use:
- Sandwich framework
  - Start with “I am curious” then ask the question followed by providing a rationale for that question For example, “I am curious, why do we do [x]? I am asking because of [y] rational.”
  - This is a great framework to ask questions. It gives the listener a warning, a 2-second warning, when you start with stating that you are curious and then providing a rational towards the end.
- Self-taught questions are great to bring perspective in your personal life.
  - Shift your perspective when in situational events by asking, “what would [x] person do?” What would Abraham Lincoln do? What would a 90-year-old me do?
- Constraint on-off questions
  - On: what would I do if I had 24 hours to live?
  - Off: what would I do if I had all the budget in the world to build a product?
    - AirBnB uses this a lot while defining user experience. “What would an 11/10 experience look like?” Of course, not feasible, but allows learning about all the possibilities by exploring open-ended questions.
Questions are great to break mental traps, biases and prejudices based on past-experiences. We are wired in this way since the beginning of our days. So a tool like this is super helpful to break the conditioning. Use self-taught questions to understand these self-constructed biases. This is called critical thinking.
- Business leaders are overconfident in their gut decisions, but science disagrees. Spend time avoiding your gut reaction by asking open-ended questions.
- Avoid recency bias when asking questions.
A good practice exercise is to journal about the most important question of the day.
Question requires solving for a puzzle which our brains are wired to do. Don’t try to get answers immediately. Think deep and broad to solve it.
Don’t lead with questions with pre-meditated answers or outcomes. They are not good for learning and exploring. However, they do have a place:
- They have a role while teaching others especially in education space. Teachers do it a lot.
- Socrates did that during his trial with pupils.
- Even people with agenda do it. Be careful.

Types of questions

Leading question: A leading question cannot be answered by a simple “Yes” or “No.” It requires the person you're interacting with to utter more than one syllable. Often, once you get the momentum of an answer going, the person will continue talking. Another key is to be curious. A genuinely interesting question will get a boat loads of love because people love feeling respected for their opinion and knowledge.
Closed question: A closed question is a question that has only one answer. For example: “Do you file your taxes?” You will most likely get a response “Yes” or “No.” All closed questions lead to a tense atmosphere since it narrows the space for a partner to have a conversation with. It also has a purpose when you are trying to obtain an agreement, but less fruitful when you are trying to explore something. This is useful when you are trying to get an agreement from your significant other to go on a date. It'd be less useful if the other person goes on a tangent before answering a yes or a no.
Open question: An open question is a question that requires some explanation and implies a detailed answer. You can use the open questions to get additional information or find out the real motives of the interlocutor. Often, such questions begin with words: why, what or how. Open-ended questions bring the partner you are having a conversation with in an active state and eliminates the barriers.
Rhetorical questions: A rhetorical question is a question that does not require a direct answer and is aiming of focusing their attention or pointing out unsolved problems. For example: “Are we holding a common opinion on this issue?” or “When do people finally learn to understand each other?” Proceed with caution as it is easy to slip into the dark side of questions.
Alternative question: An alternative question is an open question with several pre-prepared answers. For example: “When do you think is better to hold the next meeting? Can we meet this week again or the next one?” To talk more to the interlocutor, you can use the alternative questions. However, it is recommended to soften the alternative questions that may offend feelings of the interlocutor. For example, instead of the question, “What are you afraid of that is preventing you to get work done?” use the following, “Are there some circumstances that will prevent you from doing work on time?”
Provocative questions: Provocative questions can catch the interlocutor on the contradiction between what he says now and what he has said earlier. To use such type of questions is not the best way to gain authority. At best, your partner (or opponent) will look for revenge. This type leads to the dark side of questioning.

Becoming Trader Joe by Joe Coulombe & Patty Civalleri

Tue, 28 Dec 2021 00:00:00 GMT

I. Brief Summary

An exceptional business story and book. Though a bit disorganized making it harder to follow at times, it is however a must read! Joe Coulombe exploited all sorts of market arbitrage (loopholes in regulations or creating bargains through buying in bulk) in grocery and retail business. I was fascinated by Joe's creativity and willingness to be first in setting standards in grocery business. The matrix of grocery business is as complex as it can get, both on supply and demand side. Joe's ability to persevere regulatory concerns and market trends is very inspiring and worth looking into. I am a Trader Joe's fanatic so I thoroughly enjoyed learning about its upbringing.

II. Big Ideas

Trader Joe’s was Coulombe’s third venture (after Pronto Markets and Rexall) and he started in Southern California with a single-minded focus: to provide value to over-educated, under-paid professionals (think teachers, nurses, musicians).
When the competitor 7-Eleven extended it’s footprint into California in the 1970’s, Pronto Markets, the precursor to Trader' Joe’s, already enjoyed the highest sales per store of any convenience operator in America by a factor of three. A high wage policy, strong locations, a few liquor licenses, and the beginnings of a differentiated strategy through product knowledge was the core of their success.
He started with wines (allowed in California grocery stores). Trader Joe’s was known for stocking the shelves with good wines for far less than shoppers could get elsewhere. It was also committed to healthy, often organic, real foods. They made and sold their own baked goods, and they had their own distribution system.
Coulombe paid above-average wages, which effectively eliminated employees’ desire to unionize. He also didn’t define specific jobs, e.g., checker, stocker, customer service, etc. Trader Joe’s’ employees roam from one department to another so they never get tired of, or feel inferior to, others in different departments. As a result, turnover is much lower than the industry standard.
Four tests to meet the product merchandising:
- A high value per cubic inch, essential to a small store format
- A high rate of consumption
- It had to be easily handled
- Outstanding product
Joe wrote the Fearless Flyer (marketing newsletter) for over-educated, under-paid people. It not only helped customers, but also employees. It became a central way to spread product knowledge. He would add silly cartoons from early 1900s as there were not tied to copyright laws. Benefits of Fearless Flyer:
- There are no such things as consumers-dolts who are driven by drivel to buy stuff they don’t need or even want. There are only customers, people who are reasonably well informed, and very well focused in their buying habits.
- We always looked up to the customers in the text of the Fearless Flyer. We assumed they knew more than they did, we never talked down to them.
- Given the first two assumptions, we assumed that our readers had a thirst for knowledge, 180 degrees opposite from supermarket ads. We emphasized ‘informative advertising.’
Double Entry Retailing
- Joe’s concept of Double Entry Retailing was my huge takeaway which was inspired from Double Entry Accounting (both sides should always balance equal). This is a form of second level thinking. Joe recognized that making changes to Demand Side factors had an influence on Supply Side factors which aren’t always obvious. A striking example was the introduction of orange juice freshly squeezed on the premises. While a great Demand Side success-customers embraced the product-it was a total nightmare to administer because of the Supply Side issues; the great variation in sweetness of oranges over the course of a year, difficulty in ensuring machines squeezed the right amount and disposal of the leftover rinds. As a result it was eventually phased out.
- As in double entry accounting, the change in any factor must be matched by a corresponding change in another factor. For example, a decision to increase geographical convenience (Demand Side) obviously involves some change of policy with landlords (Supply Side) including the amount of rent you're willing to pay. Consider how Barney's paid through the nose because they thought they had to offer the geographical convenience of being in Beverly Hills. How big a factor was this in Barney's subsequent bankruptcy? Was it Demand Side success at the price of Supply Side failure?
- Factors of the Demand Side:
  - The assortment of merchandise offered for sale.
  - Pricing: stability and relative to competition.
  - Convenience: geographical, in-store, and time.
  - Credit: the accepted methods of payment.
  - Showmanship: the sum of all activities that result in making contact with the customer, from advertising to store architecture to employee cleanliness.
- Factors on the Supply Side:
  - Merchandise Vendors
  - Employees
  - The way you do things: "habits" and "culture"
  - Systems
  - Non-merchandise vendors
  - Landlords
  - Governments
  - Bankers and investment bankers
  - Stockholders
  - Crime

III. Quotes

We found a loophole in the law, and by God we drove a truck through it!
Innovation is less an act of an intellect than an act of will. - Michael Schrage
When you deliver value, you don't have to worry about in-store convenience.
Advertising moves the people to the product; merchandising is what moves the product to the people. - Charles Luckman
The world does not have an economic problem, but a design problem. - Buckminster Fuller
Perhaps the mission of those who love mankind is to make people laugh at the truth, to make truth laugh, because the only truth lies in learning to free ourselves from insane passion for the truth. - Umberto Eco
The most basic conclusion I drew from her book [The Guns of August] was that , if you adopt a reasonable strategy, as opposed to waiting for an optimum strategy, and stick with it, you'll probably succeed. Tenacity as important as brilliance. The Germans and French both had brilliant general staffs, but neither side had the tenacity to stick with their prewar plans.
I concluded that I didn't have to find an optimum solution to Pronto's difficulties, just a reasonable one. Trying to find an optimum solution in business is a waste of time: the factors in the equation are changing all the time.
I was never a fan of franchising. We saw terrible abuses in the field.
More than anything, Nate Bershon taught me that there are people out there whose handshake is better than any contract. When I finally sold Trader Joe's, it was basically a handshake.
In 1966, I made a correct prediction, as usual, for the wrong reasons.
7-Eleven, and the whole convenience store genre, served the most basic needs of the most mindless demographics with cigarettes, Coca-Cola, milk, Budweiser, candy, bread, eggs. I saw an opportunity to differentiate ourselves radically from mainstream retailing to mainstream people.
In 1962, Barbara Tuchman published ‘The Guns of August’, an account of the first ninety days of WWI, It’s the best book on management - and, especially, mismanagement - I’ve ever read. The most basic conclusion I drew from from her book was that, if you adopt a reasonable strategy, as opposed to waiting for an optimum strategy, and stick with it, you’ll probably succeed. Tenacity is as important as brilliance.
Trying to find an optimum solution in business is a waste of time; the factors in the equation are changing all the time.
You’ve got to have something to hang your hat on. The one core value I chose was our high compensation policies, which I put in place from the very start in 1958… This is the most important single business decision I ever made: to pay people well. First Pronto Markets and then Trader Joe’s had the highest-paid, highest benefitted people in retail.
Time and again I am asked why no one has successfully replicated Trader Joe’s. The answer is that no one has been willing to pay the wages and benefits, and thereby attract - and keep - the quality of people who work at Trader Joe’s.
Equally important was our practice of giving every full-time employee an interview every six months. At Stanford I’d been taught that employees never organize (join unions) because of the money; they organize because of un-listened-to grievances.
My idea, often stated to everybody, was that the Captains should have the chance to make more than executives in the office. In a traditional chain store, managers aspire to become bureaucrats with cushy, high-paying jobs in the office. I wanted to kill such aspirations at the start.
Part timers...at a time when the minimum wage was $4.35, we often paid $13.00 per hour because these people were worth it.
Productivity in part is a product of tenure. That’s why I believe that turnover is the most expensive form of labor expense.
We instituted full health and dental insurance back in the 1960's when it was cheap. When I left, we were paying $6,000 per employee per year!
In thirty years we never had a layoff of full-time employees.
Cost of goods sold is the dominant expense. The funny thing is that grocers seem to spend more effort squeezing payroll than squeezing Cost of Goods Sold, though there is at least five times more opportunity in the latter.
First we upped the investment ante by taking only prime locations, which could generate the most sales, even though the rents were higher. A lease is an investment, perhaps the most serious and certainly the least changeable a retailer can make. Financially, a lease is simply a long-term loan… Most retail bankruptcies come from bad real estate leasing decisions… Early in my career I learned there are two kinds of decisions: the ones that are easily reversible and the ones that aren’t. Fifteen-year leases are the least-reversible decisions you can make. That’s why, throughout my career, I kept absolute control of real estate decisions.
The keys to management are strong locations with good people.
People often ask me, how many stores did we have at such-and-such time? It’s the wrong question to ask. What’s important is dollar sales. For example, from 1980 to 1988, we increased the number of stores by 50 percent but sales were up 340 percent.
My preference is to have a few stores, as far apart as possible, and to make them as high volume as possible.
I liked semi-decayed neighborhoods, were the census tract income statistics looked terrible, but the mortgages were all paid-down, and the kids had left home. Housing and rental prices tend to be lower, and more suitable for those underpaid academics. Related to this, I was more interested in the number of households in a given area than the number of people in a ZIP code. Trader Joe’s is not a store for kids or big families. One or two adults is just fine.
How many trading areas should you enter? As long as you can preserve the culture of the company, and as long as logistics don’t kill you, go ahead.
The buyers at the supermarket chains knew nothing about what they sold, and they don’t want to know. What they did know all about was extorting slotting allowances, cooperative ad revenue, failure allowances, and back-haul concessions from the manufacturers.
Most of my ideas about how to act as an entrepreneur are derived from ‘The Revolt of the Masses’ by Jose Ortega y Gasset, the greatest Spanish philosopher of the twentieth century. I believe it offers a master ‘plan of action’ for the would-be entrepreneur, who usually has no reputation and few resources.
Most of my career has been spent selling ‘plans of action and programmes of collaboration.’ If you want to know what differentiates me from most manager’s that’s it. From the beginning, thanks to Ortega y Gasset, I’ve been aware of the need to sell everybody.
Throughout my career, my policy has been full disclosure to employees about the true state of affairs, almost to the point of imprudence. I took a cue from General Patton, who thought that the greatest danger was not that the enemy would learn the plans, but that his own troops would not.
Growth for the sake of growth still troubles me. It seems unnatural, even perverted. This helps explain why I went from 1974 to 1978 without opening another store. To keep sales increasing during the mid-1970s, we relied on new ideas implemented in existing stores. This was my favorite form of growth. I don’t think that any given store ever fully realizes its potential.
Word of Mouth: The Power of True Believers. As everyone knows, word of mouth is the most effective advertising of all. I have been known to say that there’s no better business to run than a cult. Trader Joe’s became a cult of the over-educated and underpaid, partly because we deliberately tried to make it a cult and partly because we kept the implicit promises with our clientele.
There aren’t many cult retailers who successfully retain their cult status over a long period of time. A couple in California are In-N-Out Burger and Fry’s Electronics. But across America, in every town, there’s a particular donut shop, pizza parlour, bakery, greengrocer, bar, etc. that has a cult following of True Believers.
One of the fundamental tenets of Trader Joe’s is that retail prices don’t change unless costs change. There are no weekend ad prices, no in-and-out pricing… I have always believed that supermarkets pricing is a shell game and I wanted no part of it.
The fundamental job of a retailer is to buy goods whole, cut them into pieces, and sell the pieces to the ultimate consumers. This is the most important mental construct I can impart on those of you who want to enter retailing. Most ‘retailers’ have no idea of the formal meaning of the word. Time and again, I had to remind myself just what my role in society was supposed to be.
By the time I left in 1989, we were down to a band of 1,100 to 1,500 SKUs, all of which were delivered through a central distribution system.
Along the way not only did we drop a lot of products that our customers would have liked us to sell, even at not-outstanding prices, but we stopped cashing checks in excess of the amount of purchase, we stopped full-case discounts, and we persistently shortened the hours. We violated every received wisdom of retailing except one: we delivered great value, which is where most retailers fall.
We were willing to discontinue any product if we were are unable to offer the right deal to the customer.
Each SKU would stand on its own two feet as a profit centre. We would earn a gross profit on each SKU that was justified by the cost of handling that item. There would be no ‘loss leaders.’
Above all we would not carry any item unless we could be outstanding in terms of price (and make a profit at that price) or uniqueness.
I do not believe in keeping ‘spoils’ in the back room until some salesperson comes by to pick them up. I believe that products should move in only one direction, never back up the supply chain. When a bottle was broken, a can dented, or a ‘short fill’ was discovered, it went to the trash bin.
I believe in the wisdom that you gain customers one by one, but you lose them in droves.
We want continuous products. Any sane person does. We want continuous products which are profitable without creating a high-price image.'
Showmanship is the sum total of all efforts to make contact with the customer. It’s the most ephemeral, the most difficult, and the most important of the Demand Side activities.
Honour thy vendors: After all, these are the guys you’re buying from. They should not be treated as adversaries.
Vendors should be regarded as an extension of the retailer, a Marks and Spencer concept. Their employees should be regarded almost as employees of the retailer. Concern for their welfare should be shown, because employee turnover at vendors sometimes can be more costly than turnover of your own employees.
Tenants who enter negotiations with the idea of beating the landlord at the objective future game usually get the kind of landlords they deserve. And vice versa.
Turnover is the most expensive labor expense!
I want to make it quite clear that I called all the shots. I reject management by committee.
We tried to stay out of all functions that were not central to our primary job in society: namely, buying and selling merchandise...We’d been getting rid of all functions except those buying and selling. We got rid of our own maintenance people, we sold off almost all the real estate we had acquired during the 1970’s, we never took mainframe computing in-house, etc.
All businesses have problems. It’s the problems that create the opportunities. If a business is easy, every simple bastard would enter it.
This is one of the most important things I can impart; in any troubled company the people at lower levels know what ought to be done in terms of day-to-day operations. If you just ask them, you can find answers.
This lopsided butterfly may cause a retailer to act as if the only people they have to ‘sell’ to are customers: the Demand Side. That’s a major mistake. All the people on the supply side have to be sold, too.”
From the beginning of Pronto Markets, one of my basic principles, one of my basic goals, was employee ownership of the business. Getting there, however, was complicated.
I tried to explain about marketing, but they wanted to hear about miracles. - Roger Fitzgerald
If all facts could be known, idiots could make the decisions.

Thinking Fast and Slow by Daniel Kahneman

Wed, 15 Dec 2021 00:00:00 GMT

I. Brief Summary

Daniel Kahneman is one of the greatest thinkers of our time. He has done an excellent job in documenting complex topics about our brain in this text. Let there be a reminder-writing anything complex in intuitive form is pretty difficult, but thankfully Kahneman is also a great writer. He deciphered several topics related to our brain in digestible form. I started reading this book earlier this year and finally finished it. To pay respect for his work and spend time understanding the concepts at its core, I had to slow down. Read this book if you want to understand why humans behave the way they behave. I am well aware of biases and the role that System 1 & System 2 plays in thinking. This book is definitely going in my re-read section.

II. Big Ideas

The book is divided into five parts:
- Part 1 presents the basic elements of a two-systems approach to judgment and choice. It elaborates the distinction between the automatic operations of System 1 and the controlled operations of System 2, and shows how associative memory, the core of System 1, continually constructs a coherent interpretation of what is going on in our world at any instant.
- Part 2 updates the study of judgment heuristics and explores a major puzzle: why is it so difficult for us to think statistically? We easily think associatively, we think metaphorically, we think causally, but statistics requires thinking about many things at once, which is something that System 1 is not designed to do.
- Part 3 studies the difficulties of statistical thinking which describes a puzzling limitation of our mind: our excessive confidence in what we believe we know, and our apparent inability to acknowledge the full extent of our ignorance and the uncertainty of the world we live in. We are prone to overestimate how much we understand about the world and to underestimate the role of chance in events. Overconfidence is fed by the illusory certainty of hindsight.
- Part 4 focuses on a conversation with the discipline of economics on the nature of decision making and on the assumption that economic agents are rational. This section of the book provides a current view, informed by the two-system model, of the key concepts of prospect theory, the model of choice that Amos and Kahneman published in 1979. It also address several ways human choices deviate from the rules of rationality.
- Part 5 describes recent research that has introduced a distinction between two selves, the experiencing self and the remembering self, which do not have the same interests. For example, we can expose people to two painful experiences. One of these experiences is strictly worse than the other, because it is longer. But the automatic formation of memories-a feature of System 1-has its rules, which we can exploit so that the worse episode leaves a better memory. When people later choose which episode to repeat, they are, naturally, guided by their remembering self and expose themselves (their experiencing self) to unnecessary pain. The distinction between two selves is applied to the measurement of well-being, where we find again that what makes the experiencing self happy is not quite the same as what satisfies the remembering self. How two selves within a single body can pursue happiness raises some difficult questions, both for individuals and for societies that view the well-being of the population as a policy objective.
Two systems:
- are fictional characters to illustrate the point of fast & slow thinking.
- System 1 (the automatic) operates automatically and quickly, with little or no effort and no sense of voluntary control. System 1 does the fast thinking.
- System 2 (the effortful) allocates attention to the effortful mental activities that demand it, including complex computations. The operations of System 2 are often associated with the subjective experience of agency, choice, and concentration. System 2 does the slow thinking.
Econs vs Humans
- The fictitious Econs live in the land of theory.
- The Humans act in the real world.
- The two selves are the experiencing self, which does the living, and the remembering self, which keeps score and makes the choices.
On Duration Neglect & the Peak-End Rule
- Duration neglect and the peak-end rule originate in System 1 and do not necessarily correspond to the values of System 2. We believe that duration is important, but our memory tells us it is not. The rules that govern the evaluation of the past are poor guides for decision making, because time does matter. The central fact of our existence is that time is the ultimate finite resource, but the remembering self ignores that reality. The neglect of duration combined with the peak-end rule causes a bias that favors a short period of intense joy over a long period of moderate happiness. The mirror image of the same bias makes us fear a short period of intense but tolerable suffering more than we fear a much longer period of moderate pain.
- Duration neglect also makes us prone to accept a long period of mild unpleasantness because the end will be better, and it favors giving up an opportunity for a long happy period if it is likely to have a poor ending.
It is a good bet that many of the things we say we will always remember will be long forgotten ten years later.
The remembering self and the experiencing self must both be considered, because their interests do not always coincide. Philosophers could struggle with these questions for a long time. The issue of which of the two selves matters more is not a question only for philosophers; it has implications for policies in several domains, notably medicine and welfare.
The word rational conveys an image of greater deliberation, more calculation, and less warmth, but in common language a rational person is certainly reasonable. For economists and decision theorists, the adjective has an altogether different meaning. The only test of rationality is not whether a person’s beliefs and preferences are reasonable, but whether they are internally consistent. A rational person can believe in ghosts so long as all her other beliefs are consistent with the existence of ghosts.
Although Humans are not irrational, they often need help to make more accurate judgments and better decisions, and in some cases policies and institutions can provide that help.
The assumption that agents are rational provides the intellectual foundation for the libertarian approach to public policy: do not interfere with the individual’s right to choose, unless the choices harm others. Libertarian policies are further bolstered by admiration for the efficiency of markets in allocating goods to the people who are willing to pay the most for them.
In a nation of Econs, government should keep out of the way, allowing the Econs to act as they choose, so long as they do not harm others. If a motorcycle rider chooses to ride without a helmet, a libertarian will support his right to do so. Citizens know what they are doing, even when they choose not to save for their old age, or when they expose themselves to addictive substances.
Much is therefore at stake in the debate between the Chicago school and the behavioral economists, who reject the extreme form of the rational-agent model. Freedom is not a contested value; all the participants in the debate are in favor of it. But life is more complex for behavioral economists than for true believers in human rationality. No behavioral economist favors a state that will force its citizens to eat a balanced diet and to watch only television programs that are good for the soul. For behavioral economists, however, freedom has a cost, which is borne by individuals who make bad choices, and by a society that feels obligated to help them. The decision of whether or not to protect individuals against their mistakes therefore presents a dilemma for behavioral economists. economists. The economists of the Chicago school do not face that problem, because rational agents do not make mistakes. For adherents of this school, freedom is free of charge.
The attentive System 2 is who we think we are. System 2 articulates judgments and makes choices, but it often endorses or rationalizes ideas and feelings that were generated by System 1. System 2 is not merely an apologist for System 1; it also prevents many foolish thoughts and inappropriate impulses from overt expression. However, System 2 is not a paragon of rationality. Its abilities are limited and so is the knowledge to which it has access. We do not always think straight when we reason, and the errors are not always due to intrusive and incorrect intuitions. Often we make mistakes because we (our System 2) do not know any better.
System 1 is indeed the origin of much that we do wrong, but it is also the origin of most of what we do right-which is most of what we do. Our thoughts and actions are routinely guided by System 1 and generally are on the mark. One of the marvels is the rich and detailed model of our world that is maintained in associative memory: it distinguishes surprising from normal events in a fraction of a second, immediately generates an idea of what was expected instead of a surprise, and automatically searches for some causal interpretation of surprises and of events as they take place.
Memory also holds the vast repertory of skills we have acquired in a lifetime of practice.
customer. The acquisition of skills requires a regular environment, an adequate opportunity to practice, and rapid and unequivocal feedback about the correctness of thoughts and actions. When these conditions are fulfilled, skill eventually develops, and the intuitive judgments and choices that quickly come to mind will mostly be accurate. All this is the work of System 1, which means it occurs automatically and fast. A marker of skilled performance is the ability to deal with vast amounts of information swiftly and efficiently.
In the conception of heuristics, the heuristic answer is not necessarily simpler or more frugal than the original question-it is only more accessible, computed more quickly and easily. The heuristic answers are not random, and they are often approximately correct. And sometimes they are quite wrong.
System 1 registers the cognitive ease with which it processes information, but it does not generate a warning signal when it becomes unreliable. Intuitive answers come to mind quickly and confidently, whether they originate from skills or from heuristics.
There is no simple way for System 2 to distinguish between a skilled and a heuristic response. Its only recourse is to slow down and attempt to construct an answer on its own, which it is reluctant to do because it is indolent.
What can be done about biases? How can we improve judgments and decisions, both our own and those of the institutions that we serve and that serve us? The short answer is that little can be achieved without a considerable investment of effort. The way to block errors that originate in System 1 is simple in principle: recognize the signs that you are in a cognitive minefield, slow down, and ask for reinforcement from System 2.
Organizations are better than individuals when it comes to avoiding errors, because they naturally think more slowly and have the power to impose orderly procedures. Organizations can institute and enforce the application of useful checklists, as well as more elaborate exercises, such as reference-class forecasting and the premortem.
Stock pickers and political scientists who make long-term forecasts operate in a zero-validity environment. Their failures reflect the basic unpredictability of the events that they try to forecast.
Statistical algorithms greatly outdo humans in noisy environments for two reasons: they are more likely than human judges to detect weakly valid cues and much more likely to maintain a modest level of accuracy by using such cues consistently.
The greatest responsibility for avoiding the planning fallacy lies with the decision makers who approve the plan. If they do not recognize the need for an outside view, they commit a planning fallacy.
One of the reasons that it is harder to get an organization or team to change if they are currently successful is reflected in Prospect Theory. One of the main tenets of Kahneman’s theory is that people decide between uncertain alternatives by evaluating potential gains and losses differently using other baselines than expected utility, such as current wealth and the emotional impact of change in the evaluation. There are three cognitive features at the heart of Prospect Theory:
- Evaluating a decision or gamble is relative to a neutral reference point such as current net worth.
- The principle of diminishing sensitivity applies. Small changes in net worth have more of an impact on the decisions made by people that begin with low net worth.
- Losses loom larger than gains. Kahneman points out that organisms treat threats as more urgent than opportunities.

III. Quotes

Systematic errors are known as biases, and they recur predictably in particular circumstances.
Even statisticians were not good intuitive statisticians.
Scholars in other disciplines found it useful, and the ideas of heuristics and biases have been used productively in many fields, including medical diagnosis, legal judgment, intelligence analysis, philosophy, finance, statistics, and military strategy.
Our goal was to develop a psychological theory of how people make decisions about simple gambles.
Our collaboration on judgment and decision making was the reason for the Nobel Prize that I received in 2002, which Amos would have shared had he not died, aged fifty-nine, in 1996.
My main aim here is to present a view of how the mind works that draws on recent developments in cognitive and social psychology.
We focused on biases, both because we found them interesting in their own right and because they provided evidence for the heuristics of judgment.
The situation has provided a cue; this cue has given the expert access to information stored in memory, and the information provides the answer. Intuition is nothing more and nothing less than recognition. - Herbert Simon
We would all like to have a warning bell that rings loudly whenever we are about to make a serious error, but no such bell is available, and cognitive illusions are generally more difficult to recognize than perceptual illusions.
Questioning your intuitions is unpleasant when you face the stress of a big decision. More doubt is the last thing you want when you are in trouble.
Expertise is not a single skill; it is a collection of skills, and the same professional may be highly expert in some of the tasks in her domain while remaining a novice in others.
When forecasting the outcomes of risky projects, executives too easily fall victim to the planning fallacy. In its grip, they make decisions based on delusional optimism rather than on a rational weighting of gains, losses, and probabilities. They overestimate benefits and underestimate costs. They spin scenarios of success while overlooking the potential for mistakes and miscalculations.
The planning fallacy is only one of the manifestations of a pervasive optimistic bias.
The evidence suggests that an optimistic bias plays a role-sometimes the dominant role-whenever individuals or institutions voluntarily take on significant risks.
One of the benefits of an optimistic temperament is that it encourages persistence in the face of obstacles. But persistence can be costly.

Poor Charlie's Almanack by Peter D Kaufman

Sat, 04 Dec 2021 00:00:00 GMT

I. Brief Summary

Charlie Munger is a brilliant individual I have come across. He is a Vice Chairman of Berkshire Hathaway and a business partner of Warren Buffett. This text is filled with Munger's wisdom on life, business and psychology. It is not an autobiography and neither an investment guide. There is a lot of cliche advice from Munger about honesty, working hard and being reliable. But there are a lot of core ideas on how to live which also translates into investment management. An accomplished man who is very intelligent and humble who is thriving in his 90s is worth listening to. The book does have its flaws and could be written in a way to synthesize the lessons more easily.

II. Big Ideas

Always be weighing opportunities. Be wise with your spending. Then, when a huge opportunity comes knocking, be ready to bet on it.
Be prepared. There will be a few occasions in your lifetime when you can act promptly, and in scale.
Use an analytical mind and multiple variables to find them, and bet on the ones with extremely favorable odds.
Use the resources you’ve cultivated from your prudence and patience in the past.
Find out what you’re best at, and keep pounding away at it.
Sound principles for entrepreneurship: concentrate on the task immediately in front of you, and control spending.
A partner, ideally, is capable of working alone.
Charlie is a huge fan of Benjamin Franklin. Like Franklin, Charlie has made himself into a grandmaster of preparation, patience, discipline, and objectivity.
Despite being largely self-taught, Franklin was spectacularly successful in such diverse fields as journalism, publishing, printing, philanthropy, public service, science, diplomacy, and inventing. Much of Franklin’s success was due to the essential nature of the man-most especially his appetite for hard work but also his insatiable curiosity and patient demeanor.
Charlie’s approach accepts the reality that investment problems are inherently complex. “Everything is interacting with everything else.” To deal with these complexities, you must look at things with multiple models from varying disciplines (from economics to engineering to psychology). Then, you’ll begin to realize that the upswing of one model may cancel the downswing of another; many downswings may cripple a business, or many upswings may multiply each others’ effects to create “The Lollapalooza Effect”.
Learn from your mistakes. Look at your ideas and approaches as “tools”, and when a better approach comes along, swap it. All models are wrong, but some are useful.
History is the best teacher and indicator of future outcomes.
A successful investment career boils down to only a handful of decisions. “I didn’t get to where I am by going after mediocre opportunities.” The big money is not in the buying and selling, but in the waiting.
Eliminate the unpromising areas of your life so you can free your time and attention for the things that matter. So a successful life can merely be achieved by avoidance.
Operate within your circle of competence. Would you be able to answer a difficult question in that field? If you need to ask yourself if you’re competent, you might need more practice.
Use margin of safety. Bridges are designed with backup systems and extra capacity to prevent failures-so too should your investing strategies.
A great business at a fair price is superior to a fair business at a great price.
While poor outcomes are excusable in the world of investing, sloppy preparation and decision making are never excusable because they are controllable.
Competitive destruction is a recurring theme throughout business. Businesses rarely survive for very long-so how do you pick the ones that do? Look for those that have wide moats, those that can outcompete, and those that can out cooperate.
On risk: avoid dealing with people of questionable character, shun permanent capital loss & insist upon proper compensation for risk assumed.
On independence: mimicking the herd means you’ll have average results, other people agreeing or disagreeing with you doesn’t make you right or wrong & making good decisions requires that you think through problems yourself, not just accepting others’ answers.
On preparation: develop into a lifelong learner, become wiser every day, to get smart, keep asking “why?” and develop fluency in mental models from major academic disciplines.
On intellectual humanity: stay within a well-defined circle of competence, never fool yourself and remember that you are the easiest person to fool.
On analytic rigor: it is better to remember the obvious than to grasp the esoteric, determine progress apart from activity, determine value apart from price and think forwards and backwards-invert, always invert.
On allocation: remember opportunity cost, when the odds are greatly in your favor, allocate heavily and don’t fall in love with an investment (be situation-dependent and opportunity-driven).
On patience: never take action for its own sake, never interrupt compound interest unnecessarily, enjoy the process along with the proceeds, because the process is where you live and be alert for the arrival of luck.
On decisiveness: be fearful when others are greedy, and greedy when others are fearful, opportunity doesn’t come often, so seize it when it does and opportunity meeting the prepared mind-that’s the game.
On change: recognize reality even when you don’t like it-especially when you don’t like it and continually challenge and amend your best loved ideas.
On focus: remember what you set out to do, keep things simple, don’t overlook the obvious by drowning in minutiae, face your big troubles-don’t sweep them under the rug and a small leak can sink a great ship.
Excessive diversification is madness. Stick to your principles, and when opportunities come along, pounce on them with vigor. Bet on sure things.
Invest in businesses that have liquid profits at the end of the year, not ones that must be reinvested.
There are all kinds of wonderful inventions that give you as owners nothing except the opportunity to spend a lot more money on business that’s still lousy. Often, all the savings from a new technology will flow through to consumers because of industry dynamics.
Look at the most intelligent thing you can do with the capital you have-intelligent people make decisions based on opportunity costs. In other words, it’s your alternatives that matter.
Once you start doing something bad, it becomes easier to take the next step.
There’s a lot wrong universities. I’d remove three-fourths of the faculty-everything but the hard sciences. But nobody’s going to do that, so we’ll have to live with the defects. It’s amazing how wrongheaded the teaching is. There is fatal disconnectedness. You have these squirrelly people in each department who don’t see the big picture. I think liberal arts faculties at major universities have views that are not very sound, at least on public policy issues. However, they may know a lot of French!
Life is more than being shrewd in wealth accumulation. Success comes from knowing what you want to avoid: early death, a bad marriage, etc. Just avoid things like AIDS situations, racing trains to the crossing, and doing cocaine. Develop good mental habits. Avoid evil, particularly if they’re attractive members of the opposite sex.
If your new behavior earns you a little temporary unpopularity with your peer group, then the hell with them.
On envy: It’s a really stupid sin because it’s the only one you could never have any fun with. The idea of caring that someone is making money faster than you is one of the deadly sins (like Berkshire vs. the tech entrepreneurs).
Just as animals flourish in niches, similarly, people who specialize in the business world-and get very good because they specialize-frequently find good economics that they wouldn’t get any other way.
On advantages of scale: if you get more volume through your operation, you get better at processing that volume. If you make yourself seen more than your competitors, you’ll have an informational advantage because they’ll trust your brand more.
The most reliable models are the ones that come from hard science and engineering. For instance, engineering quality control is very much based on probability: it costs x to produce this product, and you get y less chance of breaking if you spend z. The next most reliable are from biology/physiology. After that, psychology-which is complex, but it’s ungodly important for worldly wisdom.
Instead of memorizing and repeating facts, learn models. And learn multiple models, because if you only know one or two, you’ll torture reality so that it fits your models, or at least you’ll think it does.
Eighty or ninety important models will carry about ninety percent of the freight in making you a worldly-wise person.
Your models should come from multiple disciplines-because all the wisdom in the world is not to be found in one little academic department. That’s why poetry professors, by and large, are so unwise in a worldly sense. They don’t have enough models in their heads.
If you want to persuade-appeal to interest and not to reason ... You can cause enormous offense by being right in way that causes somebody else to lose face in his own discipline or hierarchy.

III. Quotes

In my whole life, I have known no wise people (over a broad subject matter area) who didn't read all the time-none, zero. You'd be amazed at how much Warren reads-and at how much I read. My children laugh at me. They think I'm a book with a couple of legs sticking out.
It is a grand mistake to think of being great without goodness, and I pronounce it as certain that there was never a great man that was not at the same time truly virtuous. - Benjamin Franklin
Take a simple idea and take it seriously.
You must know the big ideas in the big disciplines and use them routinely-all of them, not just a few. Most people are trained in one model-economics, for example-and try to solve all problems in one way. You know the old saying: “To the man with a hammer, the world looks like a nail.” This is a dumb way of handling problems.
The big money is not in the buying and selling, but in the waiting.
Never fool yourself, and remember that you are the easiest person to fool. - Richard Feynman
While poor outcomes are excusable in the world of investing, sloppy preparation and decision making are never excusable because they are controllable.
… 'tis the stone that will turn all your lead into gold… Money is of a prolific generating nature. Money can beget money, and its offspring can beget more. - Benjamin Franklin
A thing not worth doing is not worth doing well.
Success means being very patient, but very aggressive when it’s time. And the more hard lessons you can learn vicariously rather than through your own hard experience, the better.
It’s not bringing in the new ideas that’s so hard. It’s getting rid of the old ones. – Keynes
If your new behavior earns you a little temporary unpopularity with your peer group, then the hell with them.
Deserve a good spouse.

Play Bigger by Al Ramadan

Wed, 27 Oct 2021 00:00:00 GMT

I. Brief Summary

This was given to me as a company swag by a potential investor. Category kings and category design was highly valued at this organization. I found nothing novel about this text, but category design matters. It pays off to be different versus competing for being the best. Better leads to a faster horse. Different leads to a Model T. Of course, it is not as simple. If considering how to use category design within your organization, it has some useful guides on where to start.

II. Big Ideas

Category kings are all around us. Want a ride to your friend's place? Most likely Uber or Lyft comes to mind. These are category leaders in their areas. Category kings take it upon themselves to design a great product, a great company, and a great category at the same time. IKEA, Netflix, Salesforce, Slack, Atlassian, Alibaba and Amazon are some of the category kings.
The most exciting companies create. They don't sell us better. The most exciting companies sell us different...They replace our current point of view on the world with a new point of view.
Disruption is a by-product, not a goal. Legendary companies create new companies create new categories than generate a gravitational pull on the market. Customers rush to a new category because it makes sense to them. In some cases, people leave an old category behind, and their departure sucks the life out of it. In that way, sure, new categories disrupt old categories. But for smartest pirates, dreamers, and innovators on the plane, disruption is never the goal. Creation is the goal.
Category king literally owns the problem it is solving. Customers are too wedded to it. Microsoft spent $10 billion on Bing yet never made a dent in Google's share of search. It's almost always futile to try to unseat a category king that's not screwing up.
Category kings are equivalent to Peter Thiel's monopolies. In his book, Zero-to-One, he mentioned, “Every monopoly is unique, but they usually share some combination of the following characteristics: proprietary technology, network effects, economies of scale, and branding.” Thiel goes on to say, “All happy customers are different: each on earns a monopoly by solving a unique problem. All failed companies are the same: they failed to escape competition.” By Thiel's definition, category kings are the happy companies.
Once a company wins a position as category king, a flywheel of benefits opens a gap between the leaders and the rest. The leader, for example, has the best data. As the leader amasses data, the data becomes an unfair advantage-a gap that the followers can't hope to close. The best employees want to work for the category king. The best partners want to sign deals with the category king. Outside developers want to develop for the category king. The best investors want to put in their money and the best investment bankers want to work on the IPO. The economic power of a category king just builds and builds.
In business, the odds are stacked against any one company becoming a category king. A company can do everything right yet fall victim to outside forces it can't control. This is where the discipline of category design comes in. Category design involves creating a product, experiences, a great company, and a great category at the same time. Category design is also not just marketing. Category design is a company-wide strategy.
Jawbone came up with cool innovations that created a brand-new product category, but it failed to develop and dominate the category it created. Being first to invent something can be fantastic, but it doesn't mean squat if you don't define and develop the category. Jawbone is one proof point. Facebook wasn't the first social network. Tesla didn't make the first electric car. But they both made something different from what came before.
Category design consists of: product design, company design and category design. Product design is the purposeful building of a product and experience that solves the problem the market needs solved. The goal is what is traditionally called a great product/market fit-in other words, a great product/category fit. Company design is the purposeful creation of a business model and an organization with a culture and point of view that fits with the category. The goal is a company/category fit. Category design is the mindful creation and development of a new market category, designed so the category will pull in customers who will make the company its king.
Winning companies today market the problem, not just the solution. Uber initially built its new category around a simple, clear problem: taxi service usually sucks. Once the public understands the problem, people latch on to the most popular solution. Given all the product and service choices people must make, it can get too burdensome to research every offering. Se we pick the leader. Some of the biases that lead to making the choices are-Anchoring Effect, Choice Supportive Bias, Groupthink Bias and Conformity.

III. Quotes

If you are a consulting company and your customers get nuked...you don't have anybody to consult to.
As Clayton Christensen pointed out in Innovator's Dilemma, listening to customers leads you to constantly build better, but never to be different. And different is what creates new categories. Better leads to a faster horse; different leads to a Model T.
The wealth goes to the kings.
The most skillful players essentially better their odds over time.
The first inventor is an innovator to be thanked. The first to define and develop a category is a category king to be followed.
We've heard CEOs sing the refrain: “We make shit and sell shit and everything else is bullshit.” Well, good luck with that. While you're making shit and selling shit, someone else will define your category and steal it from you.
Category design builds the profile of the space while drawing attention to the company creating it.

On Vipassana Meditation

Tue, 05 Oct 2021 00:00:00 GMT

I recently came back from a 10-day meditation trip called Vipassana [0].

It is a meditation technique to see things as they are, not as one wishes it should be, through the framework of the body. The technique was taught in India more than 2500 years ago. The course was led by SN Goenka through pre-recorded sessions as he is no longer alive.

What made me tick in the first place? When I read Steve Job's biography authored by Walter Isaacson, a quote stuck to me:

If you just sit and observe, you will see how restless your mind is. If you try to calm it, it only makes it worse, but over time it does calm, and when it does, there's room to hear more subtle things - that's when your intuition starts to blossom and you start to see things more clearly and be in the present more. Your mind just slows down, and you see a tremendous expanse in the moment. You see so much more than you could see before. It's a discipline; you have to practice it. - Steve Jobs

Before I go on about the trip, I want to clarify one more thing about what meditation is not. Meditation is an act of stillness. It is not a reflective exercise. In our contemporary culture, meditation is misunderstood. Lawrence Yeo clarifies the difference between meditation and reflection:

Meditation is not reflection. That may sound counter-intuitive, given that meditation is one of the more popular practices people use to still the mind. But that's because we need to properly define what we mean by "reflection," and how meditation is the antithesis of that. The key difference is this: Reflection is an active phenomenon, whereas meditation is inactive. Reflection is about asking questions, connecting thoughts, and studying your mind to recalibrate the path you're currently on. Meditation, on the other hand, is the art of doing nothing. It's to remove the pull of questions and the attachment to identity so your mind can finally be quiet. If you're meditating, then by definition, you shouldn't be reflecting. If you are, that means you're still being pulled by the waves of thought, identifying with the experiences that comprise your identity. Reflection depends on using thought as its primary tool, whereas with meditation, thought is the illusion you're piercing through. They are two wholly different things that are often mistaken for one another. - Lawrence Yeo

Now keeping those things in mind, I'll share my experience.

I didn't go to the course feeling miserable or due to any other personal life challenges. I simply wanted to push my mind and understand the teachings of Buddhism. The course was challenging enough to make me want to run away every single day. In the end, it was worth all the sweat and tears.

Being quite for 10 days, I saw how distorted my mind was. My mind was always making assumptions of others even the surrounding students who I had never spoken to. The mind is always racing to make up some stories about the world around us. This creates wrong perception ultimately leading to judgement and negativity. Initially, it was hard to turn my monkey mind off. But I emerged from the course much calmer and less anxious. In the end, I endured both physical and mental pain. I understood the value of stabilizing the mind.

Course structure and requirements

The session starts at 4:30am and ends at 9:00pm for 10 days.
No dinner is provided, but fruits are available for the first time students. Second time students do not eat anything.
Nobel Silence is practiced through out the course. This means silence of speech, body and mind.
You can't go past the course boundaries. It is prohibited through out the course.
You can't read or journal. Or a matter of fact engage in any sort of activity including physical exercise. Walking is the only form of physical exercise allowed.
There are 3 daily mandatory hourly sessions called adhiṭṭhāna [1] where everyone on the facility including servers, volunteers, management, teachers and students meditate together. During this time strong self-discipline is required where you try not to move whatsoever, eyes closed at all times and sit with a straight back and neck.
In the course you practice the threefold training-right discipline (sīla), concentration (samādhi) and wisdom (paññā).
The first initial days are to focus on sīla [2], proper morality by following the 5 precepts of no-killing, stealing, lying, sexual activity and intoxicants.
There are 3 meditation techniques taught during the course-natural observation of inhalation and exhalation of breath (ānāpāna), full body scan (vipassana) and meditation of loving-kindness by sharing your harmony with others (mettā bhāvanā).
The course is entirely free of charge which includes meal and lodging. It is encouraged to volunteer over monetary donation. It operates on the pay-it-forward model. Someone paid for my course and it was my obligation to pay for the next person in any way or form. This is a collective effort of taking one person at a time out of misery.
Every evening there is an hour long Dharma discourse (lecture) [3] which is pre-recorded by SN Goenka explaining the theory and benefits of these techniques.

Main takeaways

Vipassana teaches one how to die as it teaches one how to truly live. This is called the art of living and dying [4].
You are responsible to open your own door. Nobody can walk the path for you and nobody can open the door for you. This is true in all aspects of life.
There are 2 types of miseries:
- Craving → Clinging → Attachment → Misery
- Aversion → Avoidance → Attachment → Misery
Finding happiness is not the reason to meditate. To remain stable (equanimous) is the ultimate goal. Remaining stable to external situations is the happier result.
Wisdom is not learning new things, it is coming to understand, through experience, universal truths at deeper levels. There is a huge difference between intellectual wisdom versus actual wisdom. You can't reach the ultimate truth through intellectual wisdom, but you can seek the truth through action. Seeking objective truth over playing intellectual wisdom should always be prioritized.
Everything is impermanent (anattā) [5].
By simply observing your bodily sensations and thoughts without judgement or reaction, you will retain the stability of your mind and undo your old habit patterns and find blind spots. By observing your bodily sensations and thoughts, you will stop reacting to them. Once you understand the changing nature of your bodily sensations, you will understand the universal laws which is the universal truth of impermanence, suffering and miseries. Once you understand the universal truth, you begin the path towards liberation from suffering miseries.
Staying equanimous for long period of time allows old saṅkhāras [6] to surface up. These are 5 deeply rooted formations which includes craving, aversion, drowsiness, hesitation and doubt. Once they arise on the surface, you simply observe them instead of reacting to them. This allows saṅkhāras to weaken and eventually disappear. By not fueling your saṅkhāras, they gradually burn out.
Being equanimous and aware-are both equally important to practice the technique of non-emotional observation.
Speed creates illusion.
I am not the body. I am not the mind. I am not the emotion. In fact, “I” is an illusion.
10 days is a tiny fraction of the long path. You barely scratch the surface if you practiced the techniques seriously. It is a lifelong journey.
Anger is universal. There is no brown, black or white anger. Therefore, the course is non-secular, non-judgmental and non-reactive.

Personal experience

First couple days were super hard due to physical pain. I could not sit straight and legs were in constant pain. The mind kept doing everything but willing to meditate. I wanted to run away. I also kept questioning my decision and doubting the course.

The Dharma discourses (lectures) in the evening were very inspiring. However, it was reminded during the discourse that I am not here for intellectual entertainment but rather here to understand the theory and benefits so I can practice well. I always felt motivated after these sessions.

You focus on your natural breath. No mantras. No deep or hard breaths. Only natural breaths. The area you focus on is around the nose, nostrils and upper lip. This meditation technique is called ānāpāna (natural observation of inhalation and exhalation of breath). However, hard breaths are allowed for new students if there is any trouble focusing your mind. As the days go by, you focus further on the outer part of the nostrils. This technique makes the mind calmer and sharper by narrowing down the focus of observation. It requires at least 3 days to observe the subtle sensations around the nose. Without mastering or understanding ānāpāna, you cannot practice the next steps.

Then you move on to practicing Vipassana. Vipassana allows you to objectively experience bodily sensations, not wanting or wishing for any particular feelings. One’s mental base or volition is really important. As time progressed, I was getting better at subtlety, mental stillness and discipline. I was able to get more into the state of flow, maintain my body posture and prevent my mind from wandering for a longer duration of time.

By day 6, my saṅkhāras (deep rooted issues) started to surface up which made me agitated. I was hesitant to speak to my teacher, but I ultimately signed up for a consultation. My teacher confirmed that my old saṅkhāras were surfacing up which was a natural process of Vipassana. He asked me to observe and not react to them. By next day (day 7), I was able to get back into the flow and non-judgmental observation for a longer period of time.

I cruised through evenings and mornings, but I was challenged during the afternoons (right after lunch). By the way, since dinner is not provided, do not try to fill the void of eating more during lunch. An old student gave me this tip which I stuck with since Day 1. I am sure my afternoons would've been much more miserable otherwise. During those afternoons, I was very impatient, negative and wanting the retreat to be over. Nowhere to go, nowhere to hide due to course boundaries. I forced myself to meditate but the sessions during this time of the day were not my best. I was mentally and physically drained. But this is what self-discipline training feels like.

Day 10 was the Metta Day (mettā-bhāvanā). The meditation of loving-kindness by sharing the positive energy with others. In the end, I paused for a second and looked around. I was in awe. There were 100 plus people spreading love and kindness. What an environment to be in. When the Noble Silence was broken on Day 10, you can feel the energy and joy of liberation. It was such a beautiful moment. But when everyone started speaking it was very loud. I wanted to go back into a quieter environment.

Vipassana meditation has given me an internal lens to observe the inner-self in a non-judgmental way. Being more aware and staying equanimous makes your mind resilient and sharper.

Art of living

Mr. S.N. Goenka explains the purpose of why you should strive to live artfully during his speech in Berne, Switzerland. I recommend to read the entire speech published on the official Dhamma website [4].

Everyone seeks peace and harmony, because this is what we lack in our lives. From time to time we all experience agitation, irritation, disharmony. And when we suffer from these miseries, we don't keep them to ourselves; we often distribute them to others as well. Unhappiness permeates the atmosphere around someone who is miserable, and those who come in contact with such a person also become affected. Certainly this is not a skillful way to live.

We ought to live at peace with ourselves, and at peace with others. After all, human beings are social beings, having to live in society and deal with each other. But how are we to live peacefully? How are we to remain harmonious within, and maintain peace and harmony around us, so that others can also live peacefully and harmoniously?

In order to be relieved of our misery, we have to know the basic reason for it, the cause of the suffering. If we investigate the problem, it becomes clear that whenever we start generating any negativity or impurity in the mind, we are bound to become unhappy. A negativity in the mind, a mental defilement or impurity, cannot coexist with peace and harmony.

Now, one way to solve this problem is to arrange that nothing unwanted happens in life, that everything keeps on happening exactly as we desire. Either we must develop the power, or somebody else who will come to our aid must have the power, to see that unwanted things do not happen and that everything we want happens. But this is impossible. There is no one in the world whose desires are always fulfilled, in whose life everything happens according to his or her wishes, without anything unwanted happening. Things constantly occur that are contrary to our desires and wishes. So the question arises: how can we stop reacting blindly when confronted with things that we don't like? How can we stop creating tension and remain peaceful and harmonious?

In India, as well as in other countries, wise saintly persons of the past studied this problem-the problem of human suffering-and found a solution: if something unwanted happens and you start to react by generating anger, fear or any negativity, then, as soon as possible, you should divert your attention to something else. For example, get up, take a glass of water, start drinking-your anger won't multiply; on the other hand, it'll begin to subside. Or start counting: one, two, three, four. Or start repeating a word, or a phrase, or some mantra, perhaps the name of a god or saintly person towards whom you have devotion; the mind is diverted, and to some extent you'll be free of the negativity, free of the anger.

This solution was helpful; it worked. It still works. Responding like this, the mind feels free from agitation. However, the solution works only at the conscious level. In fact, by diverting the attention you push the negativity deep into the unconscious, and there you continue to generate and multiply the same defilement. On the surface there is a layer of peace and harmony, but in the depths of the mind there is a sleeping volcano of suppressed negativity which sooner or later may erupt in a violent explosion.

Other explorers of inner truth went still further in their search and, by experiencing the reality of mind and matter within themselves, recognized that diverting the attention is only running away from the problem. Escape is no solution; you have to face the problem. Whenever negativity arises in the mind, just observe it, face it. As soon as you start to observe a mental impurity, it begins to lose its strength and slowly withers away.

A good solution; it avoids both extremes-suppression and expression. Burying the negativity in the unconscious will not eradicate it, and allowing it to manifest as unwholesome physical or vocal actions will only create more problems. But if you just observe, then the defilement passes away and you are free of it.

...

It can be practiced by one and all. Everyone faces the problem of suffering. It is a universal malady which requires a universal remedy, not a sectarian one. When one suffers from anger, it's not Buddhist anger, Hindu anger, or Christian anger. Anger is anger. When one becomes agitated as a result of this anger, this agitation is not Christian, or Jewish, or Muslim. The malady is universal. The remedy must also be universal.

Vipassana is such a remedy. No one will object to a code of living which respects the peace and harmony of others. No one will object to developing control over the mind. No one will object to developing insight into one's own nature, by which it is possible to free the mind of negativities. Vipassana is a universal path.

Observing reality as it is by observing the truth inside-this is knowing oneself directly and experientially. As one practices, one keeps freeing oneself from the misery of mental impurities. From the gross, external, apparent truth, one penetrates to the ultimate truth of mind and matter. Then one transcends that, and experiences a truth which is beyond mind and matter, beyond time and space, beyond the conditioned field of relativity: the truth of total liberation from all defilements, all impurities, all suffering. Whatever name one gives this ultimate truth is irrelevant; it is the final goal of everyone.

California Vipassana Center (North Fork)

Picture below was taken by my friend Victor Tse who was generous enough to give me a ride to and from the center. I also learned so much from him during my ride about his experiences. I earned a new friendship along with calmness. The center is located in North Fork in California.

A Brief History Of Earth by Andrew H. Knoll

Fri, 10 Sep 2021 00:00:00 GMT

I. Brief Summary

This was gifted to me by my wife on my birthday. It was a great tour of everything about our planet Earth. This book is written by an influential geologist and a professor who has dedicated his entire life studying the history of our planet. Understanding the geologic history is critical to understanding where our planet is headed. The book is filled with lessons on transformations-life, sea, atmosphere, mass extinctions, animals and humans. Andrew Knoll pleas on climate crisis led by humans in the beginning and at the end. I learned quite a bit about the transformation of the Earth, but also the importance of really how long it takes for evolution to take place and ruining it in a few decades have dire consequences to sustain our lives.

II. Big Ideas

Rocks offer a grand narrative of Earth's development from youth to maturity.
Earth's Greatest Oxygenation Event
- One thing is clear: oxygen was not part of early atmosphere.
- Four billion years ago, the Sun's luminosity was only about 70 percent of its modern value. If the Sun was dim, why wasn't the early Earth an ice ball? The answer is “greenhouse gases,” the bane of twenty-first century global warming but the long-term guarantor of habitable climate.
- The question of life without oxygen is relatively easy to address because oxygen-free environments exist today.
- Both photosynthesis (plants) and respiration (animals) are complementary to each other. As a consequence, carbon and oxygen cycle back and forth between organisms and the environment, sustaining life through time. But once upon a time the imbalances between the two gases could not have sustained human life. If we were to time travel back, we would be asked to bring-our-own-oxygen to the party.
- Early Earth was swaddled by a thick atmosphere, but it was air without oxygen. Sun's luminosity was only about 70 percent of its own modern value. Sun was dim, but our planet was liquid, not an ice-ball. Why? Greenhouse gases. Carbon dioxide (CO2) must have been present at more than 100 times its current concentration. Given Earth has been biological most of its life, early life therefore survived on greenhouse gas such as carbon dioxide.
- Earth's Greatest Oxygenation Event was revolutionary, and Cyanobacteria-the only bacteria capable of oxygenic photosynthesis-were the heroes of the revolution. Cyanobacteria gained the upper hand in a world that long favored different photosynthetic microbes. They dominated the planet by producing more oxygen than carbon.
Human Earth
- Hominins differed from other great apes in critical way. They walk upright.
- Early humans lived only in Africa, but a bit more than 100,000 years ago, one population stuck its toe into the wider world, dwelling in what is now Israel along with Neanderthals. Then, 50,000-70,000 years ago, our species spread rapidly throughout Asia and Europe.
- Homo sapiens has shaped the world around us since our inception and now does so in unprecedented ways, the latest movement in the long symphonic dance of Earth and life.
- The human population, whom we call Clovis-suggests that humans played a major role in removing large mammal species from North America.
- Agriculture and pollution are both challenging natural ecosystems. For example, there are dead zones, meaning depleting oxygen in ambient waters found in Gulf of Mexico and other coastal seaways.
- Globally, hunting has depleted numerous bird and mammal populations.
- One in six global fisheries has collapsed in recent decaded. Commercial fishing was banned, but nearly three decades later, the cod have yet to recover.
- It is estimated that about one garbage truck worth of plastic enters the oceans every minute.
- Charles David Keeling began to monitor the composition of the atmosphere, taking hourly readings from a station atop Mauna Loa, a program that continues today. When Keeling started, the air above Hawaii contained 316 parts per million carbon dioxide. By May 2020, CO2 had increased to 417 ppm, a value last seen of Earth millions of years ago.
- CO2 increase is driven mainly by the burning of fossil fuels because of chemical signature to their air. Carbon-14 in atmospheric CO2 has declined through time so the principle source of atmospheric CO2 is identified to coal, petroleum and natural gas burned by humans.
- National parks, refuges, and other protected lands play a critical role in the conversation of species threatened by habitat disruption. Species that didn't encounter each other in the past will occur with largely unknown consequences for competition and ecosystem resilience.
- As CO2 increases, oceans and land surface will become warmer. As water warms, it will carry less oxygen gas and ocean will absorb more carbon dioxide. This will in turn lead to decline in pH of seawater. This has disturbed reef corals. This chain reaction have many unknown consequences.
- Humans have been pumping greenhouse gases into the atmosphere increasing the magnitude and frequency of heat waves, drought, and storms. With this in mind, what has been depressing is the human response. Each year we do nothing makes the task of solving the climate crises grow larger.

III. Quotes

Our attachment to the Earth extends well beyond gravity.
With every breath you bring oxygen-rich air into your lungs, enabling you to gain energy from your dinner.
The steel in your refrigerator door, the aluminum in your “tin” cans, the copper in your pennies, and the rare-earth metals in your smartphone all come from within the Earth.
Small changes add up through time.
The story of Earth and the organism it sustains is far grander than any Hollywood blockbuster, filled with enough plot twists to rival a bestselling thriller.
Somehow om this dynamic stage, life established a foothold and eventually transformed our planet's surface, paving the way for trilobites, dinosaurs, and a species that can speak, reflect, fashion tools, and in the end, change the world again.
Population decline is not extinction, but it is road down which species travel on their way to biological endgame.
In the end, we will conserve only what we love, we will love only what we understand, and we will understand only what we are taught. - Baba Dioum
Our understanding of the universe and its history comes largely from the most ephemeral sources: light. That's what makes our starry sky a celestial history book.
If light chronicles the history of the universe, rock tell our planet's history.
Earth writes its history with one hand and erases it with the other.
The full moon may inspire poetry, but it was born in violence.
If geologists have a mecca, it is Siccar Point.
We might volunteer that organisms grow. True, but so do quartz crystals. But organisms not only grow, they reproduce.
Life, then, is characterized by growth and reproduction, metabolism, and evolution.
Even the simplest bacteria are complicated molecular machines.
DNA, the cell's instruction manual and evolutionary memory.
Earth has been a biological planet for most of its long history.
This was the anvil of which life was forged, and had you been there (don't forget to bring your own supply of oxygen) you might not have noticed the changes underfoot.
How did Earth get into this deep freeze and, as important, how did it get otu again?
By the time the glacier collapsed, some 70 percent of all known animal species had disappeared.
400 million years ago, land plants already lived in close association with fungi, exchanging food for nutrients. In the absence of this partnership, Earth's green revolution might have never occurred.
Vertebrates, our own ancestors, were relatively late comers to the party.
The principal physical part of soil formation-chemical weathering-is itself enhanced by roots that penetrate into the subsurface, releasing organic acids as they go.
Mass extinctions have clearly played a role in shaping evolutionary history.

On Mental Models

Fri, 03 Sep 2021 00:00:00 GMT

Before you proceed, ask yourself, what is the purpose of wisdom?

For me, it is clear, I am in the business of making right decisions and therefore acquiring wisdom is purposeful. For many, this is true as well. I also operate with the mindset of not understanding the world and will most likely won't ever. But if I make 6 out of 10 right decisions, then exercising to acquire wisdom is a worthwhile exercise. Note, it is not to make myself look or sound smart. It is simply to make more right decisions than wrong.

Given the nature of the world and it being so dynamic, it would be foolish to spend time alone in one field. Therefore, mental models can be useful.

We all think of Charlie Munger when we talk about latticework of mental models. He is one of the greatest thinkers of our generation, a living legend and a business partner of a famous investor Warren Buffett. Charlie Munger has lived (and still is) an intellectually stimulating life which he credits to mental models. He has spent more time thinking about making right decisions than anyone else I know. It was natural for me to follow his route and conduct a deeper understanding of mental models.

I think it is undeniably true that the human brain must work in models. The trick is to have your brain work better than the other person’s brain because it understands the most fundamental models–ones that will do most work per unit. – Charlie Munger

One of the advantages of a fellow like Buffett, whom I've worked with all these years, is that he automatically thinks in terms of decision trees and the elementary math of permutations and combinations. – Charlie Munger

Galileo vs Aristotelian: The history of science and knowledge is full of discoveries based on exploiting the power of mental models. Often these models are taught to students in business, design and engineering schools.

Consider the example of a heavy stone swinging back and forth on a string. Before Galileo, an Aristotelian looking at the swinging stone thought that a heavy object moved naturally from a higher position to a state of rest at a lower one. The Aristotelian would think that what the stone was really doing was falling with difficulty. When Galileo saw the swinging stone though, he saw a pendulum. He thought that what the stone was really doing was repeating the same motion again and again, almost perfectly.

The suggestive powers of the two models are quite different. The Aristotelian who saw the swinging stone as an object falling would observe the stone’s weight, the height to which it had been raised, and the time it took to come to rest. For Galileo’s pendulum model the prominent factors were different. Galileo observed the stone’s weight, the radius of the pendulum’s swing, the angular displacement, and the time per swing. Galileo discovered laws the Aristotelians couldn’t because their model led them to look at different phenomena and ask different questions.

Latticework of mental models: Mental models are big ideas from big disciplines, like business, psychology, science, engineering, and more. An understanding of the key concepts from different disciplines will help you ask the right questions to help make wise decisions. The task of decision-making is quite challenging in a complex and interconnected world. To be a world-class thinker and a better leader, you must develop a mind that can jump boundaries from one discipline to another.

As the Japanese proverb goes, “The frog in the well knows nothing of the mighty ocean.” You ought to jump the boundaries of your specialized field to overcome complex and dynamic systems of life. Being in one well will cloud your thought process preventing you to understand life beyond the well. To clear up your blind spots, learn to explore wells, ponds, rivers, lagoons, canals and oceans. Combining models from various disciplines produces a cohesive understanding.

So, how do you achieve worldly wisdom by jumping boundaries?

Acquire fundamental knowledge (big ideas) from big disciplines.
Understand common patterns, fallacies and biases of human nature.
Question your models and test them against reality.
Apply these models and biases rigorously in your decision-making.
Not all models are useful so handle them with care.

Mental models vs algorithms: A mental model is more like a searchlight than a road map. It doesn’t tell you the answer directly, or where to find the answer, it shows you how to look for it. A mental model is heuristic–it enables you to learn and discover for yourself, it is a far cry from an algorithm's well-defined instructions for carrying out a particular task. Algorithms are predictable, deterministic, and not subject to chance.

A mental model is a technique that helps you look for an answer. Its results are subject to chance because a mental model tells you how to look, not what to find. It doesn’t tell you how to get directly from point A to point B. In effect, a mental model is an algorithm in a clown suit. It’s less predictable, it’s more fun, and it comes without a 30-day, money-back guarantee.

Here is an algorithm for driving to your grandma's house. Take Highway 290 West to Rosemont in Chicago. Take the State Street exit and drive 2.5 miles up the Congress Parkway. Turn right at the light by the gas station, and then take the first left. Turn into the driveway of the large white house on the left, at 111 Windy City.

Here is a mental model for getting to your grandma's house. Find the last letter we mailed you. Drive to the town in the return address. When you get to town, ask someone where our house is. Everyone knows us-someone will be glad to help you. If you can’t find anyone, call us from a public phone, and we’ll give you the instructions directly. A mental model tells you how to discover the instructions for yourself, or at least where to look for help.

Map is not the territory: Alfred Korzybski, a famous mathematician in 1931 made a simple observation-the map is not the territory. This allows you to assess the usefulness of models. Maps (mental models) are thought of as a representation of reality. They distill complex ideas into simple concepts that can be processed by our brains which enable us for faster decision-making. But maps do not represent reality. A map indeed can be flawed when entering uncharted territories. Ask early European sailors who went on voyages to explore deep seas and new lands.

(History) offers a ridiculous spectacle of a fragment expounding the whole. - Will Durant

This brings me to the next point. All models are wrong, but some are useful. Those words came from a British statistician, George Box. He revealed the fallacy of our desire to organize the world in patterns. We at times confuse models with reality because we prefer simplification. But that is not how reality works. Models never reflect complete truth.

Remember that all models are wrong; the practical question is how wrong do they have to be to not be useful. - George Box

Some mental models work better than others in some situations and knowing which models to use and when is a key of good judgment. Focusing on timeless models that have been around for a long time and consistently testing them against reality will help you use them right.

No idea is true just because someone says so. Test ideas by the evidence gained from observation and experiment! If a favorite idea fails a well-designed test, it’s wrong! - Richard Feynman

To overcome the challenge of model thinking, always have bias for action. Keep in mind that when in doubt, it'll be action that produces information. So when map and terrain differ, follow the terrain.

The world doesn’t have the luxury of waiting for complete answers before it takes action. - Daniel Gilbert

Mungerism: Munger gave a famous speech, “A Lesson on Elementary Wisdom” in 1995 speech at USC Business School about worldly wisdom and latticework of mental models. Below are some references from his speech.

What is elementary, worldly wisdom? Well, the first rule is that you can’t really know anything if you just remember isolated facts and try and bang ‘em back. If the facts don’t hang together on a latticework of theory, you don’t have them in a usable form. You’ve got to have models in your head. And you’ve got to array your experience - both vicarious and direct - on this latticework of models. - Charlie Munger

You may have noticed students who just try to remember and pound back what is remembered. Well, they fail in school and in life. You’ve got to hang experience on a latticework of models in your head. - Charlie Munger

What are the models? Well, the first rule is that you’ve got to have multiple models - because if you just have one or two that you’re using, the nature of human psychology is such that you’ll torture reality so that it fits your models, or at least you’ll think it does. You become the equivalent of a chiropractor who, of course, is the great boob in medicine. - Charlie Munger

It’s like the old saying, “To the man with only a hammer, every problem looks like a nail.” And of course, that’s the way the chiropractor goes about practicing medicine. But that’s a perfectly disastrous way to think and a perfectly disastrous way to operate in the world. - Charlie Munger

So you’ve got to have multiple models. And the models have to come from multiple disciplines-because all the wisdom of the world is not to be found in one little academic department. That’s why poetry professors, by and large, are so unwise in a worldly sense. They don’t have enough models in their heads. - Charlie Munger

So you’ve got to have models across a fair array of disciplines. - Charlie Munger

You may say, “My God, this is already getting way too tough.” But, fortunately, it isn’t that tough-because 80 or 90 important models will carry about 90% of the freight in making you a worldly-wise person. And, of those, only a mere handful really carry very heavy freight. - Charlie Munger

You have to learn all the big ideas in the key disciplines in a way that they’re in a mental latticework in your head and you automatically use them for the rest of your life. If you do that, I solemnly promise you that one day you’ll be walking down the street and you’ll look to your right and left and you’ll think “my heavenly days, I’m now one of the few competent people in my whole age cohort.” If you don’t do it, many of the brightest of you will live in the middle ranks or in the shallows. - Charlie Munger

I went through life constantly practicing (because if you don’t practice it, you lose it) the multi-disciplinary approach and I can’t tell you what that’s done for me. It’s made life more fun, it’s made me more constructive, its made me more helpful to others, its made me enormously rich. – Charlie Munger

He also gave another famous speech, “The Psychology of Human Misjudgement” in 1995 at Harvard Law School about human psychology and biases.

I was aware that man was a “social animal,” greatly and automatically influenced by behavior he observed in men around him. I also knew that man lived, like barnyard animals and monkeys, in limited size dominance hierarchies, wherein he tended to respect authority and to like and cooperate with his own hierarchy members while displaying considerable distrust and dislike for competing men not in his own hierarchy. - Charlie Munger

Below are the collection of mental models accumulated from his various resources and talks. The checklist is grouped based on their source of discipline. These mental models should equip everyone make better decisions, so they can live a better life.

Natural Science

Model	Definition
Ecosystem	An ecosystem consists of all the organisms and the physical environment with which they interact.
Evolution by natural selection	An evolutionary process where living things, over generations, adapt to changes in their environment.
Autocatalysis	A single chemical reaction can go through autocatalysis if the reaction product itself is a catalyst for that initial chemical reaction.
Red queen effect	Survival in a competitive environment usually requires adaptation and velocity, so doing nothing often means being left behind.

Ecosystem

An ecosystem consists of all the organisms and the physical environment with which they interact.

A community where living things interact with each other and nonliving things around them in a mutually beneficial relationship. Bees may help to pollinate flowers, which grow in the soil, which is provided nutrients from organic matter.

An ecosystem is a geographic area where plants, animals, and other organisms, as well as weather and landscape, work together to form a bubble of life. Ecosystems contain biotic or living, parts, as well as abiotic factors, or nonliving parts. Biotic factors include plants, animals, and other organisms. Abiotic factors include rocks, temperature, and humidity. Every factor in an ecosystem depends on every other factor, either directly or indirectly.

A change in the temperature of an ecosystem will often affect what plants will grow there, for instance. Animals that depend on plants for food and shelter will have to adapt to the changes, move to another ecosystem, or perish.

Ecosystems can be very large or very small.

Evolution by natural selection

An evolutionary process where living things, over generations, adapt to changes in their environment.

This includes, but is not limited to; food, mates, climate, predators, and weather. Those which are better able to adapt to those changes will reproduce in greater numbers and pass on favorable traits.

For evolution by natural selection you need three things:

A mechanism for creating copies with high-fidelity (aka replication).
A mechanism for changing the copies slightly (aka mutation).
Different copies should persist and copy at varying rates (aka fitness).

Once you have these three things, the outcome is that, over time, the copies that survive and replicate better will multiply, and “ineffective” copies will die off. What starts as a simple, random process, can create a ratchet leading to better and better versions.

Just like species, everything evolve around us including corporations and communities.

Autocatalysis

A single chemical reaction can go through autocatalysis if the reaction product itself is a catalyst for that initial chemical reaction.

Chemical reactions can produce a product or products. If one or more of those products accelerates or increases the original reaction, they are said to be a catalyst. If this is the case, then the chemical reaction has undergone autocatalysis.

Perhaps the greatest picture we can paint for one to grasp the idea of Autocatalysis would be the origin of life itself. That’s right the biological processes that generate life at the smallest molecular levels go through the process of autocatalysis.

This idea was formulated by Stuart Kauffman a physician by trade who focused exclusively on Biology. During his tenure at the University of Pennsylvania, Kauffman theorized a radical new view for the stupendously head-scratching and improbable event of life forming on Earth.

Autocatalysis can be extended in the business world. According to Munger Disney is an amazing example of autocatalysis.

Disney had ownership of many of the classic movies and animations that had graced American cinema for decades. Yet at a point, Disney was at a plateau. Maybe people had seen a few of their movies before but that was in a theater or maybe screened on TV every now and then. Then the world changed with the VCR and video cassette tape. Once the video cassette tape was invented, Disney and their extensive catalog of classic content had been positioned perfectly to take over the home media industry-and that is exactly what happened! They exploded onto the screens in homes of people worldwide with a library of Disney content that was absolutely unmatched by anything out there. Every home in North America had a dozen Disney video Cassette tapes in their home library if not more!

“In the autocatalysis process, properties, events or products serve as their own catalysts and are “self-breeding. For example the self-stimulated increase in the demand for air conditioning, hence the self-stimulated increase in the demand for air conditioners.” - Charlie Munger

Red queen effect

Survival in a competitive environment usually requires adaptation and velocity, so doing nothing often means being left behind.

The Red Queen Effect means that staying in the same place is falling behind. Surviving another day means we have to co-evolve with the systems we interact with. If all animals evolved at the same rate, there would be no change in the relative interactions between species. However, not all animals evolve at the same rate. As Darwin observed, some are more “responsive to change” than others.

It is not the strongest of the species that survives, nor the most intelligent, but the one most responsive to change. - Charles Darwin

Where does the phrase Red Queen come from? The Red Queen is from Lewis Carroll’s novel “Through the Looking Glass.” The Red Queen notes to Alice that in the Red Queen’s world, Alice will have to run as fast as she can to stay in place and twice as quickly to move forward.

Now, here, you see, it takes all the running you can do, to keep in the same place. If you want to get somewhere else, you must run at least twice as fast as that! - Lewis Carroll

The evolve-or-die is the fact of nature. The effect is an evolutionary hypothesis that organisms must constantly evolve to survive, reproduce, and hopefully gain an advantage. One must work smarter and not faster to succeed.

Of course, in the modern-day, we have to plan our moves strategically to be successful in this digitized world.

The great lesson in microeconomics is to discriminate between when technology is going to help you and when it’s going to kill you. - Charlie Munger

The promised benefits from these textile investments were illusory. Many of our competitors, both domestic and foreign, were stepping up to the same kind of expenditures and, once enough companies did so, their reduced costs became the baseline for reduced prices industry wide. Viewed individually, each company’s capital investment decision appeared cost-effective and rational; viewed collectively, the decisions neutralized each other and were irrational. - Warren Buffett

People who sacrifice their present for the future are the ones who see the best results, and the Red Queen Effect is a great principle backing this idea. Although current generations may die to the process of natural selection, future generations stand to benefit greatly from their sacrifice. This evolutionary process persists in all areas of the world, from business transactions to biological reactions.

Siddhartha Mukherjee, Pulitzer-prize-winner for the book The Emperor of All Maladies, describes the red queen in the context of drugs and cancer.

In August 2000, Jerry Mayfield, a forty-one-year-old Louisiana policeman diagnosed with CML, began treatment with Gleevec. Mayfield’s cancer responded briskly at first. The fraction of leukemic cells in his bone marrow dropped over six months. His blood count normalized and his symptoms improved; he felt rejuvenated-“like a new man [on] a wonderful drug.” But the response was short-lived. In the winter of 2003, Mayfield’s CML stopped responding. Moshe Talpaz, the oncologist treating Mayfield in Houston, increased the dose of Gleevec, then increased it again, hoping to outpace the leukemia. But by October of that year, there was no response. Leukemia cells had fully recolonized his bone marrow and blood and invaded his spleen. Mayfield’s cancer had become resistant to targeted therapy…

… Even targeted therapy, then, was a cat-and-mouse game. One could direct endless arrows at the Achilles’ heel of cancer, but the disease might simply shift its foot, switching one vulnerability for another. We were locked in a perpetual battle with a volatile combatant. When CML cells kicked Gleevec away, only a different molecular variant would drive them down, and when they outgrew that drug, then we would need the next-generation drug. If the vigilance was dropped, even for a moment, then the weight of the battle would shift. In Lewis Carroll’s Through the Looking-Glass, the Red Queen tells Alice that the world keeps shifting so quickly under her feet that she has to keep running just to keep her position. This is our predicament with cancer: we are forced to keep running merely to keep still.

Engineering

Model	Definition
Redundant system	Systems that work are designed not to fail; therefore they often rely heavily on redundancy.
Breakpoint	In complex engineering systems an intentional small pause is performed for safety, reflection and debugging.
Feedback loop	A feedback loop occurs when the output of a system feeds back into itself as an input, thereby further affecting the output.
Margin of safety	Describes the capacity of a system to carry load beyond its actual capability.

Redundant system

Systems that work are designed not to fail; therefore they often rely heavily on redundancy.

The adding of duplicated parts to systems to increase reliability and provide a failsafe, should part of the system go down. The duplicated part could be a backup of a critical component or it could be used to increase performance, such as multi-threading in computing.

For example, you are on the road heading to work when suddenly you hear a loud pop. This isn’t the first time you’ve had a flat tire and it probably won’t be the last, but thanks to your spare tire, you’ll definitely still make it to work on time.

A situation where there is more than a single means of accomplishing a particular task can be defined as ‘redundancy’.

Creating a redundant system can establish a failsafe that minimizes the consequences of potential errors. A great example of a redundant system is the common practice of keeping a spare house key in a hidden location somewhere on your property.

While you may expect to have your primary key available at most times, on the off chance that you don’t have it ready, you have a redundancy set up to ensure that you can still enter your home.

Spare keys are a very basic example, but redundancy actually refers to a relatively complex concept. To be specific, redundancy is referring to any process that adds additional instances of critical components to a system. If another part of the system fails, these extra components are meant to take over for them.

A system with redundancies set up will not suffer a complete system failure until every instance of critical components fails.

Redundancy can sometimes be overbearing, causing problematic outcomes. The first problem with redundancy is that adding extra components can inadvertently create a catastrophic common-mode error (a fault that causes all the components to fail). This danger is perhaps most easily understood through a simple example from the commercial aircraft industry. Aircraft manufacturers have to determine how many engines to use on jumbo jets. Cost is clearly an important factor entering their calculations. Yet so is safety, since each additional engine on an aircraft both increases the likelihood that the redundant engine will keep the plane in the air if all others fail in flight and increases the probability that a single engine will cause an accident, by blowing up or starting a fire that destroys all the other engines and the aircraft itself.

In business, it is important to have redundancies set up as a failsafe. Don’t put all your eggs in one basket, be prepared with another backup plan.

Breakpoint

In complex engineering systems an intentional small pause is performed for safety, reflection and debugging.

A small pause, or break, in complex engineering systems, to allow for safety or debugging. These breaks allow you to look at the system and reflect on performance, making sure that there are no noticeable errors. Breakpoints can be a useful addition to your thinking in a variety of subjects.

In software development, a breakpoint is an intentional stopping or pausing place in a program, put in place for debugging purposes. It is also sometimes simply referred to as a pause.

Essentially, in complex engineering systems an intentional small pause is performed for safety, reflection and debugging. It is a great idea to have a few break points in your investment checklist, the more decisions you must make, the more room for error you are susceptible to. If life you can also apply a breakpoint. Everytime your brain starts to wander, you can go in a debugging mode by applying breakpoints. Breakpoint stops the execution/wandering process.

Feedback loop

A feedback loop occurs when the output of a system feeds back into itself as an input, thereby further affecting the output.

Part of a control system in which the outputs are fed back in as inputs. Take the heating in your home-your furnace will push out heat, the thermostat will check the temperature and use this information to turn the furnace on and off. The system is a loop. The concept is also known as homeostasis in biological field. Feedback occurs when outputs of a system are routed back as inputs as of a chain of cause-and-effect that forms a circuit or loop. The system can then be said to feed back into itself. Feedback loops are important if we want to alter a state or fill in a gap in systems. Feedback often refer to as information about the state or a gap but can be useless unless translated into an action. The notion of cause-and-effect has to be handled carefully when applied to feedback systems:

Simple causal reasoning about a feedback system is difficult because the first system influences the second and second system influences the first, leading to a circular argument. This makes reasoning based upon cause and effect tricky, and it is necessary to analyze the system as a whole. - Karl Johan Åström and Richard M.Murray, Feedback Systems: An Introduction for Scientists and Engineers

The concept first started to appear in Britain but it didn't have a name. One of the first artificial feedback device was a mercury thermostat to regulate temperature of a chicken incubator in 1620 in England. It was built upon a similar device called thermoscope invented by Galileo in 1593. Feedback loops were applied to windmills, steam-engines, electronic amplifiers, circuits and many other well known inventions. On Governors written by James Clerk Maxwell in 1868 is widely considered a classic in feedback control theory. This was a landmark paper for more theories to evolve in the discipline of mathematics of feedback and control theory.

Homeostasis: We might think if the output becomes the input, then the next output should be of higher intensity than the previous one. But that is not the case because there are two types of feedback loops-positive (reinforcing) and negative (balancing or goal-based) feedback loops. The key difference between positive and negative feedback is their response to change. Biological systems operate on a mechanism of inputs and outputs, each caused by and causing a certain event. Feedback loops are important because they allow living organisms to maintain homeostasis. Homeostasis is the mechanism that enables us to keep our internal environment relatively constant-not too hot, or too cold, not too hungry or tired.

Positive feedback loop: In positive feedback loops, the output gets amplified (either increasing or decreasing intensity). In other words, if the input leads to an increase in output, then the loop will lead to continuously increasing output. If the input decreases the output, then the loop will lead to continuously decreasing output. The curve of positive feedback loop is exponential-either exponential growth, or exponential decline. Positive feedback loops are effective for creating change, but generally result in negative consequences if not moderated by negative feedback loops. Many internet companies are the beneficiaries of positive feedback loops which help create the “network effect.” The more people that use a particular search engine or social network, the more honed the search results become, or the more useful the network becomes to the user. That’s one of the reasons why search networks are a “winner take all,” type of business model. These feedback loops will continue to reinforce themselves until regulators or anti-trust officials take action.

Negative feedback loop: In negative feedback loops the system stays in equilibrium state whereas an uncontrolled positive feedback loop can cause a system to reach a critical state, a tipping point and then fundamentally change it. Negative feedback loops are also called balancing or goal-seeking loops. In such systems, there is a set limit (or goal), and the aim of the feedback mechanism is to stick to the set limits, thereby maintaining a balance. Negative feedback dampers output, stabilizes the system around an equilibrium point. Consider a thermostat regulating room temperature. This is an example of a negative feedback loop. As the temperature rises, the thermostat turns off the furnace allowing the room to rest at a predetermined temperature. When the temperature falls below that predetermined temperature the furnace reignites to return the room to its equilibrium state. Other examples include body temperature and financial markets.

Economic cycles: Usually during a down turn economic cycle (recession) due to negative news, small number of depositors think banks are going broke, so they will run to local branches to withdraw their money. This leads to neighbors and friends flocking to the banks to withdraw more money. This results in bank runs causing ripple effect. A loop that keeps feeding in itself resulting in economic crisis.

Habit loop: Feedback loops are important for virtuous cycle of deep and experimental learning. As we learn, try and practice a topic, we can get feedback on our performance (tests). Based on the feedback, we evaluate which methods of learning are most efficient and which aren't. Then we modify our behavior and adjust our learning methods. This loop reinforces our learning, and helps us to improve. As we learn more, we will be able to understand bigger ideas, and this snowballs into a huge intellectual advantage over time. A powerful application of the feedback loop is the habit loop, as popularized by Charles Duhigg. The habit loop explains how we can use feedback (rewards) to reinforce the behavior we want to create within ourselves. A key point to remember is that feedback is most effective when provided immediately and translated into an action otherwise feedback is no good. There are many other known applications of feedback loops on Wikipedia.

Margin of safety

Describes the capacity of a system to carry load beyond its actual capability.

Margin of safety originated from engineering but is applicable to any system. Describes the capacity of a system to carry loads beyond its actual capability. When designing such systems, the system should be able to support additional loads which are calculated using detailed analysis. The primary question posed by this concept is how much stronger the system is than it usually needs to be for an intended load. Testing can be impractical when complex systems such as aircraft, buildings or bridges are involved. However, the structure’s ability to carry load must be determined to a reasonable accuracy by conducting a detailed analysis to avoid any unexpected failure. Margin of safety is used widely in many areas of life such as accounting, engineering, investing and time management to name just a few. In its original form, a quantitative “margin of safety” is in fact called a “safety factor.” In structural engineering, the safety factor is calculated as follows:

Calculated by dividing the load required to cause failure by the maximum load expected to act on a structure.‍
A system with capacity of 6,000 pounds is used to carry no more than 1,000 pounds at a time, then the factor of safety is 6,000 / 1,000 = 6.

The above calculation is generalized to explain the concept. However, between various industries and engineering groups usage is inconsistent and confusing. The concept is heavily used in aerospace and industrial projects but not limited to those industries. Just like Factor of Safety, Margin of Safety is a widely known concept within the business world whether investing in a new project or personal investing. Margin of Safety allows room for an analytical error or bad luck to avoid sizable losses over time. Investing in future is unpredictable and margin of safety allows to protect us from that bad luck. Applying this concept in managing money protects any unexpected downside if the business or stock market were to tumble.

Factor of safety: The economics use of steel depends upon quality and its working stress. Structures have two main problems, buckling and bending, and theories in calculating these two properties in steel were established in 1759 and 1826. To arrive at a reasonable working stress, a Factor of Safety against failure was assessed and this was generally taken as a quarter of the average ultimate strength of material. London City Council determined the working stress of steel and introduced a higher Factor of Safety to allow for imperfections in the material. Factor of Safety has evolved and even introduced in other industries mandated by the Federal Airworthiness Regulation.

Unless otherwise specified, a factor of 1.5 must be applied to the prescribed limit loads which are considered external loads on the structure. This is enforced by civilian and military transport authorities and has the force of law within the United States. - NASA

Margin of safety originated from engineering. Many structural projects within government and private sector apply Factor of Safety (FoS) to ensure the structural safety.

In engineering, a factor of safety (FoS), also known as (and used interchangeably with) safety factor (SF), expresses how much stronger a system is than it needs to be for an intended load. Safety factors are often calculated using detailed analysis because comprehensive testing is impractical on many projects, such as bridges and buildings, but the structure's ability to carry a load must be determined to a reasonable accuracy. Many systems are intentionally built much stronger than needed for normal usage to allow for emergency situations, unexpected loads, misuse, or degradation (reliability). - Wikipedia

Limitations of margin of safety: Clearly, the margin of safety model is very powerful, and we’re wise to use it whenever possible to avoid failure. But it has limitations. If time and money are the most important resources, does it make sense to utilize those resources to fail-proof a material to such an extent that any extra unit spent on making it safe does not make it safer? For example, how do you account for weather conditions? Or, how do you account for future government policies when you are investing in a stock market? In both instances, while doing analysis, you have to realize we do not have control over external factors which makes it hard to fail-proof a structure or a system. While also conducting detailed analysis, you have to ensure the biases baked into data or old set of data that is no longer relevant. Judgment is another one. When it comes to things like terrorist attacks, people are not concerned about false alarms. However, using probability of an event can suggest a likelihood of an event such as terroristic attack is very low. The margin-of-safety calculation can be exaggerated without careful judgment.

Physics

Model	Definition
Equilibrium	Equilibrium is a balance between one or more opposing forces.
Newton's laws	The three laws of motion describe the interrelationships between objects, and the forces acting on them.
Law of thermodynamics	The laws of thermodynamics are a set of scientific laws which define a group of physical quantities.
Leverage	By using a lever, you can amplify the input force. Think of a see-saw.
Critical mass	The amount of reactant necessary for something to happen and to keep happening.

Equilibrium

Equilibrium is a balance between one or more opposing forces.

When a system has no change over time, in motion or energy. The rule of supply and demand, from economics, is an example of the law of equilibrium.

There are different types of equilibrium:

Static equilibrium is when a system is at rest or motion and energy are unchanging.
Dynamic equilibrium is when two or more forces are equally matched preventing any change in the motion and energy.

Robert Hagstorm illustrate the difference between the static and dynamic equilibrium:

“A scale that is equally weighted on both sides is an example of static equilibrium. Fill a bathtub full of water and then turn off the faucet and you will observe static equilibrium. But if you unplug the drain and then turn on the faucet so the level of the bathtub does not change, you are witnessing dynamic equilibrium.”

“Another example is the human body. It remains in dynamic equilibrium so long as the heat loss from cooling remains in balance with the consumption of sugars.”

Newton's laws

The three laws of motion describe the interrelationships between objects, and the forces acting on them.

In 1687, Isaac Newton published his revolutionary book, The Principia: Mathematical Principles of Natural Philosophy,1 in which he stated his three laws of motion. The Principia formed the foundation of classical mechanics and is to this day considered one of the most important works in the history of science.

The three laws of motion describe the interrelationships between objects, and the forces acting on them:

Newton’s First Law of Motion (Inertia): An object at rest remains at rest, and an object in motion remains in motion at constant speed and in a straight line unless acted on by an unbalanced force.
Newton’s Second Law of Motion (Force): The acceleration of an object depends on the mass of the object and the amount of force applied.
Newton’s Third Law of Motion (Action & Reaction): Whenever one object exerts a force on another object, the second object exerts an equal and opposite on the first.

Law of thermodynamics

The laws of thermodynamics are a set of scientific laws which define a group of physical quantities, such as temperature, energy, and entropy, that characterize thermodynamic systems in thermodynamic equilibrium.

If two systems are independently equal, thermally, to a third, the two systems must be equal to each other.
The total amount of energy in a closed system cannot change.
The disorder of energy in a closed system will always increase.
It is impossible to reach absolute zero.

As defined in the Second Law of Thermodynamics, entropy is the tendency of all closed systems to drift toward a state of disorder rather than order. Entropy, a measure of disorder, explains why life seems to get more, not less, complicated as time goes on.

Leverage

By using a lever, you can amplify the input force. Think of a see-saw.

Mental models are an example of leverage. They can be leveraged to apply to the complex problems at school or work. By using a lever, you can amplify the input force. Think of a teeter-totter or a see-saw. Push one side down and the other goes up. Make one side short and the other long, and you can lift heavy objects by applying force to the long side. A lever amplifies an input force to provide a greater output force, which is said to provide leverage. The first descriptions of lever are found to be amongst the followers of Aristotle at the Peripatetic school. Egyptians used a lever to build The Great Pyramids.

Archimedes is credited for the principles of leverage. While Archimedes did not invent the lever, he explained the concept of leverage in his literature work, On the Equilibrium of Planes. Archimedes designed pulley systems, allowing sailors to use the principle of leverage to lift objects that would otherwise have been too heavy to move.

Give me a place to stand on, and I will move the Earth. - Archimedes

Leverage refers to the ability to gain an advantage through the use of a tool, and is measured as the ratio of the change in output to the change in input. Focusing on high leverage activities then becomes important. For small amount of additional input, a large increase in output leads to maximizing our scarcest resource which is time. Though leverage is a scientific concept, it has many other applications. In complex systems, leverage plays an important role.

Complex system: In complex systems, such as an economy, corporation, living organisms, a city, or an ecosystem, leverage can be earned where a small change in one thing can produce a big change in the entire system. Leverage is clear and specific. For example, how do we solve poverty? A specific and clear leverage can be used such as economic growth. By providing robust jobs, a city can escape poverty.

Whether in system analysis or decision-making, you should always think of applying leverage by working on smaller changes which would output a significant and impactful change.

Negotiations: Why do we always pay more for food at the airport, theaters or theme parks? These businesses don't have alternative offerings giving them the ultimate leverage on prices.

Money is not equal for all people. A strong personal brand adds more lift and leverage. One dollar from me may buy a soda from a car dealership, but one dollar from Justin Bieber may get him a Ferrari. And they'd pay him to drive away. - Jarod Kintz

Wealth: Use leverage to build wealth. How can you maximize beyond the hourly input-output? Leverage! If you can only earn with your time on hourly basis, the only way to build wealth is with deep specializations in medicine (doctor), law (lawyer), software (engineering), etc. Using leverage you can go beyond hourly input-output boundaries. When using leverage tools such as money, employees, or products, you can create more value for more people in the same amount of time.

Humans evolved in societies where there was no leverage. If I was chopping wood or carrying water for you, you knew eight hours put in would be equal to about eight hours of output. Now we’ve invented leverage - through capital, cooperation, technology, productivity, all these means. We live in an age of leverage. As a worker, you want to be as leveraged as possible, so you have a huge impact without as much time or physical effort. - Naval

A leveraged worker can out-produce a non-leveraged worker by a factor of 1,000 or 10,000. With a leveraged worker, judgment is far more important than how much time they put in or how hard they work. - Naval

Critical mass

The amount of reactant necessary for something to happen and to keep happening.

A tipping point when the change is slow at first, but then suddenly leads to an explosive change. The concept is critical in understanding the phenomenon of virality. When a nuclear reaction happens, neutrons are released and can cause another reaction. The smallest amount of a material needed to self-sustain a nuclear chain reaction is said to be the critical mass. In social dynamics, critical mass is a sufficient number of adopters of a new idea, technology or innovation in a social system so that the rate of adoption becomes self-sustaining and creates further growth. The point at which critical mass is achieved is sometimes referred to as a threshold within the threshold model of statistical modeling. The notion of a critical mass-that comes out of physics-is a very powerful model.

Nuclear physics: Critical mass is defined as the minimum amount of a fissile material required to self-sustaining fission reaction. Critical mass might vary on several factors such as-material, density or its shape. In some nuclear reactions, a reflector made of beryllium is used to speed up the process of reaching critical mass.

Tipping point: Both Critical Mass and Tipping Point have become interchangeable. Mark Granovetter has done research on a model of how fads are created. Consider a hypothetical mob assuming that each person's decision whether to riot or not is dependent on what everyone else is doing. Instigators will begin rioting even if no one else is, while others need to see a critical number of trouble makers before they riot, too. This threshold is assumed to be distributed to some probability distribution. The outcomes may diverge largely although the initial condition of threshold may only differ very slightly. This threshold model of social behavior was proposed previously by Thomas Schelling and later popularized by Malcolm Gladwell's book The Tipping Point. Malcolm Gladwell describes tipping point as “the moment of critical mass, the threshold, the boiling point.” He describes ideas, products, messages and behaviors spread just like viruses do.

Look at the world around you. It may seem like an immovable, implacable place. It is not, with the slightest push in just the right place it can be tipped. - Malcolm Gladwell

Sociology: A critical mass can form from a group of people who make a drastic change by altering their behavior, opinions or actions. When enough people follow new ideas, it can become a reality.

Geology: A critical mass can occur from tiny natural evolution. Andrew H Knoll, a famous geologist, in his book A Brief History of Earth explains that the early Earth was swaddled by a thick atmosphere, but it was air without oxygen. But that changed when Cyanobacteria came along causing the Earth's Greatest Oxygenation Event. Earth's Greatest Oxygenation Event (GOE) was revolutionary, and Cyanobacteria-the only bacteria capable of oxygenic photosynthesis-were the heroes of the revolution. Cyanobacteria gained the upper hand in a world that long favored different photosynthetic microbes. They dominated the planet by producing more oxygen than carbon. Enough Cyanobacteria tipped the oxygen level to sustain a modern life.

Peter Bevelin on critical mass: Peter Bevelin is an author of an excellent book Seeking Wisdom in which he explains critical mass.

At a certain scale, a system reaches a critical mass or a limit where the behavior of the system may change dramatically. It may work better, worse, cease to work or change properties. Small interactions over time slowly accumulate into a critical state–where the degree of instability increases. A small event may then trigger a dramatic change like an earthquake.

A small change may have no effect on a system until a critical threshold is reached. For example, a drug may be ineffective up until a certain threshold and then become effective, or it may become more and more effective, but then become harmful.

Another example is from chemistry. When a system of chemicals reaches a certain level of interaction, the system undergoes a dramatic change. A small change in a factor may have an unnoticeable effect but a further change may cause a system to reach a critical threshold making the system work better or worse.

A system may also reach a threshold when its properties suddenly change from one type of order to another. For example, when a ferromagnet is heated to a critical temperature it loses its magnetization. As it is cooled back below that temperature, magnetism returns.

Munger: Munger's commentary on critical mass:

Adding success factors so that a bigger combination drives success, often in non-linear fashion, as one is reminded by the concept of breakpoint and the concept of critical mass in physics. Often results are not linear. You get a little bit more mass, and you get a lollapalooza result. And of course I’ve been searching for lollapalooza results all my life, so I’m very interested in models that explain their occurrence. An extreme of good performance over many factors.

Mathematics

Model	Definition
Multiply by zero	Anything multiplied by zero becomes zero no matter how big the preceding numbers are.
Combinations and permutations	Combinations and permutations are very important in calculating probabilities.
Power laws	Power law is one form of Pareto's principle where the proportion of 80/20 shifts to extreme proportion.
Inversion	The thinking in which you want opposite-both forward and backward.
Compound interest	Compound interest is the interest you earn on the sum of your initial principal amount and the interest accumulated.

Multiply by zero

Anything multiplied by zero becomes zero no matter how big the preceding numbers are.

If you are in a system which multiplies numbers, and one of the numbers is zero, the end product will always be zero.

This is true in human systems as well as mathematical ones.

You can have everything working for you in your career-a great education, an excellent resume, and an impressive background-but none of that matters if you can’t deal with other people.

You can have plenty of healthy habits-get regular exercise, eat healthy, and meditate every morning-but if you’re not sleeping sufficiently, you’ll still have an increased risk of cancer, heart attack, and Alzheimer’s disease.

Warren Buffett:

“A long string of impressive numbers multiplied by a single zero always equals zero.' So you have to avoid the zeros.”

“There are a few ways that are guaranteed losers: if you're doing high-cost anything with high fees, spending too much in your personal life, or using a lot of leverage. There are only a few ways to go broke but many ways to get rich.”

Combinations and permutations

Combinations and permutations are very important in calculating probabilities.

The biggest difference between combinations and permutations is that in permutations the order of the matter. A combination is a list of things where the order does not matter, like a shopping list. A permutation is a list of things where the order does matter, like a bestseller list.

Combinations can be defined in many ways. Here is one: “A joining or merging of different parts or qualities in which the component elements are individually distinct.”

Permutations can be defined in many ways. Here is one: “Each of a several ways in which a set of number of things can be ordered or arranged.” In mathematics, the notion of permutation relates to the act of arranging all the members of the set into some sequence or order.

Charlie Munger:

“First there’s mathematics. Obviously, you’ve got to be able to handle numbers and quantities-basic arithmetic. And the great useful model, after compound interest, is the elementary math of permutations and combinations. And that was taught in my day in sophomore year in high school. I suppose by now in great private schools, it’s probably down to the eighth grade or so. One of the advantages of a fellow like Buffett, whom I’ve worked all these years, is that he automatically thinks in terms of decision trees and the elementary math of permutations and combinations...If you don’t get this elementary, but mildly unnatural, mathematics of elementary probability into your repertoire, then you go through a long life like a one legged in an ass kicking contest. You’re giving a huge advantage to everybody else.”

The mathematics of permutations and combinations leads us to understand the practical probabilities of the world around us, how things can be ordered, and how we should think about things.

Power laws

Power law is one form of Pareto's principle where the proportion of 80/20 shifts to extreme proportion.

Power law is a well known concept in seismology, the study of earthquakes. A large scale earthquake releases twice the energy than a small scale earthquake. A large scale earthquake can cause a lot of damage, but they occur rarely. In California, small scale earthquakes are common, but the damage is negligible. However, the impact of one big earthquake can be bigger than the sum of millions of smaller and more common ones. This is one example of power laws. Another example of power law is wealth distribution. Often you hear the top 1% of American household owns 99% of the wealth. The combined wealth of top 1% is orders of magnitude greater than all of 99% combined. This pattern of income distribution can be attributed to the mathematical principle of power law. This is why billionaires are a tiny fraction of our total population. A relationship between two quantities whereby a small change in one, results in a large change in the other. If you double the diameter of a circle, the area would quadruple. Power law is an extension of Pareto's principle which indicates 80% of the outcomes comes from 20% of the action. For example, 80% of the sales come from 20% of the customers; 80% of the world's internet traffic go to 20% of the websites. But a power law skews towards a more extreme proportion. For example, 99% of the traffic goes to 1% of the websites. There is a rich and long history of power law distribution spanning in many fields. Power law distributions have many names, often referred to as long-tail distributions, Pareto distributions, Zipfian distributions, Benford's law, Stefan-Boltzmann law and Steven's power law. The idea of a power law had been suggested by 19th-century researchers, but much of the recent interest in power laws has come recently, specifically from the study of probability distributions.

Power law equation: It is primarily in the study of statistical distributions that the name “power law” is used, but mathematically, a power law cannot be a probability distribution, but a distribution that is a power function involving two numbers, the base and the exponent. In math class, we all once asked, why even care about exponents? You will soon know why! Understanding any complex system such as income inequality or earthquakes require an understanding of power laws. Let's take a look at power laws in mathematical terms to get a better understanding:

Y=MX^N

Y is a function, X is the variable you can change, N is the exponent that you can scale and M is a constant that does not change. We'll explore two types of relationships- linear and non-linear relationships.

Linear relationships: To double a chocolate recipe, you would need twice as much as cocoa. This is simply a linear relationship. Let's assume M (constant) is equal to 1 and N (exponent) is equal to 2. Ignore M here because anything you multiply with 1 will yield the original number. So let's plug some numbers in the equation (Y= X^N) and the Y will yield the following:

If X is equal to 1, Y yields to 1
If X is equal to 2, Y yields to 4
If X is equal to 3, Y yields to 9

You get the point. A small change in the value of X leads to a proportionally large change in the value of Y. In the above example Y grows linearly. It requires twice the amount to make something twice the big.

Non-linear relationships: How about non-linear relationships? It is much different because of complex systems. Let's use the most successful Olympian of all time, Michael Phelps, to understand non-linear relationships. Let's take the same power law equation we explored earlier.

Y=MX^N

Michael Phelps has a low and a constant M because of some combination of his natural ability to swim and training history. X, the base is a number he has a control over, and N, the exponent is between 0 and 1. Thus, the relationship between X and Y becomes less proportional. Let's plug some numbers in now.

Y yields to 2 when N is 0.5, X is 4 and M is 1
Y yields to 4 when N is 0.5, X is 16 and M is 1

Let's compare the two scenarios from above and see how it translates into his performance and training. In the first scenario above, Michael Phelps swims 4 extra miles (X variable for which he has control over) during his training which leads to an endurance of 2 (Y). In the second scenario, he has to swim 4 times more (16 miles) to double his endurance from 2 to 4. As you increase X, you are likely to see an exponent of N decline. So increasing X of 16 to 64 is unlikely to double the endurance again. Eventually, the ratio of swimming extra lanes to an endurance will become nearly infinite. This is called diminishing returns- no matter how much more training time you put in, it will yield to a negligible or less positive result.

What happens when an exponent of N is negative? Le't take a scenario where Michael Phelps is injured.

Y results in 0.5 when X is 4 and N is -(0.5)
Y results in 0.25 when X is 16 and N is -(0.5).

In the first scenario, swimming 4 extra miles leads to only 0.5 a mile of endurance. In the second scenario that progress shrinks by half again. This wouldn't be smart way to train for Michael Phelps because more training leads to less endurance. This is an inverse relationship between the exponent X and Y. Power law is complex to understand, but once you understand it becomes easy to see the world as is.

The greatest shortcoming of the human race is our inability to understand the exponential function. - Albert Allen Bartlett

Higher order power laws:

We already know, when N is 1, it is called a linear relationship, also called a first-order power law. When N is 2, it is called a second-order power law. Commonly found in physics concepts such as kinetic energy. When N is 3, it is called a third-order power law. This law is applicable in wind turbines. When N is 4, it is called a fourth-order power law. This law is applicable in heat radiation.

We don’t live in a normal world; we live under a power law. - Peter Thiel

Diminishing returns: As per everything else, power law should not be a singular lens to see the world. Like everything else, it requires a detailed analysis. As explained earlier, Michael Phelps cannot just rely on putting in more time to get a small percentage of endurance. Power laws have limitations such as law of diminishing return. The exponent starts declining in some applications, no matter how much extra time you put in. There is a perfect example of diminishing return to happiness when you make more money. Most people assume making more money will bring more happiness. But that is not the case. Being able to enjoy basic needs will certainly bring happiness. So, earning from $20k to $60k will bring in joy, but earning from $100k to $115k leads to little change in well-being.

Applications: Power law is applicable in many systems, especially complex systems. Below are just to name a few:

Compounding (Business): Another form of power law is called a compound interest. Small amount of contribution becomes a large amount of money. This is applicable to savings and debt.
Zip's Law (Language): Another form of power law is called Zip's law which states a small percentage of words make up the majority of usage. The most used word in a language has a higher percent of all words used, while the second is used half as much, and so on. You can use Zip's law to understand several languages by only focusing on the most used words.
Klieber's Law (Biology): The average lifespan of an animal based on its size can be attributed to power law. The larger the animal, the higher the lifespan, and vice-versa. The relationship between animal's size and its metabolism is identified as Klieber's law which states that an animal’s metabolic rate increases at 3/4ths of the power of the animal’s weight. Larger animals require less energy to burn their food compared to smaller ones which require more energy.

Inversion

The thinking in which you want opposite-both forward and backward.

Regardless of age, everyone is thinking about success. A common question amongst many-what does success mean? But what if we went even one step further about this curiosity? What does failure look like? Thinking through inversion broadens your risk analysis in every aspect of life. The thinking in which you want opposite - not only thinking forward but also thinking backward. This trick is a powerful idea because it de-biases us from having blinders. The goal of this exercise is to envision the negativity in any event so that it can be avoided. Inversion allows us to look at things in the opposite way. This can be particularly useful in solving complex problems, helping to see them in a different way. For example, the inverse of a simple addition would be subtraction from the total. The power of inverse thinking is a rare and crucial skill that all great thinkers use to their own advantage. Becoming successful-is the mantra of human ideology that dominates reality. Complimenting opposite of imagining success with imaging failure can give you a full picture before you make any decisions. Being positive and negative is complimentary. Avoiding failure is equally important in being successful.

Stoics: Stoics (early 3rd century BC)-followed the inversion process to eliminate the worst case scenario by thinking backwards and avoiding any failures. The ancient Stoic philosophers like Marcus Aurelius, Seneca, and Epictetus regularly conducted an exercise known as a premeditatio malorum, which translates to premeditation of evils. The goal of this exercise was to envision the negative things that could happen in life. For example, the Stoics would imagine what it would be like to lose their job and become homeless. Or to suffer an injury and become paralyzed. Or to have their reputation ruined and lose their status in society.

Carl Jacaboi: Carl Jacaboi (1804–1851) was a German mathematician, who made contributions to elliptic functions, dynamics, differential equations and number theory. These theories are still applicable in our modern age. How was Jacobi able to contribute so much to the scientific field during his career? He was known for his ability to solve complex problems by following a simple strategy-Invert, always invert (man muss immer umkehren), conveying his belief that the solution of many hard problems can be clarified by re-stating them in an inverse form (reverse-engineer). He would write down the opposite of the problem he was trying to solve. By conducting this exercise he was able to resolve many theoretical problems.

Subtractive knowledge: Subtractive knowledge is when you envision negative things and then subtracting what is not important or what is wrong from the total. Additive measures manifest in form of an urge to do something about a problem which may not need any intervention. Subtractive measures adhere to the philosophy of don’t try to fix something which ain’t broken. Nassim Taleb also employs subtractive epistemology. He argues that the greatest and most robust contribution to learning and knowledge consists of removing what we think is wrong. What does not work, that is negative knowledge, is more robust than positive knowledge.

Avoid stupidity: Avoiding stupidity is another way to apply inversion in your life. It’s a choice between avoiding stupidity and seeking brilliance. You can avoid a bad marriage by being loyal to your significant other. Or in life, you can avoid death by staying away from alcohol and drugs. Another way to apply inversion is to not only find role models but also find anti-role models - people you don’t want to resemble when you grow up. You want to avoid the path they took. Ambitious young people can find a lot of success in this type of thinking.

90 days: Another great implementation of inversion was by the CTO of Pandora. Pandora faced immense competition from Spotify, Apple Music, Google, and Amazon. However, it still managed to stay alive despite the heavy competition. 90 days is the length of one quarter. That’s how far you can reasonably think and plan ahead when you’re in hyper-growth. He asks-“And there’s a question you have to ask yourself at the start of every quarter: What would be stupid for us not to do in the next 90 days?”

Munger on inversion: Charlie Munger is one of the greatest thinkers of the 21st century. Charlie Munger has adopted an approach to solving problems that is the reverse of the approach many people use in life. He avoids misery. Munger once gave a speech where he spoke about a famous Johnny Carson talk in which the comedian described all the ways one can be miserable. Munger is also commonly famous for saying “Invert always invert.”

Think forwards and backwards - invert, always invert. Many hard problems are best solved when they are addressed backward. The way complex adaptive systems work and the way mental constructs work is that problems frequently get easier, I’d even say usually are easier to solve, if you turn them around in reverse. In other words, if you want to help India, the question you should ask is not “how can I help India,” it’s “what is doing the worst damage in India? What will automatically do the worst damage and how do I avoid it?” Figure out what you don’t want and avoid it and you’ll get what you do want. How can you best get what you want? The answer: Deserve what you want! How can it be any other way? The great Algebra pioneer Jacobi knew that it is in the nature of things that many hard problems are best solved when they are addressed backward. In life, unless you’re more gifted than Einstein, inversion will help you solve problems.

Let me use a little inversion now. What will really fail in life? What do you want to avoid? Having a certain kind of temperament is more important than brains. You need to keep raw irrational emotion under control. When you have a huge convulsion, like a fire in this auditorium right now, you do get a lot of weird behavior. If you can be wise [during such times, you’ll profit]. It is remarkable how much long-term advantage [we] have gotten by trying to be consistently not stupid, instead of trying to be very intelligent.

Compound interest

Compound interest is the interest you earn on the sum of your initial principal amount and the interest accumulated.

Think of it as a snowball effect. Snowball rolling down the hill, accumulating more snow and gaining in size. Snow keeps compounding as it accelerates downwards. The more you accumulate over a long period of time the faster it compounds whether with money or wisdom. Interest is the cost of borrowing or an income on a deposit. When money is lent, a simple interest is calculated on the original, principal sum. This is interest. Compound interest is calculated on the principal amount plus the accumulated interest of previous periods, and can thus be regarded as interest on interest. It is the result of reinvesting interest, rather than paying it out, so that interest in the next period is then earned on the principal sum plus previously accumulated interest. Compound interest is standard in finance and economics. The rate at which compound interest accrues depends on the frequency of compounding. The higher the number of compounding periods, the greater the effects of compounding.

Compound interest is the eighth wonder of the world. He who understands it, earns it … he who doesn’t … pays it. ― Albert Einstein

What else compounds other than money and mathematical equations? Compound interest is well known in the field of modern finance but money is not the only thing that compounds. The power of compounding applies far beyond the realms of finance. Knowledge, relationships, marketing, sales or ideas are all compoundable. Even in sports. Score built on momentum can compound during the game. Knowledge compounds rapidly, as you read more, the more connections you can make across different ideas and fields, leading to a prosperous snowball effect. The more you do of something, the more it reinforces. You often get an advice to make daily improvements because it has long-term effects. That is called compounding. If you focus on improving 1% on daily basis, after a year, you'll be many times better than where you started. It can also have the opposite effect. As you decline 1% on a daily basis, you'll be far worse than where you started.

Franceso Balducci Pegolotti: Compound interest was once regarded as immoral and condemned by Roman law. In 1340, the Florentine merchant and politician, Franceso Balducci Pegolotti provided a table of compound interest in his book Pratica della mercatura. It gives the interest on 100 lire, for rates ranging from 1% to 8%, for up to 20 years.

The Rule of 72: The rule of 72 calculates the approximate time over which an investment will double at a given rate of return. 72 can be divided by the interest (72/I) to find out time it would take to double the initial amount. It can only be used for annual compounding. For example, let's say an investment that has a 6% annual rate of return will double in 12 years. An investment with an 8% annual rate of return will thus double in 9 years.

Compounding is slow: Compounding takes a long time which requires focus and dedication. Therefore, compounding is an exponential effect rather than a linear effect. We can visualize this by drawing out a hockey stick. Initially, it starts out slow and then it exponentially grows. If you don’t interrupt it, compounding produces a fortune. Compounding tiny excellence is what creates big excellence. So focus on compounding good habits and drain out the bad habits because focusing on bad habits can compound in the wrong direction and can turn out to be expensive.

Statistics

Model	Definition
Standard deviation	A measure of variation between a set of values.
Matthew effect	Someone who starts out with more money than someone else will generally accumulate more money than the other person. The same is also true for fame, status and education.
Utility	A calculation of the gratification experienced by the user of goods, or a set of goods.
Probability	The likelihood that something will happen. In most cases, we cannot say, with certainty, what outcome will occur, but we can often predict how likely a given outcome is.
Comparative advantage	The ability of someone, or a group of people, to produce goods or services at a better price than a competitor irrespective of quality.
Moral hazard	A person or group who does not have to bear the full responsibility for an action is more likely to behave recklessly.
Switching costs	The costs involved when switching between suppliers. Switching costs don’t have to be financial. They can also cost time and effort, or even be psychological.
Network effects	A phenomenon by which each incremental user of a product or service adds value to the existing user base.
Bayes theorem	The method of updating a probability estimate for a hypothesis as new evidence or information becomes available.
Arbitrage	It’s a process of identifying market inefficiencies capitalizing on the imbalance where price difference is exploited.
Regression to the mean	Periods of above averages are followed by below averages.
Correlation and causation	Two things happening at the same time is correlation while one causing the other to change is causation.
Theory of constraints	The theory of constraints answers a fundamental question of what is not working within a system.
Central limit theorem	A large properly drawn sample will resemble the population from which it is drawn.
Prisoner dilemma	Prisoner's dilemma helps us understand how people behave when it comes to cooperation or acting in their own self-interests.
Marginal analysis	A cost benefit analysis which deals with an examination and identification of the added benefits of an activity weighed against the costs.
Law of large and small numbers	As a sample size grows large, its mean gets closer to the average of the population. A large sample size will give a more accurate outcome.

Standard deviation

A measure of variation between a set of values.

Used in statistics to measure a spread of values and how far from ‘normal’ these values are. By finding the standard deviation, we can know what is ‘normal’ for a given set of values, and what is above or below this normal range. It is also used to analyze degrees of uncertainty.

A normal distribution is a return distribution that is symmetrical about its mean. In other words, the data is centered and not skewed to either the right or left and the mean is equal to the median and that is equal to the mode. So Imagine a perfect and evenly distributed bell curve with 5 evenly divided intervals. 99% of the observations fall within three standard deviations of the mean, the extreme left, and right of the curve account for .5%. Those intervals between set values are standard deviations.

If you were to graph the average income of individuals in the U.S. using the variables of age and education level, you would find a median income for certain age brackets. From this information, you could use statistical deviation to find percentiles within the data set. Those percentiles could be used to identify earnings information for certain groups within the data set.

Standard deviation measures the dispersion of data relative to its mean. That being said, the standard deviation is a mathematical necessity and inherent for businesses that involve investing, trading, and measuring market volatility.

Standard deviation is relied upon to hypothesize trends, and capitalize off the performance of the market or even its decline. A standard deviation is a tool used to mitigate and understand risk and tolerance for investment objectives.

Ultimately standard deviation is a useful mathematical tool, not limited to census and stock markets, but applicable to anything in the world with data that needs refinement.

Standard deviation does have its downside. Data in a set can always be affected by extreme figures on the periphery of data sets. Standard deviation works with normal distribution, but values which are anomalies can be observed as risky.

Matthew effect

Someone who starts out with more money than someone else will generally accumulate more money than the other person. The same is also true for fame, status and education.

The rich get richer and the poor get poorer.

Cumulative Advantage is sometimes known as The Matthew Effect or Accumulated Advantage or “the rich get richer, the poor get poorer”.

Once a social agent gains a small advantage over other agents, that advantage will compound over time into an increasingly larger advantage.

A common example of Cumulative Advantage is that a prize will almost always be awarded to the most senior researcher involved in a project, even if all the work was done by a graduate student. The senior researched has accumulated that advantage.

Matthew effect in knowledge acquisition-a person with more expertise has a larger knowledge base, and the large knowledge base allows that person to acquire even greater expertise at a faster rate. As you learn to read more, your capacity to read even more and absorb more increases rapidly.

While luck plays a role in success, an early advantage, no matter how small, can change the future course of events.

Utility

A calculation of the gratification experienced by the user of goods, or a set of goods.

Happiness cannot be directly measured, but utility tries to represent the satisfaction or benefit in a way that is measurable.

Diminishing marginal utility is important factor, as each additional unit of a particular product or service is consumed, the next is less satisfying.

When you eat a hamburger the first is amazing, the second is good, the third is ok, the forth is not very good and the fifth is gross.

The difference between burger 4 and 5 is small in terms of utility lost but the difference from the first and the third burgers consumed is massive.

Understanding this relationship is key to understanding tradeoffs and why someone may give a more valuable unit for something of lesser value, provided they have abundance or why the first unit is worth the most provided there is scarcity.

Probability

The likelihood that something will happen. In most cases, we cannot say, with certainty, what outcome will occur, but we can often predict how likely a given outcome is.

The best we can do is estimate the future by generating realistic, useful probabilities. A simple formula to follow:

P(Event) = Number of ways it can happen/Total number of outcomes

Concepts to apply probabilistic thinking:

Scenario Analysis: Illuminate potential outcomes by thoughtfully linking discrete assumptions into specific scenarios.
Decision Trees: A tree-like decision analysis tool to elucidate key decisions and their potential outcomes.
False Positives and False Negatives (Type I and Type II errors): Tests can falsely indicate the presence of a condition when it is not present (false positives) and no presence of a condition when it is present (false negatives).
Randomness: Much of our lived experience is fundamentally unpredictable and random, yet our human instincts for sense-making and pattern-seeking fool us into seeing causal relationships where none exist.
Stochastic (Random) Processes: Statistical processes used to probabilistically describe systems which evolve over time due to random changes of independent variables.
Normal Distribution (a.k.a., Bell Curve): The visualization of a continuous probability distribution for a random variable often ends up shaped like a bell, with a protruding middle that symmetrically shortens to tails at both ends.
Subadditivity effect: The tendency to judge probability of the whole to be less than the probabilities of the parts.
The Conjunctive Events Bias: We often overestimate the likelihood of conjunctive events-occurrences that must happen in conjunction with one another. The probability of a series of conjunctive events happening is lower than the probability of any individual event.

Charlie Munger:

“If you don't get this elementary, but mildly unnatural, mathematics of elementary probability into your repertoire, then you go through a long life like a one-legged man in an ass-kicking contest. You're giving a huge advantage to everybody else.”

Howard Marks:

“Many things could have happened in each case in the past, and the fact that only one did happen understates the variability that existed.”

“In dealing with the future, we must think about two things: (a) what might happen and (b) the probability it will happen.”

“The future should be viewed not as a fixed outcome that’s destined to happen and capable of being predicted, but as a range of possibilities and, hopefully on the basis of insight into their respective likelihoods, as a probability distribution.”

“Rather than judge a decision solely on the basis of the outcome, you have to consider (a) the quality of the process that led to the decision, (b) the a priori probability that the decision would work (which is very different from the question of whether it did work, (c) the other decisions that could have been made, (d) all of the events that reasonably could have unfolded, and thus (e) which of the decisions had the highest probability of success.”

Peter Bevelin:

“We tend to believe that the probability of an independent event is lowered when it has happened recently or that the probability is increased when it hasn’t happened recently. For example, after a run of bad outcomes in independent events that appear randomly, we sometimes believe a good outcome is due. But previous outcomes neither influence nor have any predictive value to future outcomes. There is neither memory nor a sense of justice.”

Robert Rubin:

“Sound decisions are based on identifying relevant variables and attaching probabilities to each of them. That's an analytic process but also involves subjective judgements. The ultimate decision then reflects all of this input, but also instinct, experience, and 'feel'. All the time bearing in mind that reality is always more complex than concepts and models. A true probabilistic view of life quickly leads to the recognition that almost all significant issues are enormously complex and demand that one delve into those complexities to identify the relevant considerations and the inevitable trade-offs. With an enormous number of competing considerations, the key to reaching the best possible decision is to identify all of them and decide what odds and import to attach to each.”

Comparative advantage

The ability of someone, or a group of people, to produce goods or services at a better price than a competitor. The quality of the goods or services does not matter.

The Scottish economist David Ricardo’s discovery of the law of comparative advantage occurred in October 1816.

Comparative advantage is an economy's ability to produce a particular good or service at a lower opportunity cost than its trading partners.

Comparative advantage is used to explain why companies, countries, or individuals can benefit from trade.

Focusing only on comparative advantages can result in the exploitation and depletion of the country's resources.

The law of comparative advantage states that even if a country has the absolute advantage in producing two given goods, they should still specialize in producing the good for which they have the lowest opportunity cost.

An example from Wikipedia:

“Two men live alone on an isolated island. To survive they must undertake a few basic economic activities like water carrying, fishing, cooking and shelter construction and maintenance. The first man is young, strong, and educated. He is also, faster, better, more productive at everything. He has an absolute advantage in all activities. The second man is old, weak, and uneducated. He has an absolute disadvantage in all economic activities. In some activities the difference between the two is great; in others it is small. Despite the fact that the younger man has absolute advantage in all activities, it is not in the interest of either of them to work in isolation since they both can benefit from specialization and exchange. If the two men divide the work according to comparative advantage then the young man will specialize in tasks at which he is most productive, while the older man will concentrate on tasks where his productivity is only a little less than that of a young man. Such an arrangement will increase total production for a given amount of labor supplied by both men and it will make both of them richer.”

Moral hazard

A person or group who does not have to bear the full responsibility for an action is more likely to behave recklessly.

When someone enters a risky situation knowing that someone else will bear the cost of the risk or risks. This can occur when one side does not have access to all the information in the situation. For example, when a corporation is willing to take on more risks because they know their insurance company will have to cover all losses.

Moral hazard refers to behavioral changes that might occur and increase the risk of loss when a person knows that insurance will provide coverage. When a person can avoid the potential consequences of a risk, their actions, and attitude change and there is a greater likelihood of a moral hazard.

Nassim Taleb:

“The worst problem of modernity lies in the malignant transfer of fragility and antifragility from one party to the other, with one getting the benefits, the other one (unwittingly) getting the harm, with such transfer facilitated by the growing wedge between the ethical and the legal. This state of affairs has existed before, but is acute today – modernity hides it especially well.”

Seth Klarman:

“Investors are strangely willing to ignore the moral hazard of their own behavior, rewarding managements which successfully manipulate quarterly earnings into a steady and predictable uptrend.”

Warren Buffett:

“If I were running things and if a bank had to go to the government for help, the CEO and his wife would forfeit all their net worth. … And that would apply to any CEO that had been there in the previous two years....I think you have to change the incentives. The incentives a few years ago were try and report higher quarterly earnings. It’s nice to have carrots, but you need sticks.”

Switching costs

The costs involved when switching between suppliers. Switching costs don’t have to be financial. They can also cost time and effort, or even be psychological.

Switching banks, cancellation fees and onboarding costs are examples of switching costs. Microsoft Office is another great example. Data is highly leveraged on driving switching costs.

Switching costs could be financial expenses, inconveniences, lost time, mental and psychological barriers, risks and uncertainty, or social barriers.

Switching costs only work because they provide the customer with something they genuinely value. Switching costs are a way to increase the value of your own product, service, and brand experience as a whole. By giving your customers a little extra, you’re giving them something to lose if they switch, but also something to love if they stay. This mindset can help build genuine customer relationships.

Switching costs are an important business model mechanic that can help brands build better customer relationships and defend themselves from competition. Learning what switching costs are and why they work so well is a great start, but the real value comes when you learn how to use them for your own brand. One of the easiest and most effective ways to put switching costs to work for your business is through a rewards program.

Switching costs are the cost of lost time when you mentally transition from one brand to another.

Network effects

A phenomenon by which each incremental user of a product or service adds value to the existing user base.

A great example is social media: the more people who sign up for a social network, the more valuable and attractive that social network is to the average person.

The idea originated with Theodore Vail, the president of American Telephone and Telegraph (AT&T). In the company's 1908 annual report, Vail wrote, "[The telephone's] value depends on the connection with the other telephones - and increases with the number of connections."

Network effects exist when the “value” of a format or system depends on the number of users. These effects can be positive (for example, a telephone network) or negative (for example, congestion). They can also be direct (increases in usage lead to direct increases in value to users, as with the telephone) or indirect (usage increases the production of complementary goods, as with cases for mobile phones). Network effects can protect valuable markets, or not much of a market at all in terms of financial value.

Network effects are not viral effects. Network effects are about creating defensibility, and viral effects are about getting new users for free. They have totally different objectives and playbooks.

The more people who search Google the more data Google has (search queries) to help make its search even better. And then the more users Google attracts (along with the data Google knows about them) the more attractive Google becomes to its paying customers: the advertisers willing to reach those searchers.

The more people who use Facebook, the more likely a Facebook user will choose to add their latest content (photos, videos, articles, etc.) to Facebook which in turn makes it the go-to place to see what’s up with your friends.

The network effect is defined as an entity getting more valuable the more people who use it. This can equate to a “winner-takes-all” position for businesses and a “moat,” as Warren Buffett and Charlie Munger like to say, to defend your castle (business). Warren Buffett wrote in his 2006 letter:

“Advertisers preferred the paper with the most circulation, and readers tended to want the paper with the most ads and news pages. This circularity led to a law of the newspaper jungle: Survival of the Fattest. Thus, when two or more papers existed in a major city (which was almost universally the case a century ago), the one that pulled ahead usually emerged as the stand-alone winner. After competition disappeared, the paper’s pricing power in both advertising and circulation was unleashed. Typically, rates for both advertisers and readers would be raised annually – and the profits rolled in. For owners this was economic heaven.”

Bayes theorem

The method of updating a probability estimate for a hypothesis as new evidence or information becomes available.

For example, the probability of someone dying can be predicted with more accuracy when the person's age is known.

Named after Thomas Bayes, a Presbyterian minister from the 1700s, Bayes Theorem is the process of calculating the validity of a hypothesis’, based on the known evidence. His idea for this theorem was that an initial belief plus new evidence equals a new and improved belief.

Bayes can be observed as a framework for critical thinking. When attempting to form accurate beliefs, you must start with the information you already possess. As time continues, you update your beliefs and try your best not to allow old information to erode.

Philosophers assert that science as a whole can be viewed as a Bayesian process, and that Bayes can distinguish science from pseudoscience more precisely than falsification, the method popularized by Karl Popper.

It is a fantastic technique to use when making judgments of the world.

To form accurate beliefs, you always start from the information you already have. You update beliefs. You don’t discard everything you know.

The Bayesian model will tell you to examine your priors, to calculate the probability that your chosen explanation is the right one. It then tells you to watch for new pieces of information that might shift your % confidence in that belief. This is all well and good, but note that Bayesian updating was built for the integration of new information; it doesn’t say anything about the generation of new information.

Nassim Taleb, in his book The Black Swan, writes about the Turkey problem:

“Consider a turkey that is fed everyday. Every single feeding will firm up the bird’s belief that it is the general rule of life to be fed everyday by friendly members of the human race “looking out for its best interests,” as a politician would say. On the afternoon of the Wednesday before Thanksgiving, something unexpected will happen to the turkey. It will incur a revision of belief.”

This is what happened during 2008 financial crisis. Such extreme events, which are not only high impact but are hard to predict, have been termed as Black Swan events by Taleb. Just because it fails to predict the black swan events doesn’t mean that one should abandon the Bayesian thinking. The way to handle black swan is to limit your exposure to it by factoring in the margin of safety.

John Maynard Keynes reminds us:

“When facts change I change my mind. What do you do sir?”

Lao Tzu, Tao Te Ching:

“The wise man is one who, knows, what he does not know.”

Arbitrage

It’s a process of identifying market inefficiencies capitalizing on the imbalance where price difference is exploited.

For example, buying vintage clothes from a thrift store knowing that you can sell them for a higher price, instantly, to a clothing dealer.

It is an attempt to profit by exploiting price differences in identical or similar financial instruments. For example, if gold is trading in London at $550 per ounce and in New york at $560 per ounce, assuming low frictional costs, an arbitrageur can buy gold in London and immediately sell it in New York, pocketing the difference.

Arbitrage plays don’t remain open for long. As people execute these arbitrage trades, the price spread collapses and the arbitrage opportunity eventually vanishes.

Warren Buffett on arbitrage:

“...arbitrage – or “risk arbitrage,” as it is now sometimes called – has expanded to include the pursuit of profits from an announced corporate event such as sale of the company, merger, recapitalization, reorganization, liquidation, self-tender, etc. In most cases the arbitrageur expects to profit regardless of the behaviour of the stock market. The major risk he usually faces instead is that the announced event won’t happen.”

“You will notice that we had significant holding in Beatrice companies at year end. This is a short-term arbitrage holding – in effect, a parking place for our money (though not a totally safe one, since deals sometimes fall through and create substantial losses). We sometimes enter the arbitrage field when we have more money than ideas, but only to participate in announced mergers and sales.”

“To evaluate arbitrage situations you must answer four questions: (1) How likely is it that the promised event will indeed occur? (2) How long will your money be tied up? (3) What chance is there that something still better will transpire – a competing takeover bid, for example? and (4) What will happen if the event doesn’t take place because of anti-trust action, financing glitches, etc.?”

“Arbitrage positions are substitute for short-term cash equivalents, and during part of the year [1989] we held relatively low levels of cash. In the rest of the year, we had a fairly good-sized cash position and even so chose not to engage in arbitrage. The main reason was corporate transactions made no economic sense to us; arbitraging such deals comes too close to playing greater-fool game.”

“Berkshire’s arbitrage activities differ from those of many arbitrageurs. First, we participate in only a few, and usually very large, transactions each year. Most practitioners buy into a great many deals perhaps 50 or more per year. With that many irons in the fire, they must spend most of their time monitoring both the progress of deals and the market movements of the related stocks. This is not how Charlie nor I wish to spend our lives. (What’s the sense in getting rich just to stare at a ticker tape all day?)”

“Arbitrage has looked easy recently. But this is not a form of investing that guarantees profits of 20% a year or, for that matter, profits of any kind. As noted, the market is reasonably efficient much of the time. An investor cannot obtain superior profits from stocks by simply committing to a specific investment category or style. He can earn them only by carefully evaluating facts and continuously exercising discipline. Investing in arbitrage situations, per se, is no better a strategy than selecting a portfolio by throwing darts.”

“Because my mother isn’t here tonight, I’ll even confess to you that I’ve been an arbitrageur.”

Regression to the mean

Periods of above averages are followed by below averages.

If you throw twenty darts at a target and manage to hit the bull’s-eye eighteen times, the next time you throw twenty darts, it probably won’t go well. There is no scientific reasoning behind it, but rather a natural behavior of randomness. What goes up must come down and what goes down must come up. An anomaly in statistics (an extreme value), will tend to be closer to average the next time it is measured. If, when measured a second time, the value is found to be more extreme, then the original value was likely closer. “Regression” was discovered and named late in the nineteenth century by Sir Francis Galton, half cousin of Charles Darwin. Galton compared the height of children to that of their parents. He found that when the average height of the parents was greater than the mean of the population, the children were shorter than their parents. Likewise, when the average height of the parents was shorter than the population mean, the children were taller than their parents. Galton called this phenomenon regression toward mediocrity. Regression to the mean is a statistical phenomenon. It can result in wrongly concluding that an effect is due to a variable when it is due to a chance. Ignorance of the problem can lead to errors in daily decision-making process.

Mean is just another word for average. Regression to the mean explains why extreme events are usually followed by something more typical, regressing closer to the expected mean. For example, not every non-athletic swimmer can be expected to break records time after time. A repeat of a rare result is equally as rare as its first occurrence, such that it shouldn’t be expected the next time. We should never assume results based on a smaller set of observations. A small sample tells us very little beyond that what happened was within the range of possible outcomes. While first impressions can be accurate, we should treat them with skepticism. More data can help us distinguish what is likely from what is an anomaly.

Business & investing: Regression to the mean is powerful in business and investing. Periods of above averages are followed by below averages and vice-versa. As Charlie Munger said in Poor Charlie’s Almanack:

Mimicking the herd invites regression to the mean. - Charlie Munger

His investing partner Warren Buffett puts it in another way:

Most people get interested in stocks when everyone else is. The time to get interested is when no one else is. You can’t buy what is popular and do well. - Warren Buffett

Jason Zweig who is a successful financial journalist at Wall Street Journal writes:

My role, therefore, is to bet on regression to the mean even as most investors, and financial journalists, are betting against it. I try to talk readers out of chasing whatever is hot and, instead, to think about investing in what is not hot. Instead of pandering to investors’ own worst tendencies, I try to push back. My role is also to remind them constantly that knowing what not to do is much more important than what to do. Approximately 99% of the time, the single most important thing investors should do is absolutely nothing. - Jason Zweig

Peter Bevelin who is another notable and well respected investor shares his thoughts.

Regression to the mean is not a natural law. Merely a statistical tendency. And it may take a long time before it happens. - Peter Bevelin

Michael Mauboussin is a researcher in the investing world.

Understanding and using the phenomenon of reversion to the mean is essential in making sound predictions [decisions]… Reversion to the mean is most pronounced at the extremes, so the first lesson is to recognize that when you see extremely good or bad results, they are unlikely to continue that way. This doesn’t mean that good results will necessarily be followed by bad results, or vice versa, but rather that the next thing that happens will probably be closer to the average of all things that happen. - Michael Mauboussin

Sports: Regression to the mean can frequently be observed in sports. Let's take Michael Jordan for example, one of the best basketball players who has two talented sons, but nowhere near to Jordan's level. They were both talented, but didn't make it to the NBA. The same phenomenon is justified for individual performances via speculation. We ought to remember chance plays a big role. A pro-runner sprinting at a record mileage against heavy wind will lead to mediocre results. And an average athlete running in favor of heavy wind will lead to spectacular results. But when there is no wind, things will even out over time. Nassim Taleb observes in his book Fooled by Randomness:

The ‘hot hand in basketball’ is another example of misperception of random sequences: It is very likely in a large sample of players for one of them to have an inordinately lengthy lucky streak. As a matter of fact it is very unlikely that an unspecified player somewhere doesn’t have an inordinately lengthy lucky streak. This is a manifestation of the mechanism called regression to the mean….in real life, the larger the deviation from the norm, the larger the probability of it coming from luck rather than skills…This can be easily verified in stories of very prominent people in trading rapidly reverting to obscurity, like the heroes I used to watch in trading rooms. - Nassim Taleb

Correlation & regression: Regression to the mean occurs whenever a nonrandom sample is selected from a population and two imperfectly correlated variables are measured. The less correlated the two variables, the larger the effect of regression to the mean. The more extreme the value from the population mean, the more room there is to regress to the mean. Galton figured out that correlation and regression are not two concepts and they are different perspectives of the same concept. The general rule is whenever the correlation between two scores is imperfect, there will be regression to the mean. More explanation from Wikipedia:

Galton showed that the height of children from very short or very tall parents would move towards the average. In fact, in any situation where two variables are less than perfectly correlated, an exceptional score on one variable may not be matched by an equally exceptional score on the other variable. The imperfect correlation between parents and children (height is not entirely heritable) means that the distribution of heights of their children will be centered somewhere between the average of the parents and the average of the population as whole. Thus, any single child can be more extreme than the parents, but the odds are against it.

Correlation and causation

Two things happening at the same time is correlation while one causing the other to change is causation.

The temperature of the earth has been warming over the years. The number of pirates has declined in that time. There is a correlation between the temperature rise and pirates declining, but the warming is not the cause of the decline. Correlation does not imply causation. Correlation is when two or more variables change together, but they are not the cause of the other change or changes. Causation is when two or more variables change and one of those variables is responsible for the other change of changes. Don't draw conclusions if something is correlated. Take time to find and understand the hidden factors. Correlation and causation are mostly misunderstood and often used interchangeably. They are both statistical terms which are important to understand to draw correct conclusions. Failure to do so influences illogical inferences.

Correlation: Correlation shows how strongly the pair of variables are linearly related and change together. It does not tell us why the relationship exists, but it just says the relationship exists. News media are good at this. Blindly consuming information can have negative consequences. It is upon us to uncover the underlying variables, finding more information and observing whether the variables are truly correlated or not. Correlation coefficient is used to measure how strongly or poorly variables are correlated. The correlation coefficient varies between -1 and 1.

Causation: Causation takes correlation far by indicating a variable causing other to change or vice-versa. This is called cause and effect. There are cases in which classifying a cause is difficult but a good study of causal relationships takes into account of randomized controlled factors. This minimizes bias. The precision of outcomes are indicated by providing their confidence intervals.

Correlation does not cause causation: Correlation does not imply causation is a common phrase in the field of statistics. This phrase refers to the inability to reach a cause-and-effect relationship between two variables on the basis of an observed correlation between the variables. In technical terms of logic, implies means there is a sufficient condition for. Statisticians often refer to this as causation is not certain. Where there is causation, there is correlation. Correlation is often used in concluding causation because it is a necessary condition, it is not a sufficient condition.

We do not have knowledge of a thing until we have grasped its why, that is to say, its cause. - Aristotle

Causal analysis: Causal analysis is the field of experimental design and statistics pertaining to establishing cause and effect. For any two correlated events, A and B, their possible relationships include:

A causes B (direct causation)
B causes A (reverse causation)
A and B are both caused by C (the common-causal variable)
A causes B and B causes A (bidirectional or cyclic causation)
There is no connection between A and B; the correlation is a coincidence.

Thus there can be no conclusion made regarding the existence or the direction of a cause-and-effect relationship only from the fact that A and B are correlated. Determining whether there is an actual cause-and-effect relationship requires further investigation, even when the relationship between A and B is statistically significant, a large effect size is observed or a large variance is explained.

Illogical conclusions: Following are examples of illogical conclusions:

Reverse causation: B causes A where cause and effect are reversed‍
- ‍Example 1: The faster that windmills are observed to rotate, the more wind is observed. Wind velocity does not imply that wind is caused by windmills. It is the other way around - wind doesn't need windmills, while windmills need to wind to rotate. Wind can be observed where there are no windmills.‍
- Example 2: Children that watch a lot of TV are the most violent. Clearly, TV makes children more violent. This could easily be the other way round - violent children like watching more TV than less violent ones.
Third causation: C causes both A and B where it asserts that A causes B when, in reality, A and B are both caused by C
- Example 1: Sleeping with shoes on is strongly correlated with waking up with a headache. This prematurely concludes that sleeping with shoes on causes headache. A more logical explanation could be that both are caused by a third factor which is going to bed drunk which gives rise to a correlation.
- Example 2: As ice cream sales increase, the rate of drowning deaths increases sharply. Therefore, ice cream consumption causes drowning. This example fails to consider that people tend to engage in water activities such as swimming during hot weather than winter weather. Ice cream happens to be consumed more during the summer months. The increased drowning deaths are not due to ice cream.

One of the first things taught in introductory statistics textbooks is that correlation is not causation. It is also one of the first things forgotten. - Thomas Sowell

Theory of constraints

The theory of constraints answers a fundamental question of what is not working within a system.

It helps answer the question of what to change. You cannot change something if you don't know what to change. The theory of constraints amplifies the idea of "a chain is no stronger than its weakest link." Great organizations understand their own vulnerability in order to fix the weakest link. The theory of constraints (TOC) is an organizational management paradigm that views any manageable system as being limited in achieving more of its goal by a very small number of constraints. There is always at least one constraint, and TOC helps identify the constraint to restructure the organization, so it can achieve its goals. The core principle is that there are not many but a few constraints within a system. The theory says that all elements within an organization are interconnected to achieve a common goal. It focuses on one leverage point instead of solving for many or all. Constraints can be internal or external.

History: The theory of Constraints (TOC) is a body of knowledge and a manufacturing and management methodology that was developed from the late 1970s by Israeli physicist Dr. Eliyahu Goldratt. He describes in his book, The Goal, is that the performance of any system is fundamentally limited by the output of the bottleneck. Thus, no change to the system will result in overall improvement unless that change addresses the bottleneck.

Any improvements made anywhere besides the bottleneck are an illusion. - Dr. Eliyahu Goldratt

A Thinking Process that enables people to invent simple solutions to complex problems. - Dr. Eliyahu Goldratt

An expert is not someone who gives you an answer, an expert is someone who asks you the right question. - Dr. Eliyahu Goldratt

Constraint & bottleneck are not the same: A constraint and bottleneck are not the same. It is critical to differentiate the two. Finding a constraint is a strategic initiative. It is a leverage point for a leadership team to identify. This is where value is created for customers, stakeholders and employees. A constraint is the bottleneck with the least capacity in the entire system, and it can be reasoned about as the “constraint” only once you decide to manage it. Whereas a bottleneck prevents a company to operate at its maximum capacity due to many reasons. A bottleneck is simply a resource that has more demand placed on it than capacity to delivery.

Five focusing steps: Theory of constraints is based on the premise that the rate of goal achievement by a goal-oriented system (i.e., the system's throughput) is limited by at least one constraint. The argument is if there was nothing preventing a system from achieving higher throughput (i.e., more goal units in a unit of time), its throughput would be infinite-which is impossible in a real-life system. Only by increasing flow through the constraint can overall throughput be increased. Goldratt proposed five Theory of Constraints steps, known as the five focusing steps. Assuming the goal of a system has been articulated and its measurements defined, the steps are:

Identify the system's constraint(s).
Decide how to exploit the system's constraint(s).
Subordinate everything else to the above decision.
Elevate the system's constraint(s).
Warning! If in the previous steps a constraint has been broken, go back to step 1, but do not allow inertia to cause a system's constraint.

In business: The Theory of Constraints is especially important in business.

It creates a real connection between the economic and financial aspects of the business.
It allows leadership to focus on the critical aspects that determine business outcomes.
It introduces scientific thinking within an organization. The entire system needs to be considered in order to identify a constraint.
It systematizes entrepreneurial spirit within an organization.

It is important to note that we don’t need more effort, just effort applied more effectively. This is how TOC can help businesses grow over time. Therefore, to continuously increase a system’s output, iteratively identify and address the current constraint.

Outside business: Keep in mind, constraints can appear beyond business. It can appear in your own personal life? For example, what is the bottleneck that is stopping you from exercising? Asking this question you are addressing a constraint in your life. TOC can also apply within traffic congestion, both physical and network traffic. Popular sites are always solving for constraints to provide better user experience. Peter Bevelin, in his book Seeking Wisdom:

Optimization of one variable may cause the whole system to work less efficiently. Why? The performance of most systems is constrained by the performance of its weakest link. A variable that limits the system from achieving its goal or optimum performance. An increase in production may for example be physically constrained by the production capacity on one of the machines. If one machine in a production line of two machines can produce 100 items and the second 90, the output is physically constrained by the second machine. When trying to improve the performance of a system, first find out the system’s key constraint(s)- which may be physical (capacity, material, the market) or non-physical (policies, rules, measurements) – and its cause and effect relationship with the system. Maybe the constraint is based on faulty assumptions that can be corrected. Then try to “strengthen” or change the weakest link. Watch out for other effects – wanted or unwanted – that pop up as a consequence. Always consider the effects on the whole system.

Central limit theorem

A large properly drawn sample will resemble the population from which it is drawn.

The central limit theorem (CLT) implies that, in a majority of situations, when you add independent random variables to a formula, the sum will tend toward a normal distribution. In other words, given a large enough sample size from a population, the mean of the sample will be representative of the mean of the population. The theorem also states that the distribution of the sample and whole population will be similar. As the number of variables grows, the variances will also tend toward a normal distribution. A reasonable sample size to apply the central limit theorem to is considered to be between 30 and 40 units. The central limit theorem (CLT) is considered to be one of the most powerful theorems in all of statistics and probability. The question is why does this mathematical pattern show up so much. The answer is that normal distributions come out of a process of averaging. The 3 major characteristics of central limit theorem are:

Generalize conclusions on the entire population based on the results from the sample population.
Sample size of 30 or more is enough for this theorem to take effect.
The distribution of sample mean will approach a normal distribution even though the underlying population does not have a normal distribution.

If the central limit theorem applies, calculating the mean value for each sample then building a distribution from those mean values should lead to a normal result. Using this theorem, you should be able to generalize conclusions about an entire population based on results found through analyzing a sample of the population. It is a powerful theorem because it allows you to make reasonable assumptions about a population regardless of what the initial distribution looks like. There are endless applications to this theorem, including hypothesis testing, confidence intervals, and estimation. Normal distributions show up everywhere. Human height is (approximately) normal. Intelligence, as measured by IQ, is normal. Measurement errors tend to be normally distributed. If you were to represent the central limit theorem using an example, you should consider rolling a die. The more times you roll the die, the more likely the distribution will tend toward a normal distribution. Generally, once you’ve rolled the die at least 30-40 times, you should see a relatively normal distribution of variables. Normal distributions are also known as bell curves or Gaussian functions. The central limit theorem shows that the average of your sample means will be the population mean as well. Considering this, you can see how the central limit theorem can be used to predict the characteristics of a population rather accurately. The central limit theorem is limited by the fact that you must have a sample size ranging from 30-40 units before the theorem can be applied.

History: The central limit theorem has seen many iterations over the course of time, with the first version of the theorem dating back to 1810. The modern form of this theorem wasn’t precisely stated until around 1920. Once the central limit theorem was established, a bridge was erected between classical and modern probability theories. The Dutch mathematician Henk Tijms on central limit theorem:

The central limit theorem has an interesting history. The first version of this theorem was postulated by the French-born mathematician Abraham de Moivre who, in a remarkable article published in 1733, used the normal distribution to approximate the distribution of the number of heads resulting from many tosses of a fair coin. This finding was far ahead of its time, and was nearly forgotten until the famous French mathematician Pierre-Simon Laplace rescued it from obscurity in his monumental work Théorie analytique des probabilités, which was published in 1812. Laplace expanded De Moivre's finding by approximating the binomial distribution with the normal distribution. But as with De Moivre, Laplace's finding received little attention in his own time. It was not until the nineteenth century was at an end that the importance of the central limit theorem was discerned, when, in 1901, Russian mathematician Aleksandr Lyapunov defined it in general terms and proved precisely how it worked mathematically. Nowadays, the central limit theorem is considered to be the unofficial sovereign of probability theory.

Charles Wheelan: Charles Wheelan tries to teach basic concepts of central limit theorem in his book Naked Statistics which is a book on stats 101:

Statistics don't lie, but the data behind them can because they can be faulty, misleading, or downright false.

At times, statistics seems like magic. We are able to draw sweeping and powerful conclusions from relatively little data. Somehow we can gain meaningful insight into a presidential election by calling a mere one thousand American voters. We can test a hundred chicken breasts for salmonella at a poultry processing plant and conclude from that sample alone that the entire plant is safe or unsafe. Where does this extraordinary power to generalize come from? Much of it comes from the central limit theorem.

One of the most common thresholds that researchers use for rejecting a null hypothesis is 5 percent, which is often written in decimal form: .05. This probability is known as significance level, and it represents the upper bound for the likelihood of observing some pattern of data if the null hypothesis were true.

Obviously rejecting the null hypothesis at the .01 level (meaning that there is less than a 1 in 100 chance of observing a result in this range if the null hypothesis were true) carries more statistical heft than rejecting the null hypothesis at the .1 level (meaning that there is less than a 1 in 10 chance of observing a result in this range if the null hypothesis were true).

When you go to the doctor to get tested for some disease, the null hypothesis is that you do not have that disease. If the lab results can be used to reject the null hypothesis, then you are said to test positive. And if you test positive but are not really sick, then it’s a false positive.

Doctors and patients are willing to tolerate a fair number of Type 1 errors (false positives) in order to avoid the possibility of a Type 2 error (missing a cancer diagnosis).

Some classrooms had answer sheets on which the number of wrong-to-right erasures were twenty to fifty standard deviations above the state norm. (To put this in perspective, remember that most observations in a distribution typically fall within two standard deviations of the mean.) So how likely was it that Atlanta students happened to erase massive numbers of wrong answers and replace them with correct answers just a matter of chance? The official who analyzed the data described the probability of the Atlanta pattern occurring without cheating as roughly equal to the chance of having 70,000 people show up for a football game at the Georgia Dome who all happen to be over seven feet tall. Could it happen? Yes. Is it likely? Not so much.

Education: Students can apply the central limit theorem to make observations about social circumstances, group activities, and their own academic success. Using the central limit theorem, you can determine what outcomes are attainable for you compared to your peers. For example, if a majority of your classmates are failing Algebra, and you aren’t, there is a chance that a curve will be applied to make the grading system more balanced. The teacher may also add in additional variables, such as extra credit assignments and pop quizzes, to offer the other students more opportunities to pass the class. Through the central limit theorem, you can assume that those additional assignments add new variables to the grading formula and that those variables will normalize across the distribution and allow some students to improve their grades. Though, if you perform poorly on those assignments, your high grade could be lowered toward the mean distribution.

Business & investing: Businesses can use the central limit theorem to make observations about the market, their business itself, and more. With this theorem, business leaders can determine what their target audience likes, what they don’t like, and how to reach them effectively. That’s only one way the central limit theorem can be applied to business. The same applies to understanding the normal distribution of investment results of various stocks.

Limitation: The normal distribution is a pretty user-friendly mental model when we are trying to interpret the statistical metrics like mean and standard deviation. However, it may be misleading model. One limitation on normal distribution is that it is always assumed that the underlying population also has a normal distribution which might not be true due to infinite variables. Second average is heavily skewed by outliers.

R.C. Geary in his paper “Testing for normality” in 1947:

Normality is a myth; there never was, and never will be, a normal distribution.

In Statistics for Dummies:

The Central Limit Theorem (CLT for short) basically says that for non-normal data, the distribution of the sample means has an approximate normal distribution, no matter what the distribution of the original data looks like, as long as the sample size is large enough (usually at least 30) and all samples have the same size.

Nassim Nicholas Taleb in his book The Black Swan argues, we tend to see events that are in the extreme tail ends more often than we would by normal distributions, and so this gives us too much confidence that rare “black swan” events are statistically impossible.

A theory is like medicine or government: often useless, sometimes necessary, always self-serving and, on occasion, lethal. It needs to be used with care, moderation and close adult supervision.

Prisoner dilemma

Prisoner's dilemma helps us understand how people behave when it comes to cooperation or acting in their own self-interests.

Imagine two prisoners are given two choices: confess or do not confess. If they both confess, they each get 2 years in prison. If neither of them confesses, they each get 1 year. If one prisoner confesses and the other does not, the confessor goes free and the other gets 3 years. Neither prisoner knows whether the other has confessed because they cannot communicate with one another. Therefore, it is in the self-interest of each to confess. When each prisoner pursues his or her self-interest, both end up worse off than if they would have cooperated. Arms race between powerful nations is a perfect scenario of prisoner's dilemma. Powerful nations like US, China and Russia keep manufacturing weapons. However, both countries are better off when they cooperate and avoid an arms race. Yet each nation pursues self-interest of becoming the most powerful nation.

A game in which two separate prisoners are given two choices: confess or don't confess. The prisoner's dilemma is a paradox in decision analysis in which two individuals acting in their own self-interests do not produce the optimal outcome. The typical prisoner's dilemma is set up in such a way that both parties choose to protect themselves at the expense of the other participant. As a result, both participants find themselves in a worse state than if they would have co-operated with each other. The highest reward for the prisoner occurs when both parties choose to co-operate. It was originally framed by Merrill Flood and Melvin Dresher while working at Rand Corporation (RAND) in 1950. Albert W. Tucker, an American mathematician formalized the game with prison sentence rewards and named it “prisoner's dilemma.” The title “prisoner's dilemma” and the version with prison sentences as payoffs are due to Albert Tucker, who wanted to make Flood and Dresher's ideas more accessible to an audience of Stanford psychologists. The prisoner's dilemma is one of the most well-known concepts of game theory in social science.

Game theory: Game theory is the logical analysis of game (situation) of conflict and cooperation when there are at least two players (parties) involved. Each player takes courses of action to determine the outcome of a game. Game theory is the study of how players should rationally play games. Each player would like the game to end in an outcome which gives him or her as large a payoff as possible.

The dilemma of prisoners: Prisoner's dilemma is a classic example of game theory. The prisoner's dilemma is the best-known game of strategy in social science. It helps us understand what governs the balance between cooperation and competition (self-interest) within people, companies (business), nations (politics) or even biological species (social environment). Will the so called “prisoners” choose to betray, confess or remain silent?

Nash equilibrium: In the prisoner’s dilemma the Nash equilibrium is for both prisoners to confess since neither prisoner will then have the unilateral ability to increase their outcome. A Nash equilibrium **is reached when the choices of all players leads to a situation in which there is no other choice that makes any other player better off. In other words, cooperate with one another to reach the optimal outcome. However, the rational choices are never made. So, this begs the following question? Can we teach players (prisoners) to make rational decisions?

Escape from the dilemma: Over time, players can learn to overcome individual incentives in favor of common good by repeatedly playing the game. For every iteration, players get rewarded for co-operation and punished for self-interest. Players then would learn that they do best when both act unselfishly and cooperate. If one player failed to cooperate in one game, the other player could retaliate by not cooperating in the next game, and both would lose until they would have co-operated again. When the game is repeated a fixed number of times, however, this argument fails.

Limitations: To see the argument mentioned above, take two businesses competing for 10 days before Christmas. Both players maintain fair prices because if one doesn't, the competitor will retaliate next day. However, on the last day, one player decides not to honor fair prices and the competitor loses out because the next day people are no longer shopping and busy spending time with their family on Christmas Day. Knowing this, the business losing out has no incentive to offer fair prices. It is a fair conclusion to make rational business will engage in a price war every day since both player knows the game being played fixed number of times.

Business: The dilemma in business.

Over the years, we had the option of making large capital expenditures in the textile operation that would have allowed us to somewhat reduce variable costs. Each proposal to do so looked like an immediate winner. Measured by standard return-on-investment tests, in fact, these proposals usually promised greater economic benefits than would have resulted from comparable expenditures in our highly-profitable candy and newspaper businesses. But the promised benefits from these textile investments were illusory. Many of our competitors, both domestic and foreign, were stepping up to the same kind of expenditures and, once enough companies did so, their reduced costs became the baseline for reduced prices industry-wide. Viewed individually, each company’s capital investment decision appeared cost-effective and rational; viewed collectively, the decisions neutralized each other and were irrational (just as happens when each person watching a parade decides he can see a little better if he stands on tiptoes). After each round of investment, all the players had more money in the game and returns remained anemic. - Warren Buffett

How a firm interacts with other firms plays an important role in shaping sustainable value creation. Here we not only consider how many companies interact with their competitors, but how companies can co-evolve. Game Theory is one of the best tools to understand interaction. Game Theory forces managers to put themselves in the shoes of other players rather than viewing games solely from their own perspective.The classic two-player example of game theory is the prisoners’ dilemma. - Michael J. Mauboussin

Marginal analysis

A cost benefit analysis which deals with an examination and identification of the added benefits of an activity weighed against the costss.

Seth Godin has a great definition on marginal cost:

The cost of the next item produced is called ‘marginal cost‘. It doesn’t include set-up fees, rent, years of training, insurance or all the other huge costs an organization might pay. It’s merely the cost of one more unit.

Marginal does not mean average. The additional benefit per unit can have huge impact upwards or downwards. This is why high scale growth can be good or bad. Paul Heyne who was a well known economist of his time, shares his thoughts on marginal vs average:

It is important to distinguish between average and marginal. A manufacturer’s average cost of producing automobiles (which would be the total cost of production divided by the total number of cars the manufacturer produces) may be $25,000, but the marginal cost of producing an additional automobile (or an additional 1,000 automobiles) might be much lower, say, $10,000 per car. Costs associated with research, testing, design, molds, heavy equipment, and similar factors of production must be incurred whether the manufacturer is going to produce 1,000 units, 10,000 units, or 100,000 units. Such costs will clearly contribute to the average cost of an automobile, but they will change very little as additional units are produced. Thus, the marginal cost of additional units may be substantially less than the average cost. Should production be expanded or reduced? That choice should be based on marginal costs, which indicate the change in total cost due to the decision.

Munger once described airlines industry as “marginal cost with wings”.

Over the years, we’ve tried to figure out why the competition in some markets gets sort of rational from the investor’s point of view so that the shareholders do well, and in other markets, there’s destructive competition that destroys shareholder wealth. If it’s a pure commodity like airline seats, you can understand why no one makes any money. As we sit here, just think of what airlines have given to the world-safe travel, greater experience, time with your loved ones, you name it. Yet, the net amount of money that’s been made by the shareholders of airlines since Kitty Hawk, is now a negative figure-a substantial negative figure. Competition was so intense that, once it was unleashed by deregulation, it ravaged shareholder wealth in the airline business.

Marginal analysis can be used to analyze information consumption. Some might call it knowledge. There is a marginal return to information, and it often reaches zero, or even negative. The marginal return of information is the relationship between a “unit” increase in information and the value created by that new knowledge. A student who has never read a book on Computer Science, but picks it up for the first time, the marginal value of information is high. However with every additional textbook on Computer Science, there are diminishing returns to be seen. The marginal value of each additional textbook gets smaller and smaller. Understanding this ensures there are downside to consuming more.

Marginal analysis is of great relevance in healthcare. One would think, the more healthcare is consumed, the higher the level of health. However, it is likely that if someone has poor levels of health, health care has more impact on health than when they are healthy. There is plenty written on this topic. The usefulness of marginal analysis as a tool can be used to understand historical health care spending patterns while assessing the marginal benefit of care.

Consider social media or e-commerce platforms. Each additional user increases network effect while additional cost is almost zero. There are many other applications to employ this tool.

Law of large and small numbers

As a sample size grows large, its mean gets closer to the average of the population. A large sample size will give a more accurate outcome.

The law of small numbers refers to the incorrect belief held by experts and laypeople alike that small samples ought to resemble the population from which they are drawn. Although this is true of large samples, it isn’t for small ones. So the “law” of small numbers isn’t really a law at all, but a fallacy.

Law of large numbers: The law of large numbers states that the proportion of results will tend toward an expected value as the number of trials increases. With large numbers, you can expect that proportion to be very close to the expected value of the process. This is basically what makes much of the field of statistics (and, by extension, science) work.

Law of small numbers: The law of small numbers is a mistake in thinking. You might take a small sample and assume that what you observe there is true for the broad population. This cognitive fallacy goes by other names such as "generalization from the particular", or just "leaping to a conclusion", and traders do it all the time.

Daniel Kahneman’s book Thinking, Fast and Slow points out that researchers have their own bias–the law of small numbers. Is this bias to blame for many modern day myths? It’s a general bias that makes people favor certainty over doubt.

Most people, including many experts, don’t appreciate how research based upon small numbers or small populations can often generate extreme observations. As a result people have a tendency to believe that a relatively small number of observations will closely reflect the general population. This is reinforced by a common misconception that random numbers don’t generate patterns or form clusters. In reality they often do. Kahneman makes the observation: “We are far too willing to reject the belief that much of what we see in life is random.”

Kahneman acknowledges that researchers (social and behavioral scientists) have too much faith in what they learn from a few observations:

They select too small a sample size which leaves their results subject to a potentially large sampling error.
Experts don’t pay enough attention to calculating the required sample size and instead use rules of thumb.

Kahneman’s work raises some important questions for researchers and customer insight specialists.

We are pattern seekers, and we often use small samples in qualitative research and usability testing. However, is there a tendency to extrapolate the findings from small scale studies to the wider population?
Do researchers sometimes select too small a sample size in quantitative studies and experiments? Is this because they use a rule of thumb rather than calculating the statistically required sample size?
Are we too quick to reject a random process as being truly random?

As with all cognitive biases, you can't fix this. It's a fundamental part of how humans think and process information. (And from an evolutionary perspective, there was probably a benefit.) What you need to do is to be aware of it. Think about how this bias might impact your perception of data, and then work to counteract it.

Cultivate the skill of thinking in large sample sizes. Don't pay too much attention to the outcome of any one trade.
Be aware of how emotional flags can (often, falsely) highlight certain events. For instance, if you're thinking about your last 30 trades, you might find yourself focusing in on 2 or 3 that were quick losses, wondering what you could have done better in those trades. Sometimes, this is justified, but often it is just noise in the data.
Always ask “Am I sure?” and “What am I missing?” Become obsessive with your focus on these questions and honest with your answers. (Hint: The right answers to those questions are almost always “No” and “I might not know what I'm missing”!) Simply thinking around the corners like this will separate you from the mass of struggling traders who never dare face such hard questions.

Economics

Model	Definition
Supply and demand	Key to understanding surpluses and shortages and the pricing forces behind market economics.
Elasticity of demand	When prices go up, the demand for a given product usually goes down. When prices go down the demand usually goes up.
Scarcity	There is a finite amount of resources yet an infinite amount of human wants. Based on scarcity, decisions need to be made about how best to allocate resources.
Economies of scale	Describes the cost advantage of products with cost per unit of output decreasing with increasing scale.
Costs	Something’s cost is the payment required to obtain it. In economics, there are a variety of costs.
Pareto principle	80% of the outcomes come from 20% of the action.
Tradeoffs	A giving up of one thing in return for another to produce the most desirable outcome.
Tragedy of commons	When a set of individuals act in their own self-interest by depleting common resources.
Competitive advantage	Competitive advantage is the leverage a business has over its competitors.
Wealth effect	The wealth effect reflects the effect that rising wealth has on consumer confidence.
Creative destruction	Outdated product replaced by new ones due to innovation.

Supply and demand

Key to understanding surpluses and shortages and the pricing forces behind market economics.

An economic model which helps to set the market price for goods and services. Prices will vary based on the supply and demand but will settle when the demand is equal to the supply.

For example, if winter hits Florida, the price of orange juice rises in supermarkets throughout the country.

The law of demand states that there is an inverse relationship between the price of a good and the quantity of the good demanded. Demand can be influenced by: the income level of the buyer, the price of the good, the availability of substitutes. Demand can be influenced by, among other things, social proof, envy and jealousy, incentives, feedback loops, association, commitment and consistency, over-influence from authority (or celebrity), contrast, and ideological bias.

The law of supply states that there is a positive relationship between the price of a good and the quantity supplied. The price levels of the good, the costs of inputs to produce the good, and the technological costs to produce a good are all factors that influence the level of goods supplied.

The point at which the supply and the demand curves meet is called as the equilibrium. The price at this intersection is called as equilibrium price. At the equilibrium price, the quantity of the good that buyers are willing and able to buy exactly balances the quantity that sellers are willing and able to sell.

Technological improvement increases supply. Is this good for you as a business owner? It depends on the type of business that you are doing. If you are in the commodity business and there is already an excess supply situation then technology is not going to help you as a business owner. In Elementary worldly wisdom Munger writes:

“The great lesson in microeconomics is to discriminate between when technology is going to help you and when it’s going to kill you. And most people do not get this straight in their heads. But a fellow like Buffett does. For example, when we were in the textile business, which is a terrible commodity business, we were making low-end textiles-which are a real commodity product. And one day, the people came to Warren and said, “They’ve invented a new loom that we think will do twice as much work as our old ones. And Warren said, “Gee, I hope this doesn’t work because if it does, I’m going to close the mill.” And he meant it. What was he thinking? He was thinking, “It’s a lousy business. We’re earning substandard returns and keeping it open just to be nice to the elderly workers. But we’re not going to put huge amounts of new capital into a lousy business. And he knew that the huge productivity increases that would come from a better machine introduced into the production of a commodity product would all go to the benefit of the buyers of the textiles. Nothing was going to stick to our ribs as owners. That’s such an obvious concept-that there are all kinds of wonderful new inventions that give you nothing as owners except the opportunity to spend a lot more money in a business that’s still going to be lousy. The money still won’t come to you. All of the advantages from great improvements are going to flow through to the customers.”

Charlie Munger on supply and demand:

“You have studied supply and demand curves. You have learned that when you raise the price, ordinarily the volume you can sell goes down, and when you reduce the price, the volume you can sell goes up. Is that right? That’s what you’ve learned?” They all nod yes. And I say, “Now tell me several instances when, if you want the physical volume to go up, the correct answer is to increase the price?”

Warren Buffet on supply and demand:

“The textile industry illustrates in textbook style how producers of relatively undifferentiated goods in capital intensive businesses must earn inadequate returns except under conditions of tight supply or real shortage. As long as excess productive capacity exists, prices tend to reflect direct operating costs rather than capital employed. Such a supply-excess condition appears likely to prevail most of the time in the textile industry, and our expectations are for profits of relatively modest amounts in relation to capital.”

Elasticity of demand

When prices go up, the demand for a given product usually goes down. When prices go down the demand usually goes up.

Demand is usually elastic for the products we do not care much about, such as socks.

To really understand elasticity demand we have to define the term in two contexts, being elasticity of demand and the price elasticity of demand which is a similar measure that measures price change, and not just the quantity in demand.

Elasticity of demand is a measure of the responsiveness of the quantity demanded to a change in some other variable on which quantity demanded is dependent, all other things held constant. This is akin to measuring the change in quantity now in demand because of a one percent change with other variants. Of course, all other variables must remain constant.

Price elasticity of demand is a measure of the responsiveness of the quantity demanded to a change in price of a good/service, all other things held constant.

It is a measure of the percentage difference in quantity being requested due to a one percent change in the price of the product or service in question. In this formulation, all other things remaining constant.

In general, the price elasticity of demand is negative. This is in conformity with the law of demand.

The law of demand is one of the most basic concepts in economics, and it works in cooperation with the law of supply. It states that quantity purchased varies inversely with price. Therefore, the higher the price of a product or service, the lower it will be demanded by consumers.

A great example is toothpaste brand Colgate. When a product is being used in an area as sensitive as my mouth, I want a product I know and trust. I am not going to buy mystery brand “X” to save myself 10 cents on a $2.50 purchase. Colgate could actually raise the price a quarter; maybe even 50 cents and I would continue to pay it, also known as a low elasticity of demand or inelastic. Contrast a pair of socks: I really don’t care what brand I put on my feet and want the absolute cheapest per unit price I can find. Demand is elastic.

Scarcity

Refers to a basic problem that we encounter in our world: there is a finite amount of resources yet an infinite amount of human wants. Based on scarcity, decisions need to be made about how best to allocate resources.

In 1935, English economist Lionel Robbins described economics as the science of scarcity. That’s because many resources are usually assumed to be in short supply, i.e., scarce or limited.

The principle of scarcity states that people assign more value to opportunities when they are less available. In other words, things seem more valuable to us when their availability is limited. This bias stems from the basic human tendency to shun losses.

“Limited Time, Going Fast”-is the most common punchline at a shopping store that artificially or naturally drives scarcity.

In the environment of artificial scarcity, certain resources may not be limited. It is manipulating the perception of people about certain resources which may not really be scarce. That’s where psychology of scarcity bias comes into picture.

Make people perceive there is a huge competition for the item and limit the number of people that can participate in the bidding. Consumers always for it because they are motivated by what they stand to lose if they don’t act now.

The less available it is, the more we desire it. Munger on auctions which drives the point on scarcity bias:

“...open-outcry auction is just made to turn the brain into mush: you’ve got social proof, the other guy is bidding, you get reciprocation tendency, you get deprival super-reaction syndrome, the thing is going away. I mean it just absolutely is designed to manipulate people into idiotic behavior.”

Economies of scale

Describes the cost advantage of products with cost per unit of output decreasing with increasing scale.

The cost advantages that enterprises obtain due to size, throughput, or scale of operation, with cost per unit of output generally decreasing with increasing scale as fixed costs are spread out over more units of output.

Describes the cost advantage of products, for both producers and consumers, when production is scaled up. It costs more per unit to produce just 1 of something than it does to produce 1000 because the production costs are spread over the units.

Operational efficiency is also greater with increasing scale, leading to lower variable cost as well.

In his commencement speech to the USC law school grads in 1994, Charlie Munger mentions “scale” 24 times. The advantages of scale are “ungodly important”, he points out.

Benefits of Scale = Lower Costs, Higher Prices & Bets on New Markets.

Benefits of scale include reducing costs, raising prices and testing new markets.

The Law of Scale can also allow for charging higher prices. One of Charlie’s favorite examples of higher prices is this Wrigley gum example in which I paraphrase Charlie: If you’re given a choice of paying $.30 for a pack of Wrigley Chewing Gum versus $.20 for “Schlotz’s Gum,” you’re likely going to choose to pay $.10 more for Wrigley because you’ve heard of it before.

The law of scale also allows a business to test new customer acquisition. Charlie, in his USC speech, gives the example of how scale allowed Proctor and Gamble to enter the TV advertising market in the 1950′s and ’60s: “…in the early days, we had three networks that had whatever it was-say 90% of the audience. Well, if you were Procter & Gamble, you could afford to use this new method of advertising. You could afford the very expensive cost of network television because you were selling so many cans and bottles. Some little guy couldn’t. And there was no way of buying it in part. Therefore, he couldn’t use it. In effect, if you didn’t have a big volume, you couldn’t use network TV advertising which was the most effective technique. So when TV came in, the branded companies that were already big got a huge tail-wind.”

The law of scale can also have a “network effect” (think Google), providing the business who wields it with an ever-growing advantage to other parts of its business.

The law of scale is also related to social proof. As a product becomes dominant (think Coca Cola or Apple), then most humans will feel at a sub-conscious level that those products are superior.

Economies of scale are self-reinforcing and powerful.

Costs

Something’s cost is the payment required to obtain it. In economics, there are a variety of costs.

There are opportunity cost, sunk cost, relevant and marginal cost that can be obsessed in economics. Costs have been assessed since the dawn of industriousness. In order to make the most rewarding decisions, people consider the costs associated with their actions. In doing so, they mold their mental models to suit the environment that surrounds them.

The opportunity cost addresses the loss of potential gain caused by choosing one option, rather than the other. For example, the choice to keep money in a savings account incurs the opportunity cost associated with not investing that money in an asset. For many, this opportunity cost is worthwhile, as it is often helpful to have cash savings available.

If assets have already been spent, and cannot be recovered, the sum of those assets is defined as your sunk cost. Sunk costs are generally excluded from future business decisions because costs typically remain the same regardless of related outcomes. A classic example of sunk costs occurred with the Concorde. British and French manufacturers poured extensive sums of money into developing the Concorde aircraft over the 1950s and 1960s, resulting in a massive sunk cost. After decades of availability, the aircraft never managed to become financially profitable. This notorious incident led to the sunk-cost fallacy sometimes being referred to as the Concorde fallacy.

Relevant costs describe avoidable costs that are only incurred due to specific decisions made at an individual or organizational level. Relevant cost structures exist to exclude unnecessary data from the decision-making process. The relevant cost is effectively the opposite of the sunk cost.

Marginal costs are any costs associated with increasing production to create one additional unit. The marginal cost can be used to determine how much must be spent in order to reach a specific production goal.

Pareto principle

80% of the outcomes come from 20% of the action.

Everyone has that favorite shirt in their closest which they wear 80% of the time. This is the essence of Pareto Principle. The smart thing to identify is what 20% of things in life drive 80% of the results. For many events, it can be shown that 80% of the effects come from 20% of the causes. Inputs are not directly relative to outputs. In business, 80% of revenue generally comes from 20% of the clients. This principle can help to show where to focus time and energy. The Pareto Principle also known as the 80/20 is an incredible helpful mental model to add it to your thinking toolbox. In a world where you are constantly bombarded with information, the Pareto Principle can help you make the right choices by shifting your focus and energy on tasks that would produce the most results. It is important to remember that there are only so many minutes in an hour, hours in a day, and days in a week. Pareto Principle can help you see that this is a good thing; otherwise, you’d have a never-ending list of things to do. So, you must always ask - what 20% of your work can drive 80% of the outcomes?

Vilfredo Damaso Pareto: The Pareto Principle was founded by Vilfredo Damaso Pareto, an Italian economist in 1896. Pareto, an amateur gardener, noticed one day that 20% of the pea plants generated 80% of the healthy pea pods. This observation led him to think about uneven distribution. He observed this same principle elsewhere. For example, he also realized in Italy where he lived, 80% of the land was owned by 20% of the people. He further investigated different industries and found that 80% of production typically came from 20% of the companies. This generalization became the Pareto Principle.

Not a law: Let’s also clarify the limitations of the Pareto Principle. While the 80/20 split is true for Pareto’s observation, that doesn’t necessarily mean that it always has to equal 100. For instance, 30 percent of employees can complete 60 percent of the total tasks. The remaining employees may not be as productive or may be slacking off on the job. This further reiterates that the Pareto Principle is merely an observation and not necessarily a law. With any mental model, it is important not to over apply it. The biggest takeaway the Pareto principle provides is the idea that most things in life are not distributed evenly. While you should be seeking to invest your time in the highest output activities, the fact remains that for many things, you canʼt just do 20% of the work for 80% of the result. Sometimes you need to grind out the last 20% - even if you are suffering diminishing returns - to get the job done. Building 80% of a car isnʼt the best strategy, nor is completing 80% of your research paper. Paretoʼs principle is a useful construct when analyzing efforts and outcomes. It can provide a useful framework for addressing many problems. It should be used liberally, but you should not forget that 20 percent is a general observation.

Tradeoffs

A giving up of one thing in return for another to produce the most desirable outcome.

Teaching the tradeoff between short- and long-term gains often comes to play during parenting. Try this experiment: put a marshmallow in front of a child, tell her that she can have a second one if she can go 15 minutes without eating the first one, and then leave the room. Every decision has tradeoffs: when you choose to do one thing it means you choose not do other thing. Certain situations have two or more desirable outcomes. There are times when all outcomes cannot be achieved together: there will be losses and gains with each. You need to find the trade-off which will produce the most desirable outcome.

There are no solutions. There are only trade-offs. - Thomas Sowell

Economics teaches you that making a choice means giving up something. - Russ Roberts

Strategy is about making choices, trade-offs; it's about deliberately choosing to be different. - Michael Porter

The value of what we have to give up in order to choose something else. As with any other cost, the goal is to minimize it. Opportunity costs are very real. A central component of economics is the time value of money which means that money today is worth more than money in the future. Economically, this relationship is entirely based on opportunity costs. In situational decisions, something has to give. In other words, a trade-off is when one thing increases, the other must decrease. For example, a full room of objects can fit only a certain volume of things. In order to fit more in, something has to be removed. Limitation like this are known in many disciplines such as physics, economics and biology. This comes handy in making strategic decisions. It's a tactic that many leaders use. For instance, should an energy company continue to produce more oil to support world's demand while damaging the environment? Or, should it introduce greener technology? But will have to bear more risk because it might not lose money because a reliable green technology does not exist yet at a larger scale. These type of examples are commonly asked when leaders make decisions. Each decision has an advantage and disadvantage. The one which has the least disadvantage and the most advantage is the one a leader should make.

Should you invest in a bond or a stock?
Should you go to school or not?
Should you study engineering or art?
Should you buy a small fuel-efficient car or a large fuel-inefficient car?
Should you work long hours or short hours?
Should you work more or spend time with kids?
Should you cook at home to save money or eat out?

We often wrestle with these types of trade-offs. These aren't easy decisions to make, and therefore we avoid them. We can only pick one side so focusing on which one rewards the most is where we should spend our energy. Making sacrifices is normal during trade-offs.

Winners embrace hard work. They love the discipline of it, the trade-off they're making to win. Losers, on the other hand, see it as punishment. And that's the difference. - Lou Holtz

When we choose to optimize a choice, it means we are sub-optimizing another choice.

Tragedy of commons

When a set of individuals act in their own self-interest by depleting common resources.

Fisheries provide the classic example of the tragedy of the commons. Fishing too much for seafood leads to depletion of fishes from our ocean. The ‘tragedy’ refers to a set of individuals who, acting rationally, independently, and in their own self-interest can create a situation where they destroy a group’s collective long-term viability by depleting a common source. Fishing and herding are classic examples. The theory was originated in 1833 by the British economist William Forster Llyoyd in his essay, who used a hypothetical example of the effects of unregulated grazing on common land in Great Britain and Ireland. The concept became widely known as the “tragedy of the common” over a century later due to an article written by American biologist and philosopher Garrett Hardin in 1968. In our modern economic times, “commons” means any shared and unregulated resource such as atmosphere, oceans, rivers, fish stocks, roads and highways, or even an office refrigerator. The term is used in environmental science. The “tragedy of the common” is often cited in connection with sustainable development, meshing economic growth and environmental protection, as well as in the debate over global warming. It has also been used in analyzing behavior in the fields of economics, evolutionary psychology, anthropology, game theory, politics, taxation and sociology.

Garrett Hardin: Hardin wrote The Tragedy of the Commons in 1968, at the height of the Cold War and U.S. arms race with the Union of Soviet Socialist Republics (USSR) for domination through lethal weapons. Technology got the countries into the situation, and Hardin believes relying on more technology will only make the situation deadlier. He opens the essay with an appeal to look for alternate kinds of solutions to other problems as well.

The oceans of the world continue to suffer from ... the philosophy of the commons. - Garrett Hardin

Hardin is opposed to shared resources being available for every member to use without limit. He believes a resource can only be shared when the user population is small and use is low. The Declaration of Human Rights was adopted in the aftermath of the atrocities of World War II. It states a person is entitled to an adequate standard of living, including food, clothing, housing and medical care and necessary social services, and the right to security in the event of unemployment, sickness, disability, widowhood, old age or other lack of livelihood in circumstances beyond his control. It also states each individual has the right to decide how many children to have. Hardin objects to the declaration because it sanctifies the rights of families to make their own decisions outside state control and supports the creation of a welfare state.

Hardin objects to the welfare state, where society or government provides food, shelter, and social services to the needy. In Hardin's view these entitlements protect people from the negative consequences of their own actions, especially in regard to having children they can't afford. The society is left responsible for providing for their children. Hardin favors private ownership, which protects a resource from overuse. Since it is not commons, it is protected from being overrun and exploited by others. However, Hardin admits a property owner or inheritor can also squander the resource or use it irresponsibility. According to Hardin, the earth's oceans and all they hold are viewed as an unlimited commodity to be exploited. For millennia fish were caught in small enough numbers, but in modern times demand for seafood has made fishing a profitable industry. This has led to overfishing and the near extinction of whales and other sea life.

In The Wealth of Nations (1776), economist Adam Smith developed the idea individuals making rational choices on their own behalf ultimately benefiting society. Someone who "intends only his own gain," Smith argued, is "led by an invisible hand to promote ... the public interest." Competition forces individuals and businesses to continually make their products more attractive in price or function. As a result, products keep improving. Society benefits and the economy grows. Garret Hardin revised the theory later to account for “managed” in addressing to fix the tragedy of the commons. That is done when regulations, tax and public policies are in place to effectively manage the common resources.

A ‘managed commons’ describes either socialism or the privatism of free enterprise. Either one may work; either one may fail: ‘The devil is in the details.’ But with an unmanaged commons, you can forget about the devil: As overuse of resources reduces carrying capacity, ruin is inevitable.

How to solve?: The government can solve the tragedy of the commons in two ways.

Reduce the usage of common resource through regulation or taxes.
Turn the common resource into a private good.

What is common to many is taken least care of, for all men have greater regard for what is their own than for what they possess in common with others. - Aristotle

Singapore is the 3rd most densely populated country in the world. Roads are limited. If everyone uses the car, traffic becomes the problem. So, government made driving license very expensive. Second, if cars are driven during peak traffic, the toll would cost more. Singapore's government discouraged driving and aligned incentives for people to behave accordingly. People started using public transportation for their commute and this in turn helped to resolve the tragedy of the commons.

Competitive advantage

Competitive advantage is the leverage a business has over its competitors.

A situation wherein one party has significantly more experience, knowledge, or resources than a competitor. In business, a competitive advantage is the attribute that allows an organization to outperform its competitors. A competitive advantage may include access to natural resources such as high-grade ores or a low-cost power source, highly skilled labor, geographic location, high entry barriers, and access to new technology. To maintain a competitive advantage, you must constantly assess your mental models and improve them when possible. By properly organizing your cognitive resources, you can position yourself better in the world and find greater success. One way to gain a competitive advantage is by learning how to learn faster than other people. This will allow you to develop new skills and knowledge exponentially faster than others.

Warfare: Consider this excerpt from a Future War Paper titled Sustaining Competitive Advantage: Mental Models and Organizational Learning for Future Marines:

Napoleon shocked the Prussians at Jena. The Prussian generals could not conceive of an entity capable of defeating the system designed by Frederick the Great. Wedded to a scheme that brought them past successes, the Prussians were unable to see the new conditions confronting them. The Prussians never fully recognized the true extent of the mental rigidity and deterioration afflicting the generals until that October afternoon in 1806, at Jena and Auersted. The Prussian generals did not see what was happening in the world around them because their collective frame of mind would not allow new ideas to intrude. This historical example – and countless others like it – includes the elements of change and an inability to perceive change.

So why were the Prussians, among many others, unable to recognize change and then successfully adapt?...The answers lie in mental models and organizational learning. They explain how people make sense of and act in the world, and how organizations learn and adapt to achieve winning results.

When planning your strategy, show a preference for paths that are best suited for someone with your distinct knowledge and resources. Creating a pattern of habits that allow you to navigate that path is the key to maintaining your competitive advantage after acquiring it.

To a certain extent, you can predict the outcomes of events that you have significant knowledge of. Therefore, someone who has a competitive advantage is effectively someone who can see a of the bigger picture that is not apparent to the rest of the audience. With more information on hand, they are better equipped than their competitors, allowing them the opportunity to achieve greater success at potentially faster speeds than those who contest them.

Competition in business: Knowing mental models can have huge competitive advantage in business. They have been influential in strategic thinking. They have a shaping effect on long-term, analytical and creative thinking. Competition is a cornerstone o business, and competitive advantage has been documented in some form for centuries. Historically, a competitive advantage could readily be seen in businesses that decided to build their stores in locations that later became heavily trafficked. For businesses in most industries during the mid 19th century, the location of your business was critically important. If you opened a bar in the middle of the town’s business district, then your odds of success were much greater. A bar located 25 miles outside of town wouldn’t fare quite nearly as well under typical circumstances. In those days, opportunities to gain a competitive advantage were rare, and companies that could retain such an advantage for an extended period were unheard of. As technology continued to advance, it became easier for people to innovate, making a competitive advantage much easier to gain for the average individual. Today, there are countless avenues through which people and organizations can gain a competitive advantage.

How to develop a competitive advantage? Michael Porter, a professor at Harvard Business School, wrote a book in 1985 which identified three strategies that businesses can use to tackle competition. These approaches can be applied to all businesses whether they are product-based or service-based. He called these approaches generic strategies. They include cost leadership, differentiation, and focus. These strategies have been created to improve and gain a competitive advantage over competitors. These strategies can also be recognized as the comparative advantage and the differential advantage. There is no precise method of acquiring a competitive advantage, though, in the realm of business some would suggest that the advantage goes to whoever can provide the greatest value, at the lowest expense.

It should also be noted that there is a difference between competitive advantage and sustained competitive advantage. To develop a competitive advantage, you must position yourself in a place where few others go, providing you access to a unique vantage point that puts you into a position of great strategic importance. On the other hand, sustaining a competitive advantage requires well-timed adaptation to the world as it changes. By developing a competitive advantage in multiple fields, then sustaining them all at once, you can create a situation where the sum value of each is actually greater than the whole. Each area where you hold competitive advantage impacts another, allowing you to amplify your effectiveness in all areas by improving yourself in just a single discipline.

Sustainable sources of competitive advantage: According to Morgan Housel, the key to business and investing isn't finding an advantage but finding a sustainable sources of advantage.

Finding something others can’t do is nearly impossible. Intelligence is not a sustainable source of competitive advantage because the world is full of smart people, and a lot of what used to count as intelligence is now automated. That leaves doing something others aren’t willing to do as the top source of sustainable competitive advantage.

According to him, there are 5 sources of sustainable competitive advantage:

The ability to learn faster than your competition
The ability to empathize with customers more than your competition.
The ability to communicate more effectively than your competition.
The willingness to fail more than your competition.
The willingness to wait longer than your competition.

What kills competitive advantage? Sears made more profit in 1954 than its market cap in the decade it died. More than 40% of all public companies lose their value. So what kills the competitive advantage?

Being right is the enemy of staying right because it leads you to forget the way the world works. – Jason Zweig

Beginner's mind in Buddhism unburdens past preconceptions. It is an active openness to trying new things and studying new ideas. Being locked into a single view is fatal in today's world in maintaining competitive advantage. Morgan Housel has written more on why big winners falling off the podium when competitive advantage dies.

Wealth effect

The wealth effect reflects the effect that rising wealth has on consumer confidence.

This behavioral economic theory suggests that as the value of a person’s assets rises, so does their rate of spending. This theory relies on the idea that consumers who earn more will feel more financially secure and confident about their wealth. As they begin to feel richer, the guilt associated with irresponsible spending often fades. Understanding the wealth effect has helped generations of consumers monitor and moderate their own spending. The wealth effect reflects the effect that rising wealth has on consumer confidence. Consumer confidence is the feeling of security that consumers feel when the value of their investments grows. Quite often, a boost in confidence leads to higher spending and less saving.

Higher home values: Increased spending has also been linked to higher home values. Many economists believe that housing wealth does indeed encourage extra spending, but there are some who dispute this theory, claiming that previous research on the subject has been overstated. In the paper, Comparing Wealth Effects, Karl Case and Robert Shiller, the developers of the Case-Shiller home price indices, collaborated with John Quigley to research the wealth effect from 1982 to 1999. Their findings showed ‘weak’ evidence that variations in housing market wealth have important effects upon consumption. The study was later expanded to observe a 37-year period from 1975 to the second quarter of 2012. The results of this expanded data set revealed that an increase in housing wealth would boost household spending by around 4.3% over the course of four years. Likewise, a drop such as the fall in housing wealth caused by the crash between 2005 and 2009 would cause a spending drop of approximately 3.5%.

Increase in stock value: According to QZ, an online publication, only about 30% of Americans owned any form of stock in 1990. As of 2020, more than 50% now own stock. The 50% who don’t own stock are typically low-income Americans who don’t have access to retirement accounts. With approximately half of the population holding stock, it’s apparent that local economies may be sensitive to stock market performance. The National Bureau of Economic research argued this point in a paper published in 2019. Their research found that for every dollar of stock market wealth created, people spend 2.8 cents more per year. When this model is applied at the grand economic scale, it’s apparent that the wealth effect can predict higher wages and lower unemployment in a population. Events in 1968 highlight a real-world example of the wealth effect in action. The stock market entered a bull run, causing a massive rise in wealth amongst several specific categories of people. At the time, taxes were hiked by an additional 10%, yet people continued spending more in spite of this. Consumers were making more money due to the growth of the stock market, so the additional tax burden wasn’t of enough significance to impact their spending habits.

Income effect & substitute effect: Some critics even claim that increased asset wealth shouldn’t have as much impact on consumer spending as other factors, like taxes, household expenses, and employment trends. This argument is founded upon an assumption that an increase in the value of an investor’s portfolio doesn’t necessarily equate to an increase in disposable income. A change to one’s circumstances shouldn’t always change their consumption patterns, but the substitution effect shows that the inverse occurs quite commonly. There are two other effects that relate to the wealth effect: the income effect and the substitution effect. The income effect defines any change in the consumption of goods based on income and it can be expressed either directly or indirectly. When a consumer replaces cheap items with more expensive ones after experiencing a change in finances, they are acting out the substitution effect.

The income effect in practice: When a consumer changes the way they spend because their income has changed, that would be a direct impact of the income effect. Indirect income effect would look like someone changing magazine subscriptions because they’ve recently gotten too old to read anything with “Teen” in the title. In this instance, your income has nothing to do with your decision. Rather, the decision is driven purely by a change in your literary tastes.

The substitution effect in practice: An example of the substitution effect can be found in a situation where someone’s business grows quickly, so they decide to upgrade systems that were already updated recently. The additional purchase isn’t necessary, but the negative consequences are disregarded due to the additional income that’s available.

Wealth effect in business & education: The wealth effect, and income effect, could be seen in businesses that experience a period of high profits, then use their increased revenue to expand into new locations. With more wealth on hand, business leaders are typically more comfortable spending on important resources like labor, production, and marketing. When companies outsource their operations to an outside organization, they are applying the substitution effect. Because they can get the same work done at a lower cost or in a shorter time using an outside provider, they substitute in a more effective solution. This effect also applies to learning. When one feels they have accumulated significant knowledge, they are more likely to pursue riskier educational pursuits. They have a wealth of knowledge, therefore it is no issue to spend time learning a difficult subject.

Creative destruction

Outdated product replaced by new ones due to innovation.

Creative destruction has plenty of examples: horse wagons, typewriters, newspapers, cassette tapes, compact disks, MP3 players and landlines replaced by modern technologies. Creative destruction refers to the product and process innovation mechanism by which new production units replace outdated ones. Creative destruction is most often used to describe disruptive technologies such as the railroads or Kodak cameras being replaced by mobile phones. Creative destruction reminds us that things will change over time and the best way to avoid is to adapt. Creative destruction is a powerful economic concept because it can explain many of the dynamics or kinetics of economical change of an organization.

History: The term was coined in the early 1940s by economist Joseph Schumpeter, who observed real-life examples of creative destruction, such as Henry Ford’s assembly line. Schumpeter characterized creative destruction as innovations in the manufacturing process that increase productivity, describing it as the “process of industrial mutation that incessantly revolutionizes the economic structure from within, incessantly destroying the old one, incessantly creating a new one.” His theory assumed that long-standing arrangements and assumptions must be destroyed to free up resources and energy to be deployed for innovation. Marx never coined the term, however, he explicitly explained the concept in The Communist Manifesto of 1848:

... a society that has conjured up such gigantic means of production and of exchange, is like the sorcerer who is no longer able to control the powers of the nether world whom he has called up by his spells. ... It is enough to mention the commercial crises that by their periodical return put the existence of the whole of bourgeois society on trial, each time more threateningly. In these crises, a great not only of existing production, but also of previously created productive forces, are periodically destroyed.

The productive forces at the disposal of society no longer tend to further the development of the conditions of bourgeois property; on the contrary, they have become too powerful for these conditions. ... And how does the bourgeoisie get over these crises? On the one hand by enforced destruction of a mass of productive forces; on the other, by the conquest of new markets, and by the more thorough exploitation of the old ones. That is to say, by paving the way for more extensive and more destructive crises, and by diminishing the means whereby crises are prevented.

Marx in his other writings:

Again, however, from destruction a new spirit of creation arises; the scarcity of wood and the needs of everyday life... forced the discovery or invention of substitutes for wood, forced the use of coal for heating, forced the invention of coke for the production of iron.

Charles Darwin also had mentioned similar observations in Origin of Species of 1859:

...extinction of old forms is the almost inevitable consequence of the production of new forms.

Clayton Christensen: As a professor at Harvard Business School, Clayton Christensen pioneered in the late 1990s some principles and steps business managers should take to defend their franchises from newcomers.

Creative destruction placed on the backs of successful companies the duty that they work to “destroy” that which has made them historically rich and great. If they did not destroy their own franchise in search of a superior replacement, some young upstart enterprise in a garage somewhere (most likely Silicon Valley) would do it for them.
Innovator’s dilemma suggested that companies with established dominance all too often do not innovate sufficiently, fearing that innovations would not deliver the type of profits delivered by standard and long tried-and-true businesses that made them great.

The reason why it is so difficult for existing firms to capitalize on disruptive innovations is that their processes and their business model that make them good at the existing business actually make them bad at competing for the disruption.

To remain great you have to be willing to give up what you have and need for what you can only at best hope that you might retain.

Markets always win: When mental models are out of sync with reality, corporations lose their status by staying complacent. They don’t have much control over market. In the end, market always win! Markets lack culture, leadership and emotion which corporations face. The market has no memory or remorse. It has no mental models. The market forces are at constant play working themselves out. Market will always welcome new entrants and kill the old. So if market always win, then, what role can corporations play?

Beginner’s mindset: In Buddhism, the act of openness to trying new things and not carrying the burden of past assumptions is called beginner’s mind. It allows for new ideas and innovation to flourish. To avoid creative destruction, understand competition constantly dismantle the old guards. Having a beginner’s mindset is wise for corporate executives to embrace.

Knowing you have a competitive advantage is often the enemy of beginner’s mind, because doing well reduces the incentive to explore other ideas, especially when those ideas conflict with your proven strategy. - Morgan Housel

Morgan Housel has a great piece worth reading, why competitive advantages die.

Business

Model	Definition
Intellectual property	Trademarks, patents, and copyrights are different types of intellectual property.
Financial ratios	A ratio to compute relative magnitude of two selected numerical values taken from an enterprise's financial statements.
Porter's five forces	A model that identifies and analyzes five competitive forces that shape every industry and helps determine an industry's weaknesses.
Depriciation	The decrease in the value of assets and the method used to reallocate, or “write down” the cost of equipment over its useful life span.
Surfing	Surfing technology waves and new paradigms to build a business.
Parkinson's law	Work expands to fill the time available for its completion.
Double entry accounting	A method of bookkeeping that relies on a two-sided accounting entry to maintain financial information.
Float	Float is the money that a company gets to hold onto between the time customers pay premiums and the time they make claims on their policies.
Churn	It is the annual percentage of customers who choose to stop subscribing for, paying for, or using, a service.
Pari-mutuel system	A system of betting where the bets are pooled and the winners share the money after the house, or organizer, has taken their cut.
Risk vs uncertainty vs volatility	Risk is an unknown, but you can predict the probability of it. Uncertainty is an unknown and you cannot predict the probability of it. Volatility refers to short term change and does not mean that something is risky in the long term. Volatility represents how large prices can swing around the mean.
Mr market	Mr. Market is a metaphor that represents moody behavior of stock market fluctuation.
Economic moat	A competitive advantage a company has over its competitors to defend its long-term profitability.
Diminishing returns	The value of each additional input leads to a decreasing level of output. At this stage the effort of productivity decreases.
Circle of competence	Describes a person’s competency in an area that matches their skillset and abilities.
Occam's razor	Occam’s razor states that the simplest explanation is preferable over a complex one.

Intellectual property

Trademarks, patents, and copyrights are different types of intellectual property.

A trademark protects the items which define a company brand, the logo being one of those things. For example, Coca-Cola® for soft drinks.

Copyright protects literary and artistic works, such as movies or books. For example, song lyrics to “Let It Go” from “Frozen.”

Patents protect inventions and stop other people from making or selling them. For example, a new type of hybrid engine.

Financial ratios

A ratio to compute relative magnitude of two selected numerical values taken from an enterprise's financial statements.

Ratio analysis can mark how a company is performing over time, while comparing a company to another within the same industry or sector. Examples of ratio analysis include current ratio, gross profit margin ratio, inventory turnover ratio.

Financial ratios represent the multitude of numbers in a company’s financial statements in a way which help to evaluate the financial condition of a company. They can represent profitability, liquidity, efficiency, debt, capital, performance, cash flow, and more. Financial analysts use financial ratios to compare the strengths and weaknesses in various companies.

Common ratios:

COGS = Cost of goods sold, or cost of sales.
EBIT = Earnings before interest and taxes
EBITDA = Earnings before interest, taxes, depreciation, and amortization
EPS = Earnings per share

Wikipedia has a whole list of ratios on profitability, liquidity, and debt ratios.

Porter's five forces

A model that identifies and analyzes five competitive forces that shape every industry and helps determine an industry's weaknesses.

A framework for determining the level of competition within an industry and evaluate a firm's strategic position: (1) Bargaining power of suppliers and (2) buyers, (3) the threat of new entrants or (4) substitutes, and (5) industry rivalry, make up the five forces.

Michael E. Porter is a leading authority on competitive strategy. He tells that there are five competitive forces that defines the industry structure. They are called as Porter’s 5 forces.

The five forces that influence a company’s ability to serve its customers and profit are:

The threat of substitute products or services
The threat of established rivals
The threat of new entrants
The suppliers’ bargaining power
The customers’ bargaining power

Michael Porter:

“Awareness of the five forces can help a company understand the structure of its industry and stake out a position that is more profitable and less vulnerable to attack.”

Depriciation

The decrease in the value of assets and the method used to reallocate, or “write down” the cost of equipment over its useful life span.

A means of attributing the expense of an asset over the course of its useful years instead of as a one-off cost when bought. Machinery for making cars will be bought, but will not mean a large net loss in year one, instead the expense is spread over a few years, meaning profits for each year are more realistic.

Businesses depreciate long-term assets for both accounting and tax purposes.

The decrease in value of the asset affects the balance sheet of a business or entity, and the method of depreciating the asset, accounting-wise, affects the net income, and thus the income statement that they report.

Generally, the cost is allocated as depreciation expense among the periods in which the asset is expected to be used.

Methods of computing depreciation, and the periods over which assets are depreciated, may vary between asset types within the same business and may vary for tax purposes. These may be specified by law or accounting standards, which may vary by country. There are several standard methods of computing depreciation expense, including fixed percentage, straight line, and declining balance methods. Depreciation expense generally begins when the asset is placed in service. For example, a depreciation expense of 100 per year for five years may be recognized for an asset costing 500.

It does not result in any cash outflow; it just means that the asset is not worth as much as it used to be.

Surfing

Surfing technology waves and new paradigms to build a business.

It pays to be in the right place at the right time. New ideas come and go. The tricky part is deciding which idea to jump on and which to avoid. If you can get onboard with a successful idea at the right time then you can build a successful business around it.

“Surfing” isn’t just a sport. There are brilliant insights that can be used to analyze a business opportunity through the lens of this mental model. A surfer not only is carried by the wave, but it gives an exceptional forward speed to its rider, provided the surfer can get on to the wave at the right time and not get thrown off in between. The second most important thing required to ride a wave is to recognize that the a wave is approaching. Which means 90 percent of the times you would find a surfer lying on his surfing board and paddling slowly, waiting for the right wave.

Charlie Munger:

“When technology moves as fast as it does in a civilization like ours, you get a phenomenon which I call competitive destruction. You know, you have the finest buggy whip factory and all of a sudden in comes this little horseless carriage. And before too many years go by, your buggy whip business is dead. You either get into a different business or you’re dead-you’re destroyed. It happens again and again and again. And when these new businesses come in, there are huge advantages for the early birds. And when you’re an early bird, there’s a model that I call “surfing” – when a surfer gets up and catches the wave and just stays there, he can go a long, long time. But if he gets off the wave, he becomes mired in shallows...But people get long runs when they’re right on the edge of the wave – whether it’s Microsoft or Intel or all kinds of people.”

“A surfer not only is carried by the wave, but it gives an exceptional forward speed to its rider, provided the surfer can get on to the wave at the right time and not get thrown off in between. The second most important thing required to ride a wave is to recognize that the a wave is approaching. Which means 90 percent of the times you would find a surfer lying on his surfing board and paddling slowly, waiting for the right wave.”

“Berkshire Hathaway, by and large, does not invest in these people that are “surfing” on complicated technology. After all, we’re cranky and idiosyncratic-as you may have noticed. And Warren and I don’t feel like we have any great advantage in the high-tech sector. In fact, we feel like we’re at a big disadvantage in trying to understand the nature of technical developments in software, computer chips or what have you. So we tend to avoid that stuff, based on our personal inadequacies. Again, that is a very, very powerful idea. Every person is going to have a circle of competence. And it’s going to be very hard to advance that circle…So you have to figure out what your own aptitudes are. If you play games where other people have the aptitudes and you don’t, you’re going to lose. And that’s as close to certain as any prediction that you can make. You have to figure out where you’ve got an edge. And you’ve got to play within your own circle of competence. Some of you may find opportunities “surfing” along in the new high-tech fields-the Intels, the Microsofts and so on. The fact that we don’t think we’re very good at it and have pretty well stayed out of it doesn’t mean that it’s irrational for you to do it.”

John H. Patterson was a small retail merchant who did not make any money. One day, somebody sold him a crude cash register which he put into his retail operation. And it instantly changed from losing money to earning a profit because it made it so much harder for the employees to steal.

“But Patterson, having the kind of mind that he did, didn’t think, “Oh, good for my retail business.” He thought, “I’m going into the cash register business.” And, of course, he created National Cash Register. And he “surfed”. He got the best distribution system, the biggest collection of patents and the best of everything. He was a fanatic about everything important as the technology developed. I have in my files an early National Cash Register Company report in which Patterson described his methods and objectives. And a well-educated orangutan could see that buying into partnership with Patterson in those early days, given his notions about the cash register business, was a total 100% cinch.”

Munger tells that every investor should be looking out for these kinds of opportunities.

“In a long life, you can expect to profit heavily from at least a few of those opportunities if you develop the wisdom and will to seize them. At any rate, “surfing” is a very powerful model.”

Charles Darwin:

“It’s not the strongest of the species who survive, nor the most intelligent, but the ones most responsive to change.”

Parkinson's law

Work expands to fill the time available for its completion.

The more time we give a task, the more complex we will make it. You can save yourself time and effort by assigning the correct amount of time to a given task.

Coined by Cyril Northcote Parkinson as part of an essay published in The Economist in 1955:

“Politicians and taxpayers have assumed (with occasional phases of doubt) that a rising total in the number of civil servants must reflect a growing volume of work to be done. … The fact is that the number of officials and the quantity of the work are not related to each other at all. The rise in the total of those employed is governed by Parkinson’s Law and would be much the same whether the volume of the work were to increase, diminish, or even disappear.”

In simple terms, Parkinson’s Law means that if you take a 2-hour task and allocate 4 hours to get it done, you will end up spending 4 hours working on the task. To overcome this fatigue, the more constraints one imposes, the more one frees one’s self.

Double entry accounting

A method of bookkeeping that relies on a two-sided accounting entry to maintain financial information.

For example, if you sell a cup of coffee, your cash account goes up, and your inventory account goes down.

The emergence of double entry has been linked to the birth of capitalism.

A form of bookkeeping where every transaction is recorded in two columns, as either a debit or a credit. The columns should balance and help to better track company finances.

The double-entry system has two equal and corresponding sides known as debit and credit. A transaction in double-entry bookkeeping always affects at least two accounts, always includes at least one debit and one credit, and always has total debits and total credits that are equal. The purpose of double-entry bookkeeping is to allow the detection of financial errors and fraud.

Double-entry bookkeeping is based on "balancing" the books, that is to say, satisfying accounting equation. The accounting equation serves as an error detection tool; if at any point the sum of debits for all accounts does not equal the corresponding sum of credits for all accounts, an error has occurred. However, satisfying the equation does not necessarily guarantee a lack of errors, for example, the wrong accounts could have been debited or credited.

Double entry refers to an accounting concept whereby assets = liabilities + owners' equity. Some key account types include:

Asset accounts show dollars associated with things a business owns, such as the cash in its checking account or the price paid for its warehouse.
Liability accounts show what the firm owes, such as a building mortgage, equipment loan, or credit card balances.
Income accounts represent money received, such as sales revenue and interest income.
Expense accounts show money spent, including purchased goods for sale, payroll costs, rent, and advertising.

For example, if a business takes out a bank loan for $10,000, recording the transaction would require a debit of $10,000 to an asset account called “Cash,” as well as a credit of $10,000 to a liability account called “Loan Payable.”

How is it different from single-entry? Single-entry doesn’t track assets or liabilities, is prone to mistakes, doesn’t tell you much about the state or health of your business, and is the accounting equivalent of carrying around a velcro wallet-fine when you’re a kid, but not very secure, or reputable, when you’re older. If you’re a freelancer or sole proprietor, you might already be using this single-entry. It’s quick and easy-and that’s pretty much where the benefits of single-entry end.

Float

Float is the money that a company gets to hold onto between the time customers pay premiums and the time they make claims on their policies.

When a bank deposit or transfer is made, there is a short period of time where the money is duplicated. The money will show up immediately in the recipient’s account, but will not yet have had time to leave the sender’s account. This duplicated money can be used as an investable asset.

At its core float is generated when a payment is made to a business or supplier before a service or good is delivered to the payee. This time-difference is called float and it is the fundamental business model of the insurance industry. For example, insurance carriers who issue home insurance often receive many years of premium payments before they receive a claim. So, in practice the carrier may receive 15 years of premium payments before that homeowner’s house burns down, is flooded or any other type of catastrophic claim.

Float has been used famously by Warren Buffet – the darling of the investing world–to build Berkshire Hathaway into an empire. Buffett on float:

“Insurers receive premiums upfront and pay claims later...This collect-now, pay-later model leaves us holding large sums - money we call "float" - that will eventually go to others. Meanwhile, we get to invest this float for Berkshire's benefit...If premiums exceed the total of expenses and eventual losses, we register an underwriting profit that adds to the investment income produced from the float. This combination allows us to enjoy the use of free money - and, better yet, get paid for holding it. Alas, the hope of this happy result attracts intense competition, so vigorous in most years as to cause the P/C industry as a whole to operate at a significant underwriting loss. This loss, in effect, is what the industry pays to hold its float. Usually this cost is fairly low, but in some catastrophe-ridden years the cost from underwriting losses more than eats up the income derived from use of float...Our float has grown from $16 million in 1967, when we entered the business, to $62 billion at the end of 2009. Moreover, we have now operated at an underwriting profit for seven consecutive years. I believe it likely that we will continue to underwrite profitably in most - though certainly not all - future years. If we do so, our float will be cost-free, much as if someone deposited $62 billion with us that we could invest for our own benefit without the payment of interest. Let me emphasize again that cost-free float is not a result to be expected for the P/C industry as a whole: In most years, premiums have been inadequate to cover claims plus expenses. Consequently, the industry's overall return on tangible equity has for many decades fallen far short of that achieved by the S&P 500. Outstanding economics exist at Berkshire only because we have some outstanding managers running some unusual businesses.”

“Float is money we hold but don’t own. In an insurance operation, float arises because premiums are received before losses are paid, an interval that sometimes extends over many years. During that time, the insurer invests the money. This pleasant activity typically carries with it a downside: The premiums that an insurer takes in usually do not cover the losses and expenses it eventually must pay. That leaves it running an “underwriting loss,” which is the cost of float. An insurance business has value if its cost of float over time is less than the cost the company would otherwise incur to obtain funds. But the business is a lemon if its cost of float is higher than market rates for money. Moreover, the downward trend of interest rates in recent years has transformed underwriting losses that formerly were tolerable into burdens that move insurance businesses deeply into the lemon category.”

“So how does our float affect intrinsic value? When Berkshire’s book value is calculated, the full amount of our float is deducted as a liability, just as if we had to pay it out tomorrow and could not replenish it. But to think of float as strictly a liability is incorrect. It should instead be viewed as a revolving fund. Daily, we pay old claims and related expenses – a huge $24.5 billion to more than six million claimants in 2015 – and that reduces float. Just as surely, we each day write new business that will soon generate its own claims, adding to float. If our revolving float is both costless and long-enduring, which I believe it will be, the true value of this liability is dramatically less than the accounting liability. Owing $1 that in effect will never leave the premises – because new business is almost certain to deliver a substitute – is worlds different from owing $1 that will go out the door tomorrow and not be replaced. The two types of liabilities, however, are treated as equals under GAAP.”

Businesses investing float are essentially investing borrowed money at no fee. Buffett exploited this very early on into his investing career.

Churn

It is the annual percentage of customers who choose to stop subscribing for, paying for, or using, a service.

Churn rate is calculated by dividing the number of customer cancellations within a time period by the number of active customers at the start of that period.

For a business to grow, the number of new customers added each year must be higher than the churn rate. It is no secret that customer retention is a top priority for many companies; acquiring new customers can be several times more expensive than retaining existing ones. Gaining an understanding of the reasons customers churn and estimating the risk associated with individual customers are both powerful components of designing a data-driven retention strategy.

Customers churn for loads of reasons. It could be pricing, budget cuts or product no longer useful. This is why focusing on customers is hugely valuable.

Pari-mutuel system

A system of betting where the bets are pooled and the winners share the money after the house, or organizer, has taken their cut.

The parimutuel system is used in gambling on horse racing, greyhound racing, and other sporting events of relatively short duration in which participants finish in a ranked order. A modified parimutuel system is also used in some lottery games. The odds are discovered at the end of the event, rather than being set at the beginning. In Pari-mutuel betting the gambler bets against other gamblers, not the house.

…you don’t win by predicting the future; you win by getting the odds right. You can be right about the future and still not make any money. At the racetrack, for example, the favorite horse may be the one most likely to win, but since everyone wants to bet on the favorite, how likely is it that betting on the favorite will make you money? The horse to bet on is the one more likely to win than most people expect. That’s the one that gives you the best odds. That’s the bet that pays off over time. - Will Bonner

The model I like to sort of simplify the notion of what goes on in a market for common stocks is the pari-mutuel system at the racetrack. If you stop to think about it, a pari-mutuel system is a market. Everybody goes there and bets and the odds change based on what’s bet. That’s what happens in the stock market. Any damn fool can see that a horse carrying a light weight with a wonderful win rate and a good post position etc., etc. is way more likely to win than a horse with a terrible record and extra weight and so on and so on. But if you look at the odds, the bad horse pays 100 to 1, whereas the good horse pays 3 to 2. Then it’s not clear which is statistically the best bet using the mathematics of Fermat and Pascal. The prices have changed in such a way that it’s very hard to beat the system.And then the track is taking 17% off the top. So not only do you have to outwit all the other betters, but you’ve got to outwit them by such a big margin that on average, you can afford to take 17% of your gross bets off the top and give it to the house before the rest of your money can be put to work. - Charlie Munger

Risk vs uncertainty & volatility

Risk is an unknown, but you can predict the probability of it. Uncertainty is an unknown and you cannot predict the probability of it. Volatility refers to short-term change and does not mean that something is risky in the long term. In business & finance all 3 are critical component of decision-making process. Knowing the difference between these will help you make better decisions.

Risk is when the odds or probabilities of future events can be estimated.
Uncertainty is when the list of possible future events is unknown, so their odds of occurring cannot be estimated.
Volatility represents how large prices can swing around the mean.

Uncertainties are open-ended with many possibilities. Risks and volatility have a narrow range of outcomes with odds that can be estimated. Risk is the situation under which the decision outcomes and their probabilities of occurrences are known to the decision-maker, and uncertainty is the situation under which such information is not available to the decision-maker.

In risk, you can predict the possibility of a future outcome, while in uncertainty you cannot.
Risks can be managed while uncertainty is uncontrollable.
Risks can be measured and quantified, while uncertainty cannot.
You can assign a probability to risks events, while with uncertainty, you can’t.

The 2020 coronavirus pandemic is an example of making decisions under uncertainty. When the pandemic first hit, you didn’t know the probabilities of getting sick, and if you fell ill, you didn’t know the odds of dying. You also didn’t know who was infected or even how we could get infected. The situation was highly uncertain. In those circumstances, the minimax regret decision was to shelter in place as much as possible until you had more information on fatality statistics. Minimizing our regret is not an optimization problem. It is a behavioral coping mechanism for dealing with uncertainty.

Risk is what’s left when you think you’ve thought of everything. - Carl Richards

What is risk? It is a probability of negative event in the future. What does past tell us about that? The past has relevance but it is not absolute. Risk cannot be quantified that is why I don’t believe in models. And what is quantification, it is a measurement. And future events cannot be measured. - Howard Marks

There’s a big difference between probability and outcome. Probable things fail to happen-and improbable things happen-all the time. That’s one of the most important things you can know about investment risk. - Howard Marks

Risk means uncertainty about which outcome will occur and about the possibility of loss when the unfavorable ones do. - Howard Marks

Experience is what you get when you get something you don’t want. The best way to learn lessons is inexpensively. - Howard Marks

You should obsess over risks that do permanent damage and care little about risks that do temporary harm, but the opposite is more common. The only way to build wealth is to have a gap between your ego and your income. It’s important to know the difference between rosy optimism and periods of chaos that trend upward. If your expectations grow faster than your income you’ll never be happy with your money no matter how much you accumulate. - Morgan Housel

There are known knowns. These are things we know that we know. There are known unknowns. That is to say, there are things that we know we don’t know. But there are also unknown unknowns. These are things we don’t know we don’t know. - Former U.S. secretary of defense Donald Rumsfeld

Risk has an unknown outcome, but we know what the underlying outcome distribution looks like. Uncertainty also implies an unknown outcome, but we don’t know what the underlying distribution looks like. So games of chance like roulette or blackjack are risky, while the outcome of a war is uncertain. Knight said that objective probability is the basis for risk, while subjective probability underlies uncertainty. - Michael Mauboussin

Risk, as first articulated by the economist Frank H. Knight in 1921, is something that you can put a price on. Say that you’ll win a poker hand unless your opponent draws to an inside straight: the chances of that happening are exactly 1 chance in 11. This is risk. It is not pleasant when you take a “bad beat” in poker, but at least you know the odds of it and can account for it ahead of time. In the long run, you’ll make a profit from your opponents making desperate draws with insufficient odds. Uncertainty, on the other hand, is risk that is hard to measure. You might have some vague awareness of the demons lurking out there. You might even be acutely concerned about them. But you have no real idea how many of them there are or when they might strike. Your back-of-the-envelope estimate might be off by a factor of 100 or by a factor of 1,000; there is no good way to know. This is uncertainty. Risk greases the wheels of a free-market economy; uncertainty grinds them to a halt. - Nate Silver

The meaning of “uncertainty” and “risk” and the distinction between them seems ambiguous even for some experts in the field and there are multiple definitions of each in use… Indeed, the decision sciences routinely write about “decisions under uncertainty” where uncertainty is defined with quantified probabilities. Physicists routinely talk about measuring uncertainty-again with probabilities. - Douglas Hubbard

With uncertainties, you don’t know the probabilities, so you do your best to avoid situations where you could be ruined and experience tremendous regret. “The concept of regret is a much more powerful and flexible concept than mere loss because it is entirely subjective. But that’s exactly what makes the strategy human. That’s exactly what makes the strategy real. - Ben Hunt

In the face of uncertainty we cope as humans, we don’t optimize. - Mervyn King, former Bank of England Chair

Volatility in the up direction is not a problem-it's only downward volatility that offers discourse. - Coreen T. Sol

Mr market

Mr. Market is a metaphor that represents moody behavior of stock market fluctuation.

The mood fluctuates depending on what mood the Mr. Market is in. If the general sentiment is negative, Mr. Market delivers low stock prices. If the sentiment is positive, Mr. Market tends to offer high stock prices. Mr. Market is a mental model on how to view the market behavior. Mr. Market is a fictional character who is driven by many emotions and mood on any given day rather than through rational analysis. Mr. Market should only be taken seriously when prices presented are favorable to you.

Mr. Market is a fictional character created by investor and professor Benjamin Graham to describe irrational behavior of stock market. He explained Mr. Market as a daily visitor knocking on your door offering stock prices that you can buy or sell at. You can either transact with Mr. Market or ignore him. Graham introduced Mr. Market in Chapter 8 of his classic book The Intelligent Investor. Graham explained the unstable character of Mr. Market who wakes up happy one day, and sad the other day. He further explains the job of an investor is to take advantage of him on the days when he is in bad mood offering depressed prices.

In the short run, the market is a voting machine but in the long run, it is a weighing machine. - Benjamin Graham

Benjamin Graham was also Warren Buffett's intellectual father.

If you understand chapters 8 and 20 of The Intelligent Investor (Benjamin Graham, 1949) and chapter 12 of the General Theory (John Maynard Keynes, 1936), you don’t need to read anything else and you can turn off your TV. - Warren Buffett

Imagine if you own a local grocery store and if Mr. Market showed up everyday with different prices on what your business is worth. You would most likely ignore him and focus on serving your customers. You will have a better idea on how your business is performing based on your financial reports. But Mr. Market does not care about your insights! Mr. Market is that annoying neighbor who does not care if you are interested. He will show up everyday whether you like him or not. The wisdom to ignore Mr. Market is hard to put in practice because it requires a lot of patience. Benjamin Graham wrote the following passage in Chapter 7 of The Intelligent Investor:

The true investor scarcely ever is forced to sell his shares, and at all other times he is free to disregard the current price quotation. He need pay attention to it and act upon it only to the extent that it suits his book, and no more. Thus the investor who permits himself to be stampeded or unduly worried by unjustified market declines in his holdings is perversely transforming his basic advantage into a basic disadvantage. That man would be better off if his stocks had no market quotation at all, for he would then be spared the mental anguish caused him by other persons’ mistakes of judgment.

Jason Zweig is a Wall Street Journal columnist who has been revising The Intelligent Investor to keep up with times has commented on the passage above:

This may well be the single most important paragraph in Benjamin Graham’s entire book. In these 113 words Graham sums up his lifetime of experience. You cannot read these words too often; they are like Kryptonite for bear markets. If you keep them close at hand and let them guide you throughout your investing life, you will survive whatever the markets throw at you.

Warren Buffett explains further on Mr. Market in his 1987 Berkshire Hathaway shareholder letter:

Ben Graham, my friend and teacher, long ago described the mental attitude toward market fluctuations that I believe to be most conducive to investment success. He said that you should imagine market quotations as coming from a remarkably accommodating fellow named Mr. Market who is your partner in a private business. Without fail, Mr. Market appears daily and names a price at which he will either buy your interest or sell you his. Even though the business that the two of you own may have economic characteristics that are stable, Mr. Market’s quotations will be anything but. For, sad to say, the poor fellow has incurable emotional problems. At times he feels euphoric and can see only the favorable factors affecting the business. When in that mood, he names a very high buy-sell price because he fears that you will snap up his interest and rob him of imminent gains. At other times he is depressed and can see nothing but trouble ahead for both the business and the world. On these occasions he will name a very low price, since he is terrified that you will unload your interest on him. Mr. Market has another endearing characteristic: He doesn’t mind being ignored. If his quotation is uninteresting to you today, he will be back with a new one tomorrow. Transactions are strictly at your option. Under these conditions, the more manic-depressive his behavior, the better for you. But, like Cinderella at the ball, you must heed one warning or everything will turn into pumpkins and mice: Mr. Market is there to serve you, not to guide you. It is his pocketbook, not his wisdom, that you will find useful. If he shows up some day in a particularly foolish mood, you are free to ignore him or to take advantage of him, but it will be disastrous if you fall under his influence. Indeed, if you aren’t certain that you understand and can value your business far better than Mr. Market, you don’t belong in the game. As they say in poker, “If you’ve been in the game 30 minutes and you don’t know who the patsy is, you’re the patsy...In my own efforts to stay insulated, I have found it highly useful to keep Ben’s Mr. Market concept firmly in mind.

Charlie Munger on Mr. Market:

Of course, the best of [Benjamin Graham's approach] was his concept of "Mr. Market". Instead of thinking the market was efficient, Graham treated it as a manic-depressive who comes by every day. And some days "Mr. Market" says, "I'll sell you some of my interest for way less than you think is worth." And other days, he comes by and says "I'll buy your interest at a price that's way higher than what you think it's worth." And you get the option of deciding whether you want to buy more, sell of what you already have, or do nothing at all. To Graham, it was a blessing to be in a business with a manic-depressive who gave you this series of options all the time. That was a very significant mental construct. And it's been very useful to Buffett, for instance, over his whole adult lifetime.

Seth Klarman, another legendary investor on Mr. Market:

An ever helpful fellow, Mr. Market stands ready every business day to buy or sell a vast array of securities in virtually limitless quantities at prices that he sets. He provides this valuable service free of charge. Sometimes Mr. Market sets prices at levels where you would neither want to buy nor sell. Frequently, however, he becomes irrational. Sometimes he is optimistic and will pay far more than securities are worth. Other times he is pessimistic, offering to sell securities for considerably less than underlying value. Value investors – who buy at a discount from underlying value – are in a position to take advantage of Mr. Market’s irrationality. Some investors – really speculators – mistakenly look to Mr. Market for investment guidance. They observe him setting a lower price for a security and, unmindful of his irrationality, rush to sell their holdings, ignoring their own assessment of underlying value. Other times they see him raising prices and, trusting his lead, buy in at the higher figure as if he knew more than they. The reality is that Mr. Market knows nothing, being the product of the collective action of thousands of buyers and sellers who themselves are not always motivated by investment fundamentals. Emotional investors and speculators inevitably lose money; investors who take advantage of Mr. Market’s periodic irrationality, by contrast, have a good chance of enjoying long-term success. Mr. Market’s daily fluctuations may seem to provide feedback for investors’ recent decisions. For a recent purchase decision rising prices provide positive reinforcement; falling prices, negative reinforcement. If you buy a stock that subsequently rises in price, it is easy to allow the positive feedback provided by Mr. Market to influence your judgment. You may start to believe that the security is worth more than you previously thought and refrain from selling, effectively placing the judgment of Mr. Market above your own. You may even decide to buy more shares of this stock, anticipating Mr. Market’s future movements. As long as the price appears to be rising, you may choose to hold, perhaps even ignoring deteriorating business fundamentals or a diminution in underlying value. Similarly, when the price of a stock declines after its initial purchase, most investors, somewhat naturally, become concerned. They start to worry that Mr. Market may know more than they do or that their original assessment was in error. It is easy to panic and sell at just the wrong time. Yet if the security were truly a bargain when it was purchased, the rational course of action would be to take advantage of this even better bargain and buy more. The fact that a stock price rises does not ensure that the underlying business is doing well or that the price increase is justified by a corresponding increase in underlying value. Likewise, a price fall in and of itself does not necessarily reflect adverse business developments or value deterioration. It is vitally important for investors to distinguish stock price fluctuations from underlying business reality. If the general tendency is for buying to beget more buying and selling to precipitate more selling, investors must fight the tendency to capitulate to market forces. You cannot ignore the market – ignoring a source of investment opportunities would obviously be a mistake – but you must think for yourself and not allow the market to direct you. Value in relation to price, not price alone, must determine your investment decisions.

To deal with Mr. Market, you need a right temperament and virtues because market is unpredictable but your behavior is not. Great investment returns lie in doing nothing, but we all deal with do-something-syndrome. Let Mr. Market serve you, not guide you! Take advantage of prices when they are attractive to you!

Economic moat

A competitive advantage a company has over its competitors to defend its long-term profitability.

A company has a moat when it has a valuable network effect. Twitter has a network effect because its members enjoy the benefit of connecting with more people. As Twitter network grows larger, there is more incentive for people to join.

Or...

Imagine the process of switching banks and updating all of your billing accounts. It is inconvenient for customers because they have to bear the switching costs. Higher switching costs provide banks an economic moat. The ability of a business to protect itself and create long-term competitive advantages. Companies such as Walmart can undercut competitors and negotiate supplier discounts due to a high volume of sales. There are several factors that define an economic moat - pricing power (Apple), intangible assets (Disney - branding, customer loyalty and patents), cost advantages (Walmart), switching costs (Chase bank), network effects (Facebook), and efficient scale (Amazon) are all advantages a business can leverage on to build or protect its moat.

How do you compete against a true fanatic? You can only try to build the best possible moat and continuously attempt to widen it. - Charlie Munger

Unless a company has an economic moat protecting its business, competition will soon arrive on its doorstep and eat away at its profits. Wall Street is littered with the dead husks of companies that went from hero to zero in a heartbeat. - Pat Dorsey

Our criterion of “enduring” causes us to rule out companies in industries prone to rapid and continuous change. Though capitalism’s “creative destruction” is highly beneficial for society, it precludes investment certainty. A moat that must be continuously rebuilt will eventually be no moat at all. - Warren Buffett

In business, I look for economic castles protected by unbreachable 'moats'. - Warren Buffett

No formula in finance tells you that the moat is 28 feet wide and 16 feet deep. That's what drives the academics crazy. They can compute standard deviations and betas, but they can't understand moats. - Warren Buffett

Warren Buffett, one of the greatest investors of our time conceptualized the term. The illustration of moats is derived from water-filled moats that surrounded medieval castles. Water acted as a moat to protect kingdoms and castles from invaders. The wider the moat, the more difficult it would be for an invader to reach the castle. The narrower or no moat, allowed the invader to reach the castle. Water alone didn't play a key role in protecting moats. Army, weapons and strategic ruler also played a role in defining and protecting kingdom's moat.

Business moat is analogous to kingdom's moat. Understanding economic moat is crucial to survival for any business. It describes a company's ability to earn above-average profits for a long period of time. No moat businesses often face threats from invaders, also known as competitors. Rapid innovation in technology has prevented businesses to protect its moat. Wide moat businesses benefit from one or several factors but they are also able to generate above-average profits for a long period of time. This profit can either be reinvested back into a business (Amazon) or return excess cash back to investors (Apple).

Wide moat businesses require competent management with excellent capital allocation skills. For every decision being made there is an opportunity cost. Reinvesting excess cash can be risky and investors would have to hold off for a payout. But great capital allocators see opportunities where others don't, turning a company into a size of many folds. Jeff Bezos of Amazon is a great example of an efficient capital allocator. Let's take a look at some of the main factors that drives economic moat.

Technology: deep technology such as artificial intelligence (AI) and data warehouse can give company an edge. Patents and trademarks make it hard to copy proprietary technology such as Google's search engine.
Economies of scale: The bigger the better because it brings down the cost and creates operating leverage. Economies of scale give cost advantage to businesses. Software companies do this efficiently because it costs minimal to nothing for each additional customer.
Network effects: The value of of a platform is proportional to the number of people using the platform. More people leads to more content and more time spent. Social media platforms such as Facebook or Snapchat are classic examples.
Intangible assets: Patents, brands, regulatory licenses can prevent competitors from duplicating a company's product. This in turn allows a company to charge premium for its products. A strong brand breeds trust. Apple is a classic example for all of its intangible assets.
Switching costs: If a customer has a high switching cost, it is very unlikely customers will take their business somewhere else. Switching costs can be due to cost or time intensive. Bank customers have high switching costs.

Technology has made switching costs easy for customers due to better product integration. It is easy for customers to download their old data and import it on a new software. Be careful how these factors are evolving with rapid technology innovation. Old economic moats are still sound but are evolving with time. Walmart is a wide moat business but Amazon was able to eat its lunch by bringing unlimited shelf space using web technologies. Strong moats survive major platform or trend shifts, but surviving should not be confused with thriving. IBM has survived major technological shifts, but is struggling to thrive. It is a victim of its own success because it failed to recognize industry-wide transformations. The major key takeaway of economic moat - is the end state defensible? If not, why go there?

Diminishing returns

The value of each additional input leads to a decreasing level of output. At this stage the effort of productivity decreases.

Doing too much of something may lead to diminishing or negative returns. For example, exercising to a level of exhaustion without giving your body a rest is counterproductive. Another example is giving money to poor family which will help them escape poverty. However, after a certain threshold additional dollar won’t have much impact. Receiving too much money could destroy the poor family.

Law of diminishing returns, also referred to as the law of diminishing marginal returns, is a concept in economics that if one factor of production (e.g. number of workers) is increased while other factors (e.g. work area or equipment) are held constant, the output per unit of the variable factor will eventually diminish. In other words, keeping all other factors constant, the additional output gained by another one unit increase of the input variable will eventually be smaller than the additional output gained by the previous increase in input variable. That is the point at which the diminishing marginal returns take effect.

A common example of diminishing returns is choosing to hire more to increase productivity. A farmer who owns a 25 acres hires 5 workers to harvest the field. Farmer will benefit tremendously per hire. But hiring 5 more will not yield the same level of productivity. This is because not every unit of input will lead to a proportional increase of output. The marginal productivity of the workforce decreases as output increases. Therefore, the total output per hire would be less. The law of diminishing returns states that simply increasing one input while keeping others the same will at some point yield diminishing returns. Basically, the extra output obtained by increasing one input, while the other inputs are constant, decreases over time.

Assuming you are effectively iterating the product based on customer feedback and research, you will eventually hit a point where there’s just not that much you can do to make it better. It’s time for your team to move on and invest in something new. - Brandon Chu

Income and happiness: Diminishing returns refers to any situation where your marginal benefits (income, happiness) is decreasing as the number of resources (time, inputs) increases. The extra boost of happiness you get from eating out 15th time should be less than the happiness you got from the 10th time.

Negative returns: The law of diminishing return does not state that adding more input will decrease the total production. It rather suggests the margins will continue to decrease eventually leading into negative territory.

Circle of competence

Describes a person’s competency in an area that matches their skillset and abilities.

Once upon a time Michael Jordan tried playing baseball, but he couldn't perform at the same caliber as basketball. Michael Jordan's circle of competency was basketball, not baseball. The circle of competency describes the skills and abilities of a person. These competencies can be innate or acquired through experiences over time. An understanding and knowing the boundaries of one's competencies are vital in avoiding downfalls and stress.

Ted Williams was famously known to wait for the “fat pitch.” He would only swing at pitches in of the strike zone where he knew he had a higher probability of getting a hit. There were parts of his strike zone where he batted .230 and there were other parts of the strike zone where he batted .400. He patiently waited to swing at pitches that would improve his odds of getting a hit and increase his overall batting average. Ted Williams operated within his circle of competency. So did Andrew Carnegie. Carnegie was a business icon during his era. In the Autobiography of Andrew Carnegie, Carnegie gives the following advice:

I believe the true road to preeminent success in any line is to make yourself master in that line. I have no faith in the policy of scattering one’s resources, and in my experience I have rarely if ever met a man who achieved preeminence in money-making-certainly never one in manufacturing-who was interested in many concerns. The men who have succeeded are men who have chosen one line and stuck to it.

Warren Buffett wrote a letter to Berkshire Hathaway shareholders in 1996 that shows what it means to operate within a circle of competency:

What an investor needs is the ability to correctly evaluate selected businesses. Note that word “selected”: You don’t have to be an expert on every company, or even many. You only have to be able to evaluate companies within your circle of competence. The size of that circle is not very important; knowing its boundaries, however, is vital.

So let's imagine a few circles! The imaginary circle of competence lies as a small circle within a much larger circle. The larger circle represents what an individual thinks they know but are far from being an expert in. Conversely, the smaller circle represents what they actually know and could be considered an expert in. To be successful, widening the competency circle is much more valuable than jumping from one circle to another.

Stick to what you know and know your limitations. Even the most famous icons were self-aware of that.

I’m no genius. I’m smart in spots-but I stay around those spots. - Tom Watson Sr., Founder of IBM

I consider that a man’s brain originally is like a little empty attic, and you have to stock it with such furniture as you choose. - Sherlock Holmes

The first thing to notice about specific knowledge is that you can’t be trained for it… [it’s] found much more by pursuing your innate talents, your genuine curiosity, and your passion… [it’s’] the knowledge that you care about. Especially if you’re later in life, let’s say your post 20, 21, 22, you almost don’t get to choose which specific knowledge you have. Rather, you get to look at what you have already built by that point in time, and then you can build on top of it. - Naval Ravikant

Your circle of competence is the subject area that matches your skills and expertise. But, many of us feel that our circle of competency is bigger than it actually is. Overconfidence starts leading us in a wrong direction. Reading a few set of books does not make someone a doctor or a lawyer. Those expertise come from decade of studies and practical experiences. It cannot be developed overnight by quickly jumping from one circle to another.

To improve the odds of success in life and business, the perimeter of your circle of competency needs to be defined so you can operate within the circle. Over time, the circle expands depending on your hard work and luck, but never fool yourself that you can be a master of all circles.

What is inside a circle of competency?: It is shaped by many things. First, we are naturally good at something because of our innate abilities. For example, a two year old might be really good at playing a piano. Second, as we get older, we accumulate skills and expertise based on our experiences. For example, learning a piano at an early age can help one become an expert. Core competencies can be innate, acquired or both.

How wide is a circle of competency?: Knowing where the boundaries of a circle of competency are and where you stand within those boundaries is really important. Understanding your own circle of competency helps you concentrate on the areas where you have the greatest familiarity.

Everybody’s got a different circle of competence. The important thing is not how big the circle is. The important thing is staying inside the circle. - Warren Buffett

Being truthful about your competencies can eliminate any illusions. There are times when subjective assessment of your own competence with your actual competence are misaligned. This is how people get in trouble. They stray from the circle of "what you know" into the circle of "what you don't know." Charlie Munger took the concept one step further by playing the strengths to have a competitive advantage. If a person not playing to their strengths comes up against a person who is, they will most likely lose. Charlie Munger on the boundaries of circle of competency:

If you have competence, you pretty much know its boundaries already. To ask the question (of whether you are past the boundary) is to answer it.

You have to figure out what your own aptitudes are. If you play games where other people have the aptitudes and you don’t, you’re going to lose. And that’s as close to certain as any prediction that you can make. You have to figure out where you’ve got an edge. And you’ve got to play within your own circle of competence. If you want to be the best tennis player in the world, you may start out trying and soon find out that it’s hopeless-that other people blow right by you. However, if you want to become the best plumbing contractor in Bemidji, that is probably doable by two-thirds of you. It takes a will. It takes the intelligence. But after a while, you’d gradually know all about the plumbing business in Bemidji and master the art. That is an attainable objective, given enough discipline. And people who could never win a chess tournament or stand in center court in a respectable tennis tournament can rise quite high in life by slowly developing a circle of competence-which results partly from what they were born with and partly from what they slowly develop through work.

How to widen a circle of competency?: Widening your circle of competencies can be done in many ways. Ask questions. Learn. Read. Work for someone who you can accumulate experiences from. Learn by doing. If something falls outside of your competency, delegate or outsource.

As Charlie Munger says:

In my whole life, I have known no wise people (over a broad subject area) who didn’t read all the time – none, zero. You’d be amazed at how much Warren Buffett reads – and how much I read. My children laugh at me. They think I’m a book with a couple of legs sticking out.

There is a difference between real knowledge and surface knowledge. Richard Feynman distinguished knowing the name of something vs knowing something. Real knowledge comes from doing deep work, experimenting and experiencing. Pretending to know outside of your circle can have real consequences. It serves well when you can say, “I don't know.” Confidence and humility are equally important.

Why should you avoid jumping from one circle to another?: It is natural to step outside and explore outside of our core circles. We have been doing this ever since the humanity started. However, attempting to broaden the circles should be done deliberately. Skills from one industry to another are not easily transferable. For example, an engineer cannot wake up tomorrow and start conducting surgeries. Not all stories turned out to be successful amongst the most successful icons we know today.

Peter Thiel went from being a venture capitalist to becoming a macro trader.
Famous economists who won the Nobel prize launched LTCM to taking enormous amount of leverage.
Fund manager such as George Soros trading technology stocks.

Charlie Munger on avoiding things he does not understand:

Why should I buy something that I don't understand?

I think about things where I have an advantage over other people. I don’t play in a game where the other people are wise and I’m stupid. I look for a place where I’m wise and they’re stupid. You have to know the edge of your own competency. I’m very good at knowing when I can’t handle something.

This is not to say DO NOT jump outside of your circle. Should you expand your skills? Yes, of course! But slowly...

It takes a very long time to build meaningful skills. If you are deliberate about committing to learning something new for a long period of time, it will be a worthwhile exercise to cross over the edges of your core competencies. But don't catapult yourself a hundred miles outside of your circle. You will fall flat on your face. To be a life-longer is a competitive advantage. Not everyone is born with natural talents, but skills can be acquired over time.

Occams razor

Occam’s razor states that the simplest explanation is preferable over a complex one.

Philosophers select explanations with the fewest assumptions when faced among competing hypotheses. Occam’s razor is named after the 14th-century English logician and theologian, William of Ockham. This philosophical razor advocates that when presented with competing hypotheses about the same prediction, one should select the solution with the fewest assumptions, and that this is not meant to be a way of choosing between hypotheses that make different predictions. All things being equal, the simplest solution tends to be the best. We should discard the things which are unknowable and unimportant. Just because something is complicated, it does not mean it is worth anything. Keep everything simple. Albert Einstein had a preference for simplicity which shows in his famous equation E=MC2. He once said:

Everything should be made as simple as possible, but not simpler.

He could’ve settled for a complex and lengthy equation, but instead he settled for simplicity.

Stephen Hawking also advocated for Occam’s razor:

We could still imagine that there is a set of laws that determines events completely for some supernatural being, who could observe the present state of the universe without disturbing it. However, such models of the universe are not of much interest to us mortals. It seems better to employ the principle known as Occam’s razor and cut out all the features of the theory that cannot be observed.

Simplification is a powerful weapon in complex environments. There is a lesson in this beyond scientific theories.

Engineering: In engineering, it’s the KISS principle: keep it simple, stupid. It employs avoiding complexity and over specification.

Writing: Given two written passages which convey almost the same meaning, the shorter passage is usually better. Shortening makes writing clearer and more vivid.

Productivity: **Have you ever wondered why billionaires like Mark Zuckerberg or Steve Jobs always wear the same clothes? To avoid decisions. Having to wake up every day with a toll of what to wear is not good use of their time. This technique is employed beyond the billionaires club. Anyone who seeks to be productive simplify their daily cognitive load.

Investing: Simplicity is the way to long term success in investing. Warren Buffett on simplification in investing:

The business schools reward difficult complex behavior more than simple behavior, but simple behavior is more effective….We haven’t succeeded because we have some great, complicated systems or magic formulas we apply or anything of the sort. What we have is just simplicity itself.

After 25 years of buying and supervising a great variety of businesses, Charlie and I have not learned how to solve difficult business problems. What we have learned is to avoid them. To the extent we have been successful, it is because we concentrated on identifying one-foot hurdles that we could step over rather than because we acquired any ability to clear seven-footers. The finding may seem unfair, but in both business and investments it is usually far more profitable to simply stick with the easy and obvious than it is to resolve the difficult.

…we try to stick to businesses we believe we understand. That means they must be relatively simple and stable in character. If a business is complex or subject to constant change, we’re not smart enough to predict future cash flows. Incidentally, that shortcoming doesn’t bother us.

Charlie Munger who is Buffett’s business partner also agrees:

People calculate too much and think too little….we have a passion for keeping things simple. If something is too hard, we move on to something else. What could be more simple than that?

Instead of worrying about where the interest rates or economic headwinds or tails winds are going, focus on what is knowable. Avoiding unknowable is an act of simplification. Buffett explains:

There are two questions you ask yourself as you look at the decision you’ll make. A) is it knowable? B) is it important? If it is not knowable, as you know there are all kinds of things that are important but not knowable, we forget about those. And if it’s unimportant, whether it’s knowable or not it won’t make any difference. We don’t care.

Even the world’s best behavioral economist, Professor Daniel Kahneman suggests that we should simplify our financial plan:

Keep it simple and aim to beat inflation. Don’t try to beat the market. When it comes to investing, less is more. And if you try to do more, you’ll often end up with less.

Make fewer decisions to make better decisions.

Use caution: While Occam’s razor is a popular mental model, bear in mind that Occam’s Razor doesn’t prove anything. It does not mean the world is simpler. Einstein proves the point:

For every complex problem there is an answer that is clear, simple, and wrong. - H. L. Mencken

In my opinion the theory here is the logically simplest relativistic field theory that is at all possible. But this does not mean that Nature might not obey a more complex theory.

Occam’s razor is not an alternative for critical and logical thinking. It only states that simpler solutions are easier to understand and teach over the complex ones. Opting for simpler solutions still requires work. Simplifying is hard work and requires a lot of effort.

Psychology

Model	Definition
Curiosity instinct	The inbuilt instinct which leads us to innovate and explore based on our curiosity.
Incentive-caused bias and rewards	People with a vested interest in something will tend to guide you in the direction of their interest.
Doubt-avoidance tendency	When faced with decisions riddled with doubt, we are hardwired to make quick decisions to remove the doubt, often leaving us with a wrong decision.
Excessive self-regard tendency	We all think we’re above average.
Over-optimism & over-confidence	Confidence is good, but overconfidence can create a bias in us.
Inconsistency-avoidance tendency	We rarely do things that are inconsistent with our identity, beliefs, and habits.
Stress influence	A state of mental or emotional strain or tension resulting from adverse or very demanding circumstances.
Drug mis-influence tendency	Drugs are destructive for cognition, and addiction is destructive to life.
Use-it-or-lose-it tendency	A skill degrades unless we practice it.
Authority mis-influence	Bias from over-influence by authority.
Availability mis-weighing	We have a tendency to give more weight to the information which is at hand and easily remembered.
Commitment and consistency	As people, once we make a commitment we usually remain consistent with our decision.
Pavlovian conditioning	Learning to associate a conditioned stimulus with an unconditioned stimulus.
Operant conditioning	A process by which humans and animals learn to behave in such a way as to obtain rewards and avoid punishments.
Senescence mis-influence tendency	As we get older, our mental abilities decline.
Self-deception and denial	It is the simple refusal to admit to certain unacceptable or unmanageable aspects of reality.
Envy and jealousy	Envy is when you want something that someone has. Jealousy is when you feel threatened.
Influence from mere association tendency	Bias from association (associate bias) is your tendency to be easily influenced by associations.
Survivorship bias	Our tendency to focus on successful examples and ignore failures.
Man with a hammer syndrome	To the man with a hammer, every problem looks like a nail.
Twaddle tendency	Twaddling means talking about something you don’t know, or just making up stuff as you go, or talking about meaningless stuff.
Contrast mis-reaction tendency	We don’t measure the value of things in a vacuum. We often notice value by contrasting it with something else.
First conclusion bias	A first principle is a basic assumption that cannot be deduced from any other assumption.
Ideological bias	Implicit values and assumptions embedded within texts, discourse, or social practices.
Deprival super-reaction syndrome	People are more affected by loss than by gains, or by what they have to lose.
Lollapalooza effect	Munger's term for the phenomenon wherein different biases layer and interlock with one another.
Social proof	The kind of conformity to socially accept behavior is known as social proof.
Liking disliking bias	We tend to dislike people who dislike us and tend to judge in favor of people that we know rather than strangers.
Confirmation bias	The tendency of the human brain to filter out information that contradicts its existing beliefs.
Reciprocation	Act of doing something nice for someone with the expectation that the favor will be returned.
Reason respecting tendency	Ask questions to gain better understanding of the world. Failure to reason discourages first principles thinking.
Kantian fairness tendency	The pursuit of absolute fairness for everyone and everything, but fairness differs from person to person.

Curiosity instinct

The inbuilt instinct which leads us to innovate and explore based on our curiosity.

It has led us to acquire information and knowledge about the world around us.

Curiosity provides us with an incentive to innovate, explore, and learn.

The curiosity instinct leads to unique human behavior and forms of organization like the scientific enterprise. Even before there were direct incentives to innovate, humans innovated out of curiosity.

Incentive-caused bias and rewards

People with a vested interest in something will tend to guide you in the direction of their interest.

Incentives influence the way people act. Change the incentive, and you’ll change the behavior. Get the incentives right.

Finding the correct incentive can cause people to change the way they think and change their behavior. A commission may incentivize employees to close more sales at any cost, but the employee will not be concerned with the profitability of the sale in the long term.

“Perhaps the most important rule in management is to get the incentives right.” - Charlie Munger

“Never, ever, think about something else when you should be thinking about the power of incentives.” - Charlie Munger

Charlie argues that people respond most strongly to what they view as their incentive or disincentive. In business, there is almost always someone else involved in whatever you are trying to do.

Charlie gives an example of FedEx-he said that they couldn’t get the planes to shift packages from plane to plane in a timely manner. The problem was that the workers were being paid per hour. When FedEx changed to paying the workers per shift, the workers were able to to shift packages faster.

“The heart and soul of the integrity of the system is that all the packages have to be shifted rapidly in one central location each night. And the system has no integrity if the whole shift can’t be done fast. And Federal Express had one hell of a time getting the thing to work. And they tried moral suasion, they tried everything in the world, and finally somebody got the happy thought that they were paying the night shift by the hour, and that maybe if they paid them by the shift, the system would work better. And lo and behold, that solution worked.” - Charlie Munger

Or Charlie talks about the incentives at Xerox:

“Early in the history of Xerox, Joe Wilson, who was then in the government, had to go back to Xerox because he couldn’t understand how their better, new machine was selling so poorly in relation to their older and inferior machine. Of course when he got there, he found out that the commission arrangement with the salesmen gave a tremendous incentive to the inferior machine.” - Charlie Munger

Or Munger gives an example of procurement on Defense Department:

“The power of incentives to cause rationalized, terrible behavior is also demonstrated by Defense Department procurement history. After the Defense Department had much truly awful experience with misbehaving contractors motivated under contracts paying on a cost-plus-a-percentage-of cost basis, the reaction of our republic was to make it a crime for a contracting office in the Defense Department to sign such a contract, and not only a crime, but a felony.” - Charlie Munger

Doubt-avoidance tendency

When faced with decisions riddled with doubt, we are hardwired to make quick decisions to remove the doubt, often leaving us with a wrong decision.

The human brain has evolved to resolve open issues (cognitive dissonance) by making decisions. Part of our speedy decision making process comes at a price: we eliminate any potential doubts, which might cause us to make mistakes.

Law courts force jurors to take time before reaching a decision to deal with this doubt.

Take your time and analyze.

Charlie Munger uses a specific example from a Dean of Physics in his speech "The Psychology of Human Misjudgement":

“According to Max Planck, the really innovative, important new physics was never really accepted by the old guard. Instead a new guard came along that was less brain-blocked by its previous conclusions.”

Excessive self-regard tendency

We all think we’re above average.

This is where overconfidence comes from.

The more we know, the more we understand what we do not know. We have a tendency to overestimate our ability when we have little experience or knowledge. This optimism does have benefits and means that we are willing to dive into new things.

This also applies to possessions.

The overappraisal-of-your-own-possessions is also known as the “endowment effect.” The endowment effect describes a circumstance in which an individual places a higher value on an object that they already own than the value they would place on that same object if they did not own it.

“Foolish gambling decisions. Excessive self-regard leads to more addictive sports betting than race track betting, or to cases of stupid bets against superior players in poker or golf.” - Charlie Munger

Munger says the greatest type of pride should be taking pride in being trustworthy to avoid developing an ego.

Over-optimism & over-confidence

Confidence is good, but overconfidence can create a bias in us.

The overconfidence effect is a well-established bias in which a person's subjective confidence in their judgments is reliably greater than the objective accuracy of those judgments, especially when confidence is relatively high.

Most of us have a tendency to overestimate ourselves.

We believe that we are more intelligent, honest, happier, etc., than the average person, but we cannot all be above average.

Munger describes the phenomenon:

“..in the 5th century B. C. Demosthenes noted that: “What a man wishes, he will believe.” And in self-appraisals of prospects and talents it is the norm, as Demosthenes predicted, for people to be ridiculously over-optimistic. For instance, a careful survey in Sweden showed that 90 percent of automobile drivers considered themselves above average. And people who are successfully selling something, as investment counselors do, make Swedish drivers sound like depressives. Virtually every investment expert’s public assessment is that he is above average, no matter what is the evidence to the contrary.”

Daniel Khaneman describes:

“One of our biases is that we can ignore the lessons of experience. A group of people compiling a report will estimate they can do it in a year, even though every other similar report has taken comparable groups five years...“When I started the book I told Richard Thaler (the author of Nudge) that I had 18 months to finish it. He laughed hysterically and said, ‘You have written about that, haven’t you? It’s not going to work the way you expect’.” How long did it take you, I ask. “Four years, and it was very painful.”

Inconsistency-avoidance tendency

We rarely do things that are inconsistent with our identity, beliefs, and habits.

This means that bad habits are hard to change.

To save energy, we are often reluctant to change our habits, especially bad ones. Such bad habits include biased thinking patterns. These patterns lead to cognitive errors, limiting our choice of actions in life.

This is why learning good habits is critical because it is easier to keep them.

Stress Influence

A state of mental or emotional strain or tension resulting from adverse or very demanding circumstances.

Stress can be both good and bad for us.

Imagine yourself going back 150,000 years. You are standing in the jungle. A cheetah is approaching towards you at full speed. What do you do? The sudden stress in your system will cause an adrenaline rush which will make you to run without thinking. This is good stress.

Under stress, we can complete tasks and have an enhanced focus for a short period of time. Yet stress can also lead us to act without thinking.

Constant stress can affect our health. Light stress, on the other hand, can improve our performance.

In Psychology of Human Misjudgment – Charlie Munger tells that light stress can slightly improve performance. We study very hard before the exams. During this time our body and mind will be under stress. But this is good as we learn a lot in a very short period of time. Once the exams are over our body and mind is back to normal.

“Stress is often very helpful. The classic stress response mobilizes energy to your muscles by increasing your heart rate, blood pressure, and breathing. High stress also helps your sensory system. For example, policemen report that during shootouts their visual acuity and focus improves, they sense a slowdown in time, and they fail to hear sounds. For a short burst, the mind can focus intently on the task at handle. This reaction is valuable in extraordinary circumstances.” - Michael Mauboussin

“Long-term stress exposure upsets the brain’s chemical balance. Stress may cause high blood pressure, heart disease, diabetes, back and stomach problems, headache, and depression. Studies show that when we feel stress the concentration of cortisol rises in the bloodstream. One effect of cortisol is to suppress the working of immune system. This makes us more vulnerable to diseases. Stress also counteracts the production of insulin (the hormone that processes blood sugar), causing the process of repair to slow down. Studies show that emotional stress creates longer recovery times in our bodies and may be more harmful to our health than non-emotional stress events like physical exercise.” - Peter Bevelin

Drug mis-influence tendency

Drugs are destructive for cognition, and addiction is destructive to life.

Drugs or alcohol can throw us into a spiraling negative-feedback loop which can become self-reinforcing and impossible to escape from. We can be influenced to make big mistakes, so we should stay away from the big mistake (the drugs), in the first place.

This tendency’s destructive power is so widely known to be intense, with frequent tragic consequences for cognition and the outcome of life which leads to...

Simple, pain-avoiding psychological denial. Charlie Munger explains this in his Psychology of Human Misjudgment talk:

“This phenomenon first hit me hard in World War II when the superathlete, superstudent son of a family friend flew off over the Atlantic Ocean and never came back. His mother, who was a very sane woman, then refused to believe he was dead. That’s Simple, Pain-Avoiding Psychological Denial. The reality is too painful to bear, so one distorts the facts until they become bearable. We all do that to some extent, often causing terrible problems. The tendency’s most extreme outcomes are usually mixed up with love, death, and chemical dependency.

Where denial is used to make dying easier, the conduct meets almost no criticism. Who would begrudge a fellow man such help at such a time? But some people hope to leave life hewing to the iron prescription, “It is not necessary to hope in order to persevere.” And there is something admirable in anyone able to do this.

In chemical dependency, wherein morals usually break down horribly, addicted persons tend to believe that they remain in respectable condition, with respectable prospects. They thus display an extremely unrealistic denial of reality as they go deeper and deeper into deterioration. In my youth, Freudian remedies failed utterly in reversing chemical dependency, but nowadays Alcoholics Anonymous routinely achieves a fifty percent cure rate by causing several psychological tendencies to act together to counter addiction. However, the cure process is typically difficult and draining, and a fifty percent success rate implies a fifty percent failure rate. One should stay far away from any conduct at all likely to drift into chemical dependency. Even a small chance of suffering so great a damage should be avoided.”

Use-it-or-lose-it tendency

A skill degrades unless we practice it.

For example, if you don't fly as a pilot very often, you should not fly as a pilot at all. To be a successful investor, you must commit your time and energy to real or paper investing on a regular basis.

The less we use something, such as a skill, the less useful and honed it will become. It is good practice for us to work on our lesser-used skills so that we have them available to us when we need them.

Authority mis-influence

Bias from over-influence by authority.

As a society we have hierarchies, a few people lead and lots of people follow. This is a natural human tendency. We have a tendency to blindly follow those who are in power and not question their orders. We will often do something just because someone says so.

We trust and respect leaders too much, even when they make mistakes. We also trust leaders in areas where they are not experts. This is also known as the Halo Effect.

“Living in dominance hierarchies as he does, like all his ancestors before him, man was born mostly to follow leaders, with only a few people doing the leading. And so, human society is formally organized into dominance hierarchies, with their culture augmenting the natural follow-the-leader tendency of man. But automatic as most human reactions are, with the tendency to follow leaders being no exception, man is often destined to suffer greatly when the leader is wrong or when his leader’s ideas don’t get through properly in the bustle of life and are misunderstood. And so, we find much miscognition from man’s Authority-Misinfluence Tendency.” - Charlie Munger

“Bias from over-influence by authority. Well, here the Milgram experiment is it’s cause...I think there have been 1600 psychological papers written about Milgram. He had a person posing as an authority figure trick ordinary people into giving what they had every reason to expect was heavy torture by an electric shock to perfectly innocent fellow citizens. And the experiment has been...he was trying to show why Hitler succeeded and a few other things. So it has really caught the fancy of the world. Partly it’s so politically correct and...Over-influence by authority has another very… you’ll like this one. You got a pilot and a co-pilot. The pilot is the authority figure. They don’t do this in airplanes, but they’ve done it in simulators. They have the pilot do something where the co-pilot who’s been trained in simulators a long time. He knows he’s not to allow the plane to crash. They have the pilot to do something where an idiot co-pilot would know the plane was gonna crash, but the pilot’s doing it, and the co-pilot is sitting there, and the pilot is the authority figure. 25% of the time, the plane crashes. This is a very powerful psychological tendency.” - Charlie Munger

“The obvious implication: be careful whom you appoint to power because a dominant authority figure will often be hard to remove.” - Charlie Munger

Availability mis-weighing

We have a tendency to give more weight to the information which is at hand and easily remembered.

We positively misjudge events if they happened more recently or with more frequency. When events are vivid, we remember them more easily.

The availability heuristic, also known as availability bias, is a mental shortcut that relies on immediate examples that come to a given person's mind when evaluating a specific topic, concept, method, or decision. This heuristic, operating on the notion that, if something can be recalled, it must be important, or at least more important than alternative solutions not as readily recalled, is inherently biased toward recently acquired information.

The mental availability of an action's consequences is positively related to those consequences' perceived magnitude. In other words, the easier it is to recall the consequences of something, the greater those consequences are often perceived to be.

“This mental tendency echoes the words of the song: ‘When I’m not near the girl I love, I love the girl I’m near.’ Man’s imperfect, limited-capacity brain easily drifts into working with what’s easily available to it. And the brain can’t use what it can’t remember or what it is blocked from recognizing because it is heavily influenced by one or more psychological tendencies bearing strongly on it, as the fellow is influenced by the nearby girl in the song. And so the mind overweighs what is easily available and thus displays Availability-Misweighing Tendency.” - Charlie Munger

“The availability heuristic, like other heuristics of judgment, substitutes one question for another: you wish to estimate the size of a category or the frequency of an event, but you report an impression of the ease with which instances come to mind. Substitution of questions inevitably produces systematic errors.” - Daniel Kahneman

Commitment and consistency

As people, once we make a commitment we usually remain consistent with our decision.

This can lead to people sticking with a decision even when facts change.

Consistency is usually viewed as a desirable social trait and shows that we’re logical, stable, and trustworthy. So, once we’ve made a choice and committed to something, there’s a natural compulsion to behave consistently with that commitment.

That why you should state a goal publicly if you want to make a change in your life. For example lose weight. Once you’ve committed something out loud you will have an incentive to keep up with the goal.

“I remember quite well feeling my stomach tighten as I stammered my agreement. It was a clear call to my brain, “Hey, you’re being taken here!” But I couldn’t see a way out. I had been cornered by my own words. To decline her offer at that point would have meant facing a pair of distasteful alternatives: If I tried to back out by protesting that I was not actually the man-about-town I had claimed to be during the interview, I would come off a liar; trying to refuse without that protest would make me come off a fool for not wanting to save $1,200. I bought the entertainment package, even though I knew I had been set up. The need to be consistent with what I had already said snared me.” - Robert Cialdini

“Whenever my stomach tells me I would be a sucker to comply with a request merely because doing so would be consistent with some prior commitment I was tricked into, I relay that message to the requester. I don’t try to deny the importance of consistency; I just point out the absurdity of foolish consistency. Whether, in response, the requester shrinks away guiltily or retreats in bewilderment, I am content. I have won; an exploiter has lost.” - Robert Cialdini

“Having heard that he had in his library a certain very scarce and curious book, I wrote a note to him, expressing my desire of perusing that book, and requesting he would do me the favour of lending it to me for a few days. He sent it immediately, and I return’d it in about a week with another note, expressing strongly my sense of the favour. When we next met in the House, he spoke to me (which he had never done before), and with great civility; and he ever after manifested a readiness to serve me on all occasions, so that we became great friends, and our friendship continued to his death. This is another instance of the truth of an old maxim I had learned, which says, “He that has once done you a kindness will be more ready to do you another, than he whom you yourself have obliged.” - Ben Franklin

Pavlovian conditioning

Learning to associate a conditioned stimulus with an unconditioned stimulus.

Pavlov would ring a bell (conditioned) every time he gave food (unconditioned, food causes salivation) to his dogs. Over time the dogs would salivate (unconditioned) when the bell was rung (conditioned).

Ivan Pavlov is known for his famous experiment with conditioning the salivation response in dogs, which brought about classical conditioning. Classical conditioning is a form of learning whereby a conditioned stimulus becomes associated with an unrelated unconditioned stimulus, in order to produce a behavioral response known as a conditioned response. By teaching dogs to associate the sound of a buzzer with being fed, Pavlov established the principles of classical conditioning.

In summary, it is used to manipulate behavior which can have a positive or negative outcome.

“Experiments have shown that we can learn to fear a harmless stimulus if it is paired with an unpleasant one. If for example rats consistently receive mild electrical shock after hearing a tone, the rats learn to develop a fear of the tone alone.” - Peter Bevelin

“The neural system of Pavlov’s dog causes it to salivate at the bell it can’t eat. And the brain of man yearns for the type of beverage held by the pretty woman he can’t have....we must use every sort of decent, honorable Pavlovian conditioning we can think of. For as long as we are in business, our beverage and its promotion must be associated in consumer minds with all other things consumers like or admire.” - Charlie Munger

“Paley of CBS was a business example of this: he didn’t want to hear what he didn’t like to hear. Those around him learned that and soon told him only what he wanted to hear. Eventually that led to a decline in market share for CBS (which was once the only major tv network).” - Charlie Munger

Operant conditioning

A process by which humans and animals learn to behave in such a way as to obtain rewards and avoid punishments.

A type of conditioning where behaviors are learned and encouraged through rewards for good behavior and punishment for bad behavior. If you work hard in your job you receive a paycheck and are motivated to continue this behavior. If you don’t work hard the paycheck could be taken away.

It was popularized by B.F. Skinner and taught to every student.

While classical conditioning is a form of learning that binds external stimuli to reflexive, involuntary responses, operant conditioning involves voluntary behaviors, and is maintained over time by the consequences that follow those behaviors. In one experiment, Skinner placed pigeons individually into experimental chambers (sometimes referred to as "Skinner boxes") that were designed to deliver food rewards at systematic intervals. He found that by rewarding a bird after it displayed a desired behavior, he could motivate the bird to increase the frequency of that particular behavior.

Skinner identified three types of responses, or operant, that can follow behavior.

Neutral operants: responses from the environment that neither increase nor decrease the probability of a behavior being repeated.
Reinforcers: responses from the environment that increase the probability of a behavior being repeated. Reinforcers can be either positive or negative.
Punishers: responses from the environment that decrease the likelihood of a behavior being repeated. Punishment weakens behavior.

The tools used in operant conditioning are known as positive and negative reinforcement and positive and negative punishment.

Senescence mis-influence tendency

As we get older, our mental abilities decline.

As we get older, there is a natural drop in our skills and abilities.

It gets harder to change old people’s habits for the better, especially in the face of new evidence.

We can use continuous learning and mental stimulation to slow this decay, like doing a crossword every day or reading a book.

Self-deception and denial

It is the simple refusal to admit to certain unacceptable or unmanageable aspects of reality.

Self-esteem can be a very important aspect of personal well-being which allows for to give in less to peer pressure.

Under the influence of bias from self-esteem, we find ourselves drifting away from facts and go into extreme beliefs.

We often fool ourselves into believing that falsehoods are true and truths are false. We do this when we do not have enough mental strength to admit the truth and face the consequences. We may tell ourselves that everything is fine when our world is crumbling around us.

Charlie Munger on denial:

“This first really hit me between the eyes when a friend of our family had a super-athlete, super-student son who flew off a carrier in the North Atlantic and never came back, and his mother, who was a very sane woman, just never believed that he was dead.”

“The first principle is that you must not fool yourself–and you are the easiest person to fool.” - Richard Feynman

Envy and jealousy

Envy is when you want something that someone has. Jealousy is when you feel threatened.

Envy is when you want something which someone has, a physical object or attribute.

Jealousy is when you feel threatened that someone is going to replace you in a relationship, perhaps as a partner or father figure.

If you want your neighbor's new convertible, you feel envy. If she takes your husband for a ride, you feel jealousy.

Charlie Munger on envy:

“Someone will always be getting richer faster than you. This is not a tragedy.”

This quote isn't complicated or difficult to understand. It is a simple reminder that envy and jealousy are bad traits for investors to have. While it may look as if other investors are doing much better than you, as long as you are following your own rules and guidelines, there is no need to rush and take on additional risk to try to match the market.

“The world is not driven by greed. It’s driven by envy. I have conquered envy in my own life. I don’t envy anybody. I don’t give a damn what someone else has. But other people are driven crazy by it.”

“Well, envy/jealousy made, what, two out of the ten commandments? Those of you who have raised siblings you know about envy, or tried to run a law firm or investment bank or even a faculty? I’ve heard Warren say a half a dozen times, 'It’s not greed that drives the world, but envy.'”

“Here again, you go through the psychology survey courses, and you go to the index: envy/jealousy, 1,000-page book, it’s blank. There are some blind spots in academia, but it’s an enormously powerful thing, and it operates, to a considerable extent, on the subconscious level. Anybody who doesn’t understand it is taking on defects he shouldn’t have.”

“Envy is a really stupid sin because it’s the only one you could never possibly have any fun at. There’s a lot of pain and no fun. Why would you want to get on that trolley?”

“I am envious because I want to be as beautiful as you are; I want to have the fine clothes, the elegant house, the high position that you have. Being dissatisfied with what I am, I want to be like you; but, if I understood my dissatisfaction and its cause, then I would not want to be like you or long for the things that you have. In other words, if once I begin to understand what I am, then I shall never compare myself with another or be envious of anyone. Envy arises because I want to change myself and become like somebody else. But if I say, “Whatever I am, that I want to understand,” then envy is gone; then there is no need of discipline, and out of the understanding of what I am comes integration.” - Krishamurti

While envy and jealously are powerful drivers of behavior on their own, they become more powerful when mixed with ego, greed, and fear.

Enjoy your own life without comparing it with that of another.

Influence from mere association tendency

Bias from association (associate bias) is your tendency to be easily influenced by associations.

We can be easily manipulated by mere association. It can be a group of people, the quality of a product, advertising, etc.

A conditioned reflex where a response is triggered by an association. You may have experiences where spending more has resulted in higher quality goods, so you seek out more expensive goods. You may buy a product with a cat on the packaging because you love cats.

Charlie Munger:

“...there is another type of conditioned reflex wherein mere association triggers a response. For instance, consider the case of many men who have been trained by their previous experience in life to believe that when several similar items are presented for purchase, the one with the highest price will have the highest quality. Knowing this, some seller of an ordinary industrial product will often change his product’s trade dress and raise its price significantly hoping that quality seeking buyers will be tricked into becoming purchasers by mere association of his product and its high price.”

The correlation of quality with a higher price is abused by advertisers. Apple does this. Coca-Cola does too. As do all luxury brands. Sometimes you get what you pay for. Sometimes you pay extra for the label.

Munger gives another example of someone who gambles for the first time on a low probability bet and sees it pay off. So he repeats the bet and loses, and continues to repeat it and lose because he never bothered to consider his win was pure luck. The association of winning with a low probability bet compounds stupid decisions.

The solution is to weigh decisions independent of the result:

“Carefully examine each past success, looking for accidental, noncausative factors associated with such success that will tend to mislead as one appraises odds implicit in a proposed new undertaking.”

Survivorship bias

Our tendency to focus on successful examples and ignore failures.

We tend to focus on the survivors and the winners for our information and discount the losers. If there are many successful bars in your area you may think about opening one yourself, but the bars which failed are invisible to you, their information is lost. This can lead to false conclusions in several different ways. It is a form of selection bias.

One classic example is the coverage of the success stories such as Bill Gates dropping out of Harvard then becoming a billionaire (or Mark Zuckerberg). This is contrasted by probably near zero mentions of the college dropouts who aren't billionaires.

Don’t listen to what you hear around you. Consider all the things that started on the same path but didn’t make it.

Man with a hammer syndrome

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

You think of an idea and then, pretty soon, it becomes THE idea. You start seeing how THE idea can apply to anything and everything, it’s the universal explanation for how the universe works.

This essentially means that people are biased to use the tools they possess to solve problems, regardless of whether such tools are appropriate for the problem at hand. For most analysts working in finance, the “hammer” is forecasting and the “nail” is uncertainty. These analysts try to make precise forecasts about macroeconomic trends or a company’s earnings and give buy or sell ratings based on this.

If the only tool you have is a hammer, then every problem looks like a nail. If you have limited skills, you begin to see your skill set as the solution to every problem. It is better to have a wide variety of skills and approaches to solve problems with.

Munger on man with a hammer syndrome:

I think I've got eight, no nine objections, some being logical subdivisions of a big general objection. The big general objection to economics was the one early described by Alfred North Whitehead when he spoke of the fatal unconnectedness of academic disciplines, wherein each professor didn't even know the models of the other disciplines, much less try to synthesize those disciplines with his own. I think there's a modern name for this approach that Whitehead didn't like, and that name is bonkers. This is a perfectly crazy way to behave. Yet economics, like much else in academia, is too insular....The nature of this failure is that it creates what I always call, 'man with a hammer syndrome.' And that's taken from the folk saying: To the man with only a hammer, every problem looks pretty much like a nail. And that works marvelously to gum up all professions, and all departments of academia, and indeed most practical life. The only antidote for being an absolute -5- klutz due to the presence of a man with a hammer syndrome is to have a full kit of tools. You don't have just a hammer. You've got all the tools. And you've got to have one more trick. You've got to use those tools checklist-style, because you'll miss a lot if you just hope that the right tool is going to pop up unaided whenever you need it. But if you've got a full list of tools, and go through them in your mind, checklist-style, you will find a lot of answers that you won't find any other way. So limiting this big general objection that so disturbed Alfred North Whitehead is very important, and there are mental tricks that help do the job. - Munger

Twaddle tendency

Twaddling means talking about something you don’t know, or just making up stuff as you go, or talking about meaningless stuff.

Some people like to work, others like to twaddle.

Many people try to hide their inadequacies by saying something when they have nothing to say. Big words, pompous language, and jargon are used to mask a lack of knowledge. We would rather ramble than to not know about a subject.

Be very careful of people who show false expertise.

The principal job of an academic administration is to keep the people who don’t matter from interfering with the work of the people that do. - Munger

Contrast mis-reaction tendency

We don’t measure the value of things in a vacuum. We often notice value by contrasting it with something else.

We often compare people and objects to other people and objects, evaluating their worth based on comparisons. We should evaluate these things individually, and not by their contrast to something else.

Our eyes evolved to identify and react to movement; to find the contrast in a static background. And so our brains followed. We are hypersensitive to contrast, while generally ignoring absolute values.

Our conscious mind is limited. Therefore, we can’t register every detail that we see, hear, feel, taste, and smell in every moment. Our brain unconsciously makes choices about where our attention flows. One of the ways that it makes this decision is by sudden change. Retailers take advantage of this by attaching an artificially high price to their product and then providing a significant discount. This is why you see many high-priced items on “sale” at the grocery store, the store marks them up ridiculously high, and then puts the product on “sale” for the standard price.

Focus on absolute values, not the contrast between values.

First conclusion bias

First conclusion bias (also called confirmation bias) is a cognitive bias where early evidence produces a hard and fast conclusion.

Our brains automatically seek evidence to confirm the first conclusion that we come to. This could be a way for our brains to conserve energy, but it can lead us to confirm a wrong conclusion in some situations.

As humans, we have developed this rapid thinking and reacting skills. The first conclusion is heavily influenced by personal biases and beliefs and is further complicated by attitude polarization.

As Charlie Munger famously pointed out, the mind works a bit like a sperm and egg: the first idea gets in and then the mind shuts. Like many other tendencies, this is probably an energy-saving device. Our tendency to settle on first conclusions leads us to accept many erroneous results and cease asking questions; it can be countered with some simple and useful mental routines.

Ideological bias

Implicit values and assumptions embedded within texts, discourse, or social practices

A bias which is rooted in religious, political, or philosophical ideas. These ideologies can cloud judgment, leading us to search for evidence to back up our ideas and dismiss those which do not conform. Once the idea is rooted it is hard to get away from.

In psychology, cognitive dissonance is the discomfort experienced when simultaneously holding two or more conflicting cognitions: ideas, beliefs, values or emotional reactions.

Another thing to avoid is extremely intense ideology because it cabbages up one’s mind. You see a lot of it in the worst of the TV preachers. They have different, intense, inconsistent ideas about technical theology, and a lot of them have minds reduced to cabbage. And that can happen with political ideology. And if you’re young, it’s particularly easy to drift into intense and foolish political ideology and never get out. When you announce that you’re a loyal member of some cult-like group and you start shouting out the orthodox ideology, what you’re doing is pounding it in, pounding it in. You’re ruining your mind, sometimes with starling speed. So you want to be careful with intense ideology. It presents a big danger for the only mind you’re ever going to have. - Munger

I have what I call in “iron prescription” that helps me keep sane when I drift toward preferring one intense ideology over another. I feel that I’m not entitled to have an opinion unless I can state the arguments against my position better than the people who are in opposition. I think that I am qualified to speak only when I’ve reached that state. - Munger

The business of not drifting into extreme ideology is very, very important in life. If you want to end up wise, heavy ideology is very likely to prevent that outcome. - Munger

Deprival super-reaction syndrome

People are more affected by loss than by gains, or by what they have to lose.

Charlie Munger on a common psychological misjudgment that causes terrible problems-bias from deprival super-reaction syndrome. It is caused by present or threatened scarcity, including threatened removal of something almost possessed but never possessed.

It is a loss aversion. Loss aversion refers to people’s tendency to strongly prefer avoiding losses to acquiring gains. Most studies suggest that losses are twice as powerful, psychologically, as gains.

If something is taken away from a person or if that threat is present, even if they have only had it for a short time (or even no time at all), they will become irrationally upset.

The Mungers once owned a tame and good-natured dog that displayed the canine version of Deprival Super Reaction Syndrome tendency. There was only one way to get bitten by the dog. And that was to try and take some food away from him after he already had it in his mouth. – Munger

Lollapalooza effect

Munger's term for the phenomenon wherein different biases layer and interlock with one another.

In a 1995 speech at Harvard University titled The Psychology of Human Misjudgement, Munger used open outcry auctions as an example of the Lollapalooza effect. Participants are pushed to bid by reciprocity (I should buy because I was invited to the auction), consistency (I have been on record saying that I like this so I must buy it), commitment tendency (I am already bidding so I must continue), and social proof (I know that buying is good because my peers are doing it).

The lollapalooza effect occurs when two or more forces are all operating in the same direction and often you don’t get just simple addition but rather you get a nuclear explosion once you reach a certain point of interaction between those forces such as a breakpoint or critical-mass is reached.

In the field of psychology the phenomenon wherein different biases layer and interlock with one another is the lollapalooza effect. It occurs when multiple different tendencies and mental models combine to act in the same direction. This makes them especially powerful drivers of behavior, and can lead to both positive and negative results.

The lollapalooza effect can cause huge negative effects but it can also cause massively positive trade-offs. So, understanding the interconnectedness of the models is critical.

Munger stated that while psychologists have been good at identifying individual biases, they are less good at figuring out how they interact and manifest in the real world, because it is difficult to run controlled experiments in that environment.

The psychology people couldn't do experiments that were four or five things happening at once because it got too complicated for them and they couldn't publish. So they were ignoring the most important thing in their own profession. And of course the other thing that was important was to synthesize psychology with all else. And the trouble with the psychology profession is that they don't know anything about all else. - Charlie Munger

Social proof

The kind of conformity to socially accept behavior is known as social proof.

Social proof is considered prominent in ambiguous social situations where people are unable to determine the appropriate mode of behavior, and is driven by the assumption that the surrounding people possess more knowledge about the current situation. The effects of social influence can be seen in the tendency of large groups to conform. This is referred to in some publications as the herd behavior.

Essentially, we are looking to those around us for clues about the ‘right’ way to behave, especially in ambiguous circumstances. At times, social proof is a stronger influence than rules – if other people are not following the guidelines, we don’t feel like we have to either. For example, if you saw that everyone was crossing a crosswalk when the light was red, you might follow their footsteps and do the same.

One of the first series of experiments to study social proof was conducted all the way back in the 1950s by Solomon Asch, a pioneer of social psychology, especially with regards to conformity. His first conformity experiment, which went on to be widely replicated within social psychology, was conducted in 1951. In this experiment, 50 college-age participants were told that they were going to participate in a vision test. Unbeknown to the participants, they entered a room with who they assumed to be other participants, but who were actually seven confederates. Each person in the room was then shown a picture of a target line next to three lines A, B, and C, and asked which line was most similar in length to the target line. The answer was always fairly obvious, however, the seven confederates would purposefully give the wrong answer. The real participant was the last to give his/her answer, after they had heard all the other answers. Asch found that over 12 different trials, participants conformed at least once 75% of the time, showing that people will often look to others for evidence and proof of what the correct answer is 4. To further investigate this notion, Asch continued to conduct experiments throughout the 1950s, which are known usually holistically referred to as the Asch conformity experiments.

It wasn’t until 1984 that the term social proof became popular, when Dr. Robert Cialdini, professor of psychology, coined it in his book Influence: The Psychology of Persuasion. In this book, Cialdini suggested that social proof was one of six key principles of persuasion.

Lack of skepticism is often the result of our social beliefs. No one would believe such absurd nonsense as a moon made of cheese or a flying teapot when it is proposed in such an unfamiliar way. However, when we encounter equally absurd belief systems in socially or historically-familiar contexts, they seem to have a measure of proof and be established or valid. In other words, a lot of people believing some total bullshit creates a form of social proof. – Sia Mohajer

Liking disliking bias

We tend to dislike people who dislike us and tend to judge in favor of people that we know rather than strangers.

We ignore the faults and flaws of people or products if we like or love them. Even if the mistake is unforgivable, we’re easier to accept it if it’s done by our favorite brand or an attractive person.

We are more likely to ignore faults and comply with wishes of our friends or lovers rather than random strangers. We favor people, products, and actions associated with our favorite celebrities. Sometimes we even distort facts to facilitate love. The influence that our friends, parents, lovers, and idols exert on us can be enormous. The decisions being made from liking tendency are rarely impartial. Most of us already know that we prefer to take advice from people that we like. We also tend to more easily agree with opinions formed by people we like.

We ignore the virtues and positive aspects of people we dislike or hate. We dislike people products and actions merely associated with the object of his dislike. Disliking distortions often makes mediation between opponents locked in hatred either difficult or impossible.

This is also known as Halo effect. We all like engaging in activities with beautiful people. The Halo effect occurs when a specific, positive characteristic determines the way a person is viewed by others on other, unrelated traits. In the case of beauty, it’s been shown that we automatically assign favorable yet unrelated traits such as talent, kindness, honesty, and intelligence, with those we find physically attractive. The power of the Halo effect is that it’s mostly happening beneath the level of consciousness. Appearance is not the only quality that may skew our perceptions in favor of someone.

The next one on the list is similarity. We like people who resemble us. Whether it’s appearance, opinions, lifestyle or background, we tend to favor people who are similar to ourselves. A great example of similarity bias is the case of dress. Numerous studies suggest that we are more likely to do favors, such as giving a dime or signing a petition, to someone who looks like us.

Hating and disliking also cause miscalculation triggered by mere association. In business, I commonly see people under-appraise both the competency and morals of competitors the dislike. This is a dangerous practice, usually disguised because it occurs on a subconscious basis. - Charlie Munger

Love your enemies, for they tell your faults. Focus on the point discussed and not the person who is making it. - Benjamin Franklin

Because of liking tendency we tend to like who are physically attractive, popular, cooperative, or people we have positive associations with. Also, those who are similar to us in background, opinion, lifestyle, interest, attitude, looks, values, and belief. We also like and trust anything familiar. Most people prefer to say yes to the requests of someone they know and like. It’s a natural tendency to ignore the faults of those we find likeable while doing just the opposite to the people we don’t like. - Robert Cialdini

Confirmation bias

The tendency of the human brain to filter out information that contradicts its existing beliefs.

A confirmation bias makes people look for information that is consistent with what they already think, want, or feel, leading them to avoid, dismiss, or forget information that will require them to change their minds and behavior. When we have pre-existing beliefs, we often take facts and make them fit with these beliefs. Facts are interpreted selectively. We like to agree with the facts which support our beliefs and throw out or misinterpret the ones we don't agree with. In short, we see the world as we want to see it, not as it is.

Confirmation bias clouds our judgment. It gives us a skewed view of information, even when it consists only of numerical figures. We know how confirmation bias gets in the way of thinking clearly. So why do we carry this bias? Accepting information that confirms our beliefs is easy and requires little mental energy. Seeking out an objective statistical rigor is challenging because our laziness prevents us from updating our thinking.

But failing to interpret information in an unbiased way can lead to serious misjudgments. It can create bad habit patterns. Research has shown that when you recall episodic memory, you will fill in information using confirmation bias, thus enforcing your memory to recall only what you believe in and refute the ones that you don't believe in. Wikipedia has a great take on confirmation bias:

It is an important type of cognitive bias that has a significant effect on the proper functioning of society by distorting evidence-based decision-making. People display this bias when they gather or remember information selectively, or when they interpret it in a biased way. The effect is strongest for desired outcomes, for emotionally charged issues, and for deeply entrenched beliefs. People also tend to interpret ambiguous evidence as supporting their existing position. - Wikipedia

Darwin on prejudice: In any good scientific experiments, researchers should seek to falsify their hypotheses, not to confirm them. Darwin knew this really well and was determined to avoid prejudice. Darwin goes through remarkable lengths to prevent what psychologists call “confirmation bias” and other forms of psychological misjudgment that would deteriorate his work. He undoubtedly realized that he can fool himself subconsciously, and put in place various habits to keep prejudice in check.

I have steadily endeavoured to keep my mind free so as to give up any hypothesis, however much beloved (and I cannot resist forming one on every subject), as soon as facts are shown to be opposed to it. Indeed, I have had no choice but to act in this manner, for with the exception of the Coral Reefs, I cannot remember a single ﬁrst-formed hypothesis which had not after a time to be given up or greatly modiﬁed. - Charles Darwin

Even when Darwin began to appreciate the formation of new species, a theory that had been a mystery to him for years, he was anxious to work on it so as to avoid any prejudice.

The result of this would be the formation of new species. Here then I had at last got a theory by which to work; but I was so anxious to avoid prejudice, that I determined not for some time to write even the briefest sketch of it. - Charles Darwin

Our natural inclination is to cling to our beliefs, particularly if we are reinforced by recent experiences–a flaw within our makeup. Darwin was good at realizing this flaw. If all scientists do a better job of addressing their confirmation bias, we could save a huge amount of time and money. Not everyone is Darwin, so we must remember not to take science at face value because the reporting could be biased due to confirmation bias.

Kill the belief bubble: Practice stress testing your beliefs. Try having a non-emotional discussion or debate with that person and see how they came up with their belief. This could be any topic such as religious, political, or parenting. Then see how your beliefs are different than the person you are discussing this topic with.

Pick something from your list to stress test on. Be honest with yourself while conducting this exercise. Remember why you are doing it in the first place.
Conduct research and list all the opposing viewpoints for your beliefs. Try to see things from this perspective while staying objective. Compare them how they differ from your existing beliefs.
Once you think you have a grasp of all sides of the issue. What did you learn that will kill or keep your existing beliefs? Can your new beliefs be validated? If so, how can it be objectively validated?

Even if you were right all along, it is worth conducting this exercise to stress test your ideas. The more rigor you apply, the better informed you will be. This is where growth lies.

Confirmation bias & self-confidence: Many people deny that they are affected by confirmation bias. After all, most of us see ourselves as intelligent and rational people. But we don't give enough credit to our emotional state. Not understanding this can create cognitive dissonance which we mistake it for self-confidence. We are bombarded by information. It comes from other people, the media, our experience, and various other sources. Our minds must find means of encoding, storing, and retrieving the data we are exposed to. One way we do this is by developing cognitive shortcuts and models. These can be either useful or unhelpful. Constantly evaluating our worldview is exhausting, so we prefer to strengthen it instead. Plus holding different ideas in our head is hard work. It’s much easier to just focus on one and create wrong models in our head leading to over-confidence. A very difficult journey to embark on, but we must at least strive to fight for our confirmation biases.

Man is not a rational animal, he is a rationalizing animal. - Robert Heinlein

As a man wants, so shall he believe. - Greek Philosopher

The eye sees only what the mind is prepared to comprehend. - Robertson Davies

One of the biggest problems with the world today is that we have large groups of people who will accept whatever they hear on the grapevine, just because it suits their worldview-not because it is actually true or because they have evidence to support it. - Neil deGrasse Tyson

The most difficult subjects can be explained to the most slow-witted man if he has not formed any idea of them already; but the simplest thing cannot be made clear to the most intelligent man if he is firmly persuaded that he knows already, without a shadow of doubt, what is laid before him. - Leo Tolstoy

Beliefs can survive potent logical or empirical challenges. They can survive and even be bolstered by evidence that most uncommitted observers would agree logically demands some weakening of such beliefs. They can even survive the destruction of their original evidential bases. - Lee Ross and Craig Anderson

The confirmation bias is so fundamental to your development and your reality that you might not even realize it is happening. We look for evidence that supports our beliefs and opinions about the world but excludes those that run contrary to our own… In an attempt to simplify the world and make it conform to our expectations, we have been blessed with the gift of cognitive biases. - Sia Mohajer

The human understanding when it has once adopted an opinion, draws all things else to support and agree with it. And though there be a greater number and weight of instances to be found on the other side, yet these it either neglects and despises, or else by some distinction sets aside and rejects. - Francis Bacon

The desire to be right and the desire to have been right are two desires, and the sooner we separate them the better off we are. The desire to be right is the thirst for truth. On all counts, both practical and theoretical, there is nothing but good to be said for it. The desire to have been right, on the other hand, is the pride that goeth before a fall. It stands in the way of our seeing we were wrong, and thus blocks the progress of our knowledge. - Willard V. Quine and J.S. Ullian

When you forget that people and ideas are separate, your entire thinking process is laden with a crippling burden: to protect your beliefs like you protect your body. - Tim Urban

The number one thing that clouds us from being able to see reality is that we have preconceived notions of the way it should be. - Naval Ravikant

What the human being is best at doing is interpreting all new information so that their prior conclusions remain intact. - Warren Buffett

Reciprocation

Act of doing something nice for someone with the expectation that the favor will be returned.

Have you ever been handed a free sample at a local grocery store? These small acts are meant to initiate reciprocation tendency, a tendency to reciprocate the favors and concession. Even if this gift is unwanted, receiving it can still trigger a need to repay the gift, usually in the form of purchasing whatever is being sold. It’s a powerful technique the sales and marketing world utilizes. In social psychology, reciprocity is a social norm of responding to a positive action with another positive action, rewarding kind actions. As a social construct, reciprocity means that in response to friendly actions, people are frequently much nicer and much more cooperative than predicted by the self-interest model.

On one hand, reciprocity makes it possible to build continuing relationships and exchanges. But on the other reciprocity makes you feel obligated to repay positive actions, such as favors, even if they are unwanted. Reciprocation is the act of doing something nice for someone, with the expectation that they will do something nice in return for you. Reciprocity is great a societal level but more complicated at the individual level. Women, in particular, often report on the pressure they feel after receiving expensive gifts or dinners.

One often realizes the power of this tendency when one has to do a reciprocating act even if one does not want to do it. It’s almost like an obligation. For example, you have a higher probability to invite a person to your party even if you dislike the person, but just because he invited you to his party earlier. Sales people at various organizations are taught to use this tendency, knowingly or unknowingly. Author Robert Cialdini (Ph.D.) explores the mental bias of reciprocation tendency in his book, Influence: The Psychology of Persuasion. He defines reciprocation tendency as the automatic tendency for humans to try to reciprocate in kind what others have done for us. And it’s a powerful force. Cialdini argues that this bias can produce a “yes” response from someone who, under normal circumstances, would certainly refuse.

This trait has created in humans an intense psychological reaction to being in a state of obligation: we hate it. If someone does us a favor, we feel like we owe them, and will often go to great lengths to repay the debt that’s owed as quickly as possible. If someone does us disfavor, we often feel like we need to “get back at them” for the injustice we feel we have suffered. The key to genuine relationships lies having no expectations. In communal relationships like marriage, friendship, and the parent-child relationship, the pressure of reciprocal theory barely ever plays out. It’s the unconditional willingness to help the other side. But some symmetry seems to be the best to avoid being taken advantage of.

Positive and negative reciprocity: Positive reciprocity occurs when an action committed by one individual that has a positive effect on someone else is returned with an action that has an approximately equal positive effect. For example, if someone takes care of another person's dog, the person who received this favor should then return this action with another favor such as with a small gift. However, the reciprocated action should be approximately equal to the first action in terms of positive value, otherwise this can result in an uncomfortable social situation.

Negative reciprocity occurs when an action that has a negative effect on someone is returned with an action that has an approximately equal negative effect. For example, if an individual commits a violent act against a person, it is expected that person would return with a similar act of violence. If, however, the reaction to the initial negative action is not approximately equal in negative value, this violates the norm of reciprocity and what is prescribed as allowable.

Reciprocal concessions: One form of this more subtle form of reciprocity is the idea of reciprocal concessions in which the requester lowers his/her initial request, making the respondent more likely to agree to a second request. Under the rule of reciprocity, we are obligated to concede to someone who has made a concession to us. The rule of reciprocity operates in reciprocal concessions in two ways. First, an individual is pressured to reciprocate one concession for another by nature of the rule itself. Second, because the individual who initially concedes can expect to have the other person concede in return, this person is free to make the concession in the first place. If there were no social pressure to return the concession, an individual runs the risk of giving up something and getting nothing in return. Mutual concession is a procedure that can promote compromise in a group so that individuals can refocus their efforts toward achieving a common goal.

Reason respecting tendency

Ask questions to gain better understanding of the world.

Failure to reason discourages first principles thinking. Failure to reason is common within workplace environment. As adults, we learn that we should work hard because we are an integral of the company. Employees tend to buy into this idea without asking why or how they are an integral of the company. Are employees still integral of the organization during an economic downturn? We are more likely to comply with something or to learn something when we are given the why behind it. The why strengthens our learning but can be dangerous as we will often learn and comply even when the reason behind it is false.

One way to jump from linear to non-linear results is to think in first-principles. First-principles thinking can be adopted by asking a lot of questions. It is often called reasoning from the first principles by asking why? The idea is to break down complicated problems into basic elements and then reassemble them from the ground up. This is the best way to reverse-engineer hard problems that are challenging to understand. Aristotles used first-principles thinking to understand things around him. Over two thousand years ago, Aristotle defined a first principle as the first basis from which a thing is known.

In every systematic inquiry (methodos) where there are first principles, or causes, or elements, knowledge and science result from acquiring knowledge of these; for we think we know something just in case we acquire knowledge of the primary causes, the primary first principles, all the way to the elements. In 1970s, Harvard psychologist, Ellen Langer conducted a study of the power of the word “because.” Langer had participants request to break in on a line of people waiting to use a busy copy machine on a college campus. The researchers had the people use three different, specifically worded requests to break in line:

“Excuse me, I have 5 pages. May I use the xerox machine?”
60% of people let the participant to break in line.
“Excuse me, I have 5 pages. May I use the xerox machine, because I have to make copies?”
93% of people let the participant to break in line.
“Excuse me, I have 5 pages. May I use the xerox machine, because I’m in a rush?”
94% of people let the participant to break in line.

Langer showed that when asking for a favor from a stranger, simply giving a reason for the request (because), even if it’s artificial (because I have to make copies), greatly increases the odds of the person complying. Reasoning from first principles, rather than by analogy (previous experiences) can open up the door to learning, better work results, or prevent manipulation. First principles thinking can be easy to describe, but can be quite difficult to practice.

Why is reasoning necessary? We love to have reasons as Langer's experiment proves people to comply. Therefore, make sure to share the reasons why the task is important before delegating. Charlie Munger shares the story of Carl Braun, the creator of CF Braun Engineering Company -

His rule for all the Braun Company’s communications was called the five W’s – you had to tell who was going to do what, where, when and why. And if you wrote a letter or directive in the Braun Company telling somebody to do something, and you didn’t tell him why, you could get fired. In fact, you would get fired if you did it twice. You might ask why that is so important? Well, again that’s a rule of psychology. Just as you think better if you array knowledge on a bunch of models that are basically answers to the question, why, why, why, if you always tell people why, they’ll understand it better, they’ll consider it more important, and they’ll be more likely to comply. Even if they don’t understand your reason, they’ll be more likely to comply. So there’s an iron rule that just as you want to start getting worldly wisdom by asking why, why, why in communicating with other people about everything, you want to include why, why, why.

Carl Braun knew the ideas got through when reasons for the ideas were meticulously laid out. Who was to do What, Where, When and Why. However, reason-respecting tendency is so strong that a requester can give meaningless or incorrect reasons which will make a person on receiving end to comply with orders and requests. Langer's experiment again proves this point. Is ‘I have to make some copies’ really an important explanation for people to comply to let the person break in line? Our need for making sense makes us believe in nonsense artificial reasons. It turns people are addicted to the word “because” and are just looking for answers not the reasons or a better understanding of it. Charlie Munger shared Reason Respecting Tendency bias in his famous lecture Psychology of Human Misjudgement.

There is in man, particularly one in an advanced culture, a natural love of accurate cognition and a joy in its exercise. This accounts for the widespread popularity of crossword puzzles, other puzzles, and bridge and chess columns, as well as all games requiring mental skill.This tendency has an obvious implication. It makes man especially prone to learn well when a would-be teacher gives correct reasons for what is taught, instead of simply laying out the desired belief ex cathedra with no reasons given. Few practices, therefore, are wiser than not only thinking through reasons before giving orders but also communicating these reasons to the recipient of the order. In general, learning is most easily assimilated and used when, lifelong, people consistently hang their experience, actual and vicarious, on a latticework of theory answering the question: Why? Unfortunately, Reason Respecting Tendency is so strong that even a person’s giving of meaningless or incorrect reasons will increase compliance with his orders and requests…This sort of unfortunate byproduct of Reason-Respecting Tendency is a conditioned reflex, based on a widespread appreciation of the importance of reasons. And, naturally, the practice of laying out various claptrap reasons is much used by commercial and cult “compliance practitioners” to help them get what they don’t deserve.

So what do you do to not get mis-influenced by intentional reasonings?

First principles thinking: To reverse engineer any complex problem use the first-principles thinking by breaking down the problem into basic elements and then reassemble from the ground up. Asking why can remove all assumptions and misconceptions. It leaves you with basic elements. Elon Musk is well known for using first principles mindset and shares his thoughts:

You look at the fundamentals and construct your reasoning from that and then see if you have a conclusion that works or doesn’t work. And it may or may not be different from what people have done in the past. It’s harder to think that way, though.

I think people’s thinking process is too bound by convention or analogy to prior experiences. It’s rare that people try to think of something on a first principles basis. They’ll say, “We’ll do that because it’s always been done that way.” Or they’ll not do it because “Well, nobody’s ever done that, so it must not be good. But that’s just a ridiculous way to think. You have to build up the reasoning from the ground up-“from the first principles” is the phrase that’s used in physics. You look at the fundamentals and construct your reasoning from that, and then you see if you have a conclusion that works or doesn’t work, and it may or may not be different from what people have done in the past.

Richard Feynman was also known for using first principles to understand the basics -

I don’t know what’s the matter with people: they don’t learn by understanding; they learn by some other way-by rote or something. Their knowledge is so fragile!

How to implement first-principles?

The five Ws: The five Ws are questions whose answers are considered basic in information gathering or problem solving. They are often mentioned in journalism, research and police investigations. Some authors also add a sixth question, how, to the list.

Who
What
Where
When
Why

The last W is important because you can uncover a lot of details by asking Why many times. The Toyota's Five Whys is a great example of a technique to help you apply second order thinking. Why did that problem happen? Then ask why five times. Why would we make that decision? Then ask why five times.

Socratic questioning: Socratic questioning was named after Socrates and is a form of disciplined questioning to explore complex ideas, get to the truth of things, to explore problems, uncover assumptions and analyze concepts and to distinguish what we know from what we do not know. According to Plato, one of his students, Socrates believed that “the disciplined practice of thoughtful questioning enables the scholar/student to examine ideas and be able to determine the validity of those ideas.” This process stops from relying on gut and limits strong emotional responses.

Getting students to clarify their thinking and explore the origin of their thinking. Examples: why do you say that? Could you explain further?
Challenging students about assumptions. Examples: is this always the case? Why do you think that this assumption holds here?
Providing evidence as a basis for arguments. Examples: Why do you say that? Is there reason to doubt this evidence?
Discovering alternative viewpoints and perspectives and conflicts between contentions. Examples: what is the counter-argument? Can/did anyone see this another way?
Exploring implications and consequences. Examples: But if...happened, what else would result? How does...affect...?
Questioning the question. Examples: why do you think that I asked that question? Why was that question important? Which of your questions turned out to be the most useful?

The Feynman technique: Nobel prize-winning physicist Richard Feynman used to ensure he understood anything he studied better than anyone else. There are four steps to the Feynman Learning Technique:

Choose a concept you want to learn about.
Pretend you are teaching it to someone else in plain language.
Identify gaps in your explanation and go back to the source material to better understand it.
Review and simplify further in simpler terms.

Kids consistently push their parents with questions but the adults think it is stunning how quickly they learn. However, it is natural for kids to be curious and creative during their formative years because they are trying to understand the world around them. Adults choose not to be creative because they fail to reason. Busy is the enemy of adults and as we grow older, we rely on general convention but this puts blinders on perspectives and thoughts because we outsource our thinking to someone else. To defy conventional wisdom, we must think for ourselves and reason from first principles. Analogies are great to understand a topic further, but they cannot replace the understanding of basic knowledge. Thinking in first principles won't imprison us with someone else's thoughts. Doing this will unleash creative and original thinking.

I think most people can learn a lot more than they think they can. They sell themselves short without trying. One bit of advice: it is important to view knowledge as sort of a semantic tree - make sure you understand the fundamental principles, i.e., the trunk and big branches, before you get into the leaves/details or there is nothing for them to hang on to. - Elon Musk

As to methods, there may be a million and then some, but principles are few. The man who grasps principles can successfully select his own methods. The man who tries methods, ignoring principles, is sure to have trouble. - Harrington Emerson

The idea is that reasoning from first principles is reasoning like a scientist. You take core facts and observations and use them to puzzle together a conclusion, kind of like a chef playing around with raw ingredients to try to make them into something good. By doing this puzzling, a chef eventually writes a new recipe. The other kind of reasoning-reasoning by analogy-happens when you look at the way things are already done and you essentially copy it, with maybe a little personal tweak here and there-kind of like a cook following an already written recipe. A pure verbatim recipe-copying cook and a pure independently inventive chef are the two extreme ends of what is, of course, a spectrum. But for any particular of your life that involves reasoning and decision making, wherever you happen to be on the spectrum, your reasoning process can usually be boiled down to fundamentally chef-like or fundamentally cook-like. Creating vs. copying. Originality vs. conformity. - Wait but why

To understand is to know what to do. - Wittgenstein

Kantian fairness tendency

The pursuit of fairness for everyone and everything. We believe in people being treated equally, but that is not the case. The definition of fairness, of how people should be treated differs from person to person, and we should adjust our behavior accordingly.

The word, Kant, refers to the philosophical framework created by eighteenth century German philosopher Immanuel Kant. According to Wikipedia, Kant’s ethics are founded on his view of rationality as the ultimate good and his belief that all people are fundamentally rational beings.

If humans are irrational then what-is-fair must be flawed. The fairness of anything is dependent on personal situation and every personal situation is different.

Charlie Munger has spoken about our obsession of fairness in his UCSB talk.

It is not always recognized that, to function best, morality should sometimes appear unfair, like most worldly outcomes. The craving for perfect fairness causes a lot of terrible problems in system function. Some systems should be made deliberately unfair to individuals because they’ll be fairer on average for all of us. I frequently cite the example of having your career over, in the Navy, if your ship goes aground, even if it wasn’t your fault. I say the lack of justice for the one guy that wasn’t at fault is way more than made up by a greater justice for everybody when every captain of a ship always sweats blood to make sure the ship doesn’t go aground. Tolerating a little unfairness to some to get a greater fairness for all is a model I recommend to all of you. But again, I wouldn’t put it in your assigned college work if you want to be graded well, particularly in a modern law school wherein there is usually an over-love of fairness-seeking process.

Munger goes on about the same topic in The Psychology of Human Misjudgement:

Kant was famous for his “categorical imperative,” a sort of a “golden rule” that required humans to follow those behavior patterns that, if followed by all others, would make the surrounding human system work best for everybody. And it is not too much to say that modern acculturated man displays, and expects from others, a lot of fairness as thus defined by Kant.

In a small community having a one-way bridge or tunnel for autos, it is the norm in the United States to see a lot of reciprocal courtesy, despite the absence of signs or signals. And many freeway drivers, including myself, will often let other drivers come in front of them, in lane changes or the like, because that is the courtesy they desire when roles are reversed. Moreover, there is, in modern human culture, a lot of courteous lining up by strangers so that all are served on a “firstcome-first-served” basis.

Also, strangers often voluntarily share equally in unexpected, unearned good and bad fortune. And, as an obverse consequence of such “fair-sharing” conduct, much reactive hostility occurs when fairsharing is expected yet not provided. It is interesting how the world’s slavery was pretty well abolished during the last three centuries after being tolerated for a great many previous centuries during which it coexisted with the world’s major religions. My guess is that Kantian Fairness Tendency was a major contributor to this result.

When we are not treated fairly, we often become angry or frustrated. The pursuit of absolute fairness can cause severe problems, and some systems should appear unfair as they will be more beneficial on average for all. Life isn’t fair, but many cannot accept this.