How You Do Anything Is How You Do Everything
Quidvis recte factum quamvis humile praeclarum — Sir Henry Royce (‘Whatever is rightly done, however humble, is noble’)
“The great psychologist Viktor Frankl, survivor of three concentration camps, found presumptuousness in the age-old question: “What is the meaning of life?” As though it is someone else’s responsibility to tell us. Instead, he said, the world is asking you that question. And it’s our job to answer with our actions.
In every situation, life is asking us a question, and our actions are the answer. Our job is simply to answer well.
~ Ryan Holiday
Mental models are all the rage and have been amongst enlightened and productivity-obsessed members of the fintwit spartans for a while. Shane Parrish of the FS Blog is one of the subject’s high priests and his book “Mental Models” is a must read if you are interested in improving your understanding of them.
The fancy word for a mental model is “heuristic”, defined as ‘enabling a person to discover or learn something for themselves”, derived from the Greek ‘heuriskein’ meaning find. Think of a mental model as an app into which you plug information which is then processed into an insight allowing you, hopefully, to proceed more intentionally. Mental models allow us exercise rational thinking in situations in which we might otherwise be steered exclusively by our emotional or pre-conditioned pschyocyberntic responses - in other words the responses that are triggered by our internal pictures of who we think we are or primal flight or fight instincts lodged deeply in our DNA (and located apparently, if these things have a locus) in the amygdala or “lizard” section of our ancient brain stem.
Daniel Kahneman, the co-parent along with Amos Tversky of Behavioural Economics - has written perhaps the best and most comprehensive book on the subject “Thinking Fast & Slow”. It is the only one you need read to attain a very good grasp of the subject and to understand the ways in which our minds, in Kahneman’s words “are subject to systematic errors” and that we tend (strongly) to jump to conclusions by both using too little data and forcing the data we do have to conform to preconceived ideas of what the answer should be whilst ignoring conflicting evidence. A little like Cinderella’s ugly sisters who mutilated themselves in order to fit their fat feet into her dainty ball slipper, we will go to extraordinary lengths of self-deception to make the facts fit our expected outcomes.
This habit leads our species into all sorts of trouble from everyday prejudices all the way to genocide, but in the world of business and investing, the results of bad or not thinking whilst thinking we are thinking are measurable, the feedback loops relatively simple and quick and the results often devastating. For this reason, business and investing (which at a not-all-that high a level of abstraction are more or less the same thing) profit enormously from “thinking right” and practicing the art of thinking straight and not emotionally over a life time, is literally priceless. (Check out Keith Cunningham’s ‘The Road Less Stupid’ for more on this).
The great proponent of this “thinking straight” is of course Warren Buffett’s partner Charlie Munger who has written and propounded at length on the subject. In fact, in his eyes, his and Warren’s ability to refrain from emotional responses, to focus on rational thought and deduction and then to act on the conclusions thus derived is THE largest explanatory variable of their success as businessmen and investors. In his own words
“It is remarkable how much long-term advantage people like us have gotten by trying to be consistently not stupid, instead of trying of trying to be very intelligent. There must be some wisdom in the old folk saying: ‘It’s the strong swimmers who drown.’”
‘Consistently not stupid’ is only achievable under three conditions (H3 in my shorthand)
Humility: recognition that our base programming and our instinctual behaviour as social animals is largely irrational. Stupidity (in the sense of non-rational, short time preference herd instinct) is our default.
Heuristic: Having a functioning, well-honed toolkit of mental models with which you have practiced and understand their application both individually and in combination with each other (what Charlie Munger and Shane Parrish refer to as the ‘latticework’.
Hiatus: The ability to pause and to expand the space between stimulus and response, captured in Viktor Frankl’s seminal work ‘Man’s Search for Meaning”: “Between stimulus and response there is a space. In that space is our power to choose our response. In our response lies our growth and our freedom.”
The mental models I have assembled to help me make better decisions are described below.
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