On their shoulders

  • The most valuable result of all education is the ability to make yourself do the thing you have to do, when it ought to be done, whether you like it or not.
  • Intense interest in a subject is indispensable if you’re really going to excel in it. If possible, maneuver yourself into doing something in which you have an intense interest.
  • Take a simple idea and take it seriously
  • An appetite for hard work, insatiable curiosity and patient demeanor will enable a man overcome most of life’s challenges and become successful.
  • The most important characteristics are
    • Preparation
    • Patience: The art of waiting without tiring of waiting
    • Discipline
    • Objectivity
  • Einstein’s 4 causes of his achievements
    • Self-criticism
    • Curiosity
    • Concentration
    • Perseverance
  • People who specialize in some niche usually do well.
  • Winning systems usually go ridiculously far in maximizing or minimizing one or a few variables
  • Just as multiple factors shape almost every system, multiple models from a variety of disciplines, applied with fluency, are needed to understand that system
  • Any year you do not destroy one if your best loved ideas is probably a wasted year
  • A willingness even an eagerness to identify and acknowledge my mistakes and learn from them
  • Look at your ideas and approaches as tools. When better ones come along, swap the existing ones for them
  • The Lollapalooza effect
    • When several forces form the multiple models framework combine and they’re all operating in the same direction.
    • The forces coming out of the models sometimes conflict causing tradeoffs. It is important i can recognize the tradeoffs and how they combine.
    • If there are twenty factors and they interact, you’ll have to learn to handle it. It won’t be hard if you go at it step by step with curious persistence.
  • Hard work, intellect and experience are insufficient for greatness.
  • Eliminate unpromising parts of the chessboard so you can focus on the productive ones
  • It’s not the bad ideas that do you in, it’s the good ones. They tend to be overdone
  • Quickly eliminate the big universe of what not to do followed up with a fluent, multidisciplinary attack on what remains, then act decisively when and only when the right circumstances appear. You’ll consistently out think people that are smarter than you as you’ll be more objective and multidisciplinary.
  • Investing is the equivalent of going out and betting against the parimutuel system. Look for a horse with one chance in two of winning and which pays you three to one(Basically a mis-priced gamble). Value investing is knowing enough to know whether the gamble is mis-priced.
  • You need to have a passionate interest in why things are happening. That state of mind gradually improves your ability to focus on reality. Without this cast of mind, you’re destined for failure.
  • The structure of the human mind requires that the way to complete competency of any kind is to learn it all to fluency.
  • The habit of committing far more time to learning and thinking than to doing is no accident.
  • You must be synonymous with honesty and integrity. Doing the right thing pays dividends personally and professionally.
  • Example is not the main thing in teaching, it is the only thing.
  • Don’t go to auctions of any kind
    • Open-bid:social proof tendency ensures you believe other bids are fair assessments of the value of the item even when they’re not. This combines with deprival tendency t cause great mispricing errors
    • Closed-bid: they’re often won by people making a technical mistake. There is an opportunity for big mispricing errors.
  • Compound interest is the magic that turns all your lead to gold.
  • It is occasionally possible for a tortoise, content to assimilate proven insights of his best predecessors, to outrun hares that seek originality or don’t wish to be left out of some crowd folly or ignores the best work of the past. Enormous long-term advantages can be used gotten from consistently trying not to be stupid, instead of trying to be very intelligent
  • There should be a huge area between what you’re willing to do and what you can do without significant risk of criminal penalty or causing losses. There should be things that you won’t do even though they’re perfectly legal.
  • Tell the truth so you won’t have to remember your lies
  • Anytime you seat waiting a deal to come by, you’re in a very dangerous seat
  • Passion is more important than competence/brain power
  • It is dangerous to rely on special talents. It’s better to own lots of monopolistic businesses with unregulated prices
  • On investing: For successful investing, you need
    • Temperament: the disposition to own stocks without fretting/ overt worrying.
    • Patience: being very patient but aggressive when it’s time.
    • Curiosity: I need a passionate interest in why things are happening. This interest over time improves my ability to focus on reality. Without it, you’re destined for failure regardless of the advantages bestowed upon you by nature. The more hard lessons you learn vicariously instead of by experience the better.
    • Focus investing: It is so hard to find good investments so concentrate investments in a few. I need the discipline of waiting for a fat pitch.
  • The game is to recognize a big idea when it comes along, when they don’t come along very often. Opportunity comes to the prepared mind.
  • Learning: the game is to keep learning. you’ve gotta like the learning process
  • Once you start doing something bad, it’s easy to take the next step and in the end you’re a moral sewer.
  • People with loose accounting standards invite perfectly horrible behavior in others
  • Multiple mental models
    • You must know the big ideas in the big disciplines and use them routinely. All of them not just a few.
    • You have to learn the models so they become part of your ever used repertoire.
  • Don’t fool yourself
  • Every person is going to have a circle of competence. And it’s going to be very hard to enlarge that circle. You can rise quite high by developing a circle of competence
  • You need to figure out what your own aptitudes are. If you play games where others have aptitude and you don’t, you’re going to lose.
  • It’s ridiculous the way a lot of people cling to failed ideas. It’s not bringing the new ideas that’s so hard. It’s getting rid of the old ones.
  • Refuse to delude yourself that your ideas would change the world. Instead seek to learn from my betters practical entail tricks that help avoid some of the worst miscognitions of my age cohorts.
  • Organized common sense is a very powerful tool. There is too much calculation and too little thinking.
  • Reading a lot isn’t enough. You need the temperament to grab ideas and do sensible things. Most people don’t grab the right ideas or don’t know what to do with them.
  • You must be cautious of the effect of legislation(and government activities) on your business and industry.
  • The five essential entrepreneurial skills for successful are concentration, discrimination, and organization, innovation and communication.
  • The fundamental full attribution ethos of hard science
    • You’ve go to know all the big ideas in all the disciplines more fundamental than your own.
    • Never make any explanation that can be made in a more fundamental way in any other way than the most fundamental way.
    • Always take with full attribution to the most fundamental ideas that you are required to use.
  • Extreme success is likely to be caused by some combination of the following factors
    • Extreme maximization or minimization of one or two variables
    • Adding success factors so that a bigger combination drives success, often in nonlinear fashion, as defined by the concept of breakpoint and critical mass. Results are often non-linear. You get a little more mass then you get a lollapalooza effect.
    • An extreme of good performance over many factors.
    • Catching and riding some sort of big wave.
  • Worldly wisdom: you learn to make fewer mistakes than other people and how to fix your mistakes after when you do make them.
    • One trick of life is to get so you can handle mistakes without psychological denial.
    • Beware of ideology based mental misfunctions: It distorts cognition terribly. It pounds ideas in better than it convinces out. The only heavy ideology you need are in favor of accuracy, diligence and objectivity.
    • You must have the confidence to override people with more credentials than you whose cognition is impaired by some of psychological bias that is obviously present. But there are instances when you have to recognize that you have no wisdom to add and that your best course is to trust some expert.
    • When you don’t know and don’t have any special competence, don’t be afraid to say so. No body expects you to know everything about everything. Flee people that always confidently answer is questions about which they don’t have any real knowledge.
    • To teach effectively, instead of just pounding it in, teach in a way that requires a slight mental reach(indirection) . Because you have to reach for it, you hold it better. This takes advantage of commitment and consistency tendency.
    • The right lessons are easily learned if you’ll work at it. And if you learn to, you can be especially useful at crucial moments when others fail.
    • The human mind is not constructed so that it works well without having reasons. You need to hang reality on a theoretical structure with reasons.
    • Multiple mental models: You can’t really know anything if you just remember isolated facts and try and bang them back. If the facts don’t hang together in a lattice work of theory, you don’t have them in a usable form. You need multiple models upon which to hang your experience.
      • You need multiple models because if you have just a few, you’ll torture reality till it fits your models, or at least you’ll think it does. (To the man with a hammer, everything is a nail).
      • Take all the main models and use as a checklist in reviewing complex systems. It’s Essential to get the main models and use them in a multimodular way.
      • For best results, we need to have multidisciplinary coverage of immense amplitude, with all needed skills raised to an ever-maintained practice based fluency, including considerable power of synthesis at boundaries between disciplines, with the highest fluency levels being achieved where they are most needed with forward and reverse thinking techniques being employed in a manner reminding one of inversion in algebra, and with "checklist" routines being a permanent part of the knowledge system.
      • For enhanced multidisciplinarity, we need to
        • Make more courses mandatory not optional.
        • Practice problem solving across several disciplines, including practice that prevents the loft of skills through disuse.
        • Increased use of the best business periodicals to prompt practice in relating events to multidisciplinary causes often as intertwined
        • Avoid ideology of every form
        • Intensely Imitate the fundamental organizing ethos of hard science( the fundamental 4 discipline combination of maths, physics, chemistry and engineering).
          • You must both rank and use discipline in order of fundamentalness
          • You must master to tested fluency and routinely use the truly essential parts of all fours constituents of the fundamental four-discipline combination, with particular intense attention given to discipline more fundamental than your own.
          • You must never practice either cross-disciplinary absorption without attribution or departure from a "principle of economy" that forbids explaining in any other way anything readily explainable from more fundamental material in your own or any other discipline
          • When the above approach doesn’t produce much new and useful insight, you should hypothesize and test to establish new principles, by using methods similar to those that created successful old principles. However you may not use any new principle inconsistent with an old one unless you can now prove that the old one is true.
      • The models need to come from multiple disciplines- all the wisdom of the world is not to be found in one little academic department.
      • If you want to be a good thinker, you must develop a mind that can jump the jurisdictional boundaries of fields. Take in the best big ideas from all these disciplines.
      • The models that are the most reliable come from the hard sciences and engineering ring
      • The models and techniques MUST include
        • Mathematics:
          • Compound interest
          • Probability
          • Permutations and combinations
          • Decision tree theory
        • The five Ws
          • Tell Who was going to do What, Where, When and Why.
          • If you ask 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 the reason, they’ll be more likely to comply.
          • In communicating with other people about everything. You must include why
        • Accounting: the language of practical business life
          • Double entry bookkeeping
          • Accounting has it’s limitations(useful life, depreciation rate are just estimations) . It’s a starting place.
        • Engineering
        • Physiology
        • Biology
        • Psychology: the perceptual apparatus of man has shortcuts in it due to its limited circuitry.
          • Helps prevent manipulation from cognitive dysfunction. You must know the limitations of your cognitive apparatus.
          • You must understand the psychology of misjudgement that cause the human mind to reach wrong conclusions . They always interact and they’re all very important.
        • Microeconomics: less reliable
          • A free market economy or partly free market economy is the equivalent of an ecosystem.
          • People who narrowly specialize can get very good at occupying some little niche. And the often find good economics they wouldn’t get any other way.
          • Scale:
            • Cost reduction along the experience curve: Doing something complicated in more and more volume enables people, who are trying to improve and are motivated by the incentives of capitalism to do it more and more efficiently.
            • If you get a whole lot of volume through your operation, you get better at processing that volume.
            • Scale let’s you get greater value from volume. It also grants huge purchasing advantages.
            • Grants success in an all or nothing scenario.
            • Scale grants an informational advantage: you get more customers if you’re the well known.
            • Social proof: If everybody’s doing something, we think it’s better.
            • It allows great specialization within the firm, allowing each person to become better at what he does.
            • Sometimes, scaling down and intensifying gives you the big advantage. Scale lets you go to a narrower specialization as it enables more efficiency.
            • The biggest problem of scale is that as you get bigger, you get bureaucracy which comes with territoriality: you think the work is done when it leaves your desk for anothers. You also get corruption
            • Building scale let’s you have a fighting chance with the incumbents.
        • Beware of the effect of competition on an industry. In some scenarios, and everyone competing makes money and does well in spite while in others, shareholder funds are wasted just to get by.
        • Be able to distinguish when technology is going to help you and when it’s going to kill you. Is the advantage of new technology going to the owner or the customers. Employees will always show how much you’ll save without showing how much of the savings will stick.
        • Competitive destruction: when new technology comes that totally makes old technology invalid.
        • Surfing: when you’re the early bird in a business, you get huge advantages. If you can ride the wave, you get long runs.
      • Charlies 4 type of checklists
        • Two track analysis
          • What are the factors that really govern the interests involved, rationally considered.
          • What are the subconscious influences where the brain at a subconscious level is automatically doing these things which by and large arenusefil but which malfunction.
          • You can do these by
            • Rationality: by evaluating the real interests, real probabilities etc
            • Evaluate the psychological factors that cause subconscious conclusions – many of which are wrong.
        • Ultra-simple, general problem solving notions
          • Decide the big no Brainer questions first
            • It is usually simple to simplify problems by deciding big no-brainer questions first.
          • Apply numerical fluency
            • Scientific reality is revealed only by math as if math was the language of God.
          • Invert
            • Invert, always invert. It is not always enough to think through problems forward. You must also think in reverse.
          • Apply elementary multidisciplinary wisdom, never relying entirely upon others
            • The best and most practical wisdom is elementary academic wisdom. However you must think in a multidisciplinary manner using all the easy-to-learn concepts from the freshman course in every basic subject. If in your thinking, you rely too much on others, you will suffer much calamity.
          • Watch for combinations of factors- the lollapalooza effect
            • The really big effects, lollapalooza effects, will often come only from large combinations of factors.
        • Psychology based tendencies: see note psychology of human misjudgement.
        • Investing and decision making checklist
          • Risk: all investment evaluations should begin by measuring risk, especially reputational.
            • Incorporate an appropriate margin of safety
            • Avoid dealing with people of questionable character
            • Insist upon proper compensation for riskl aasumed
            • Beware of inflation and interest rate exposure
            • Avoid big mistakes, shun permanent capital loss
          • Independence
            • Objectivity and rationality require independence of thought
            • People’s opinions don’t make you right or wrong. The only thing that matters is the correctness of your analysis and judgment.
            • Mimicking the herd invites regression to the mean.
          • Preparation: The only way to win is to work, work, work, work and hope to have a few insights.
            • Develop into a lifelong self-learner through voracious reading; cultivate curiosity and strive to become a little wiser every day.
            • More important than the will to win is the will to prepare.
            • Develop fluency in mental models from the major academic disciplines
            • If you want to get Smart, the question you have to keep asking is why, why, why?
          • Intellectual humility: acknowledging what you don’t know is the dawning of wisdom
            • Stay within a well defined circle of competence
            • Identify and reconcile disconfirming evidence
            • Resist the craving for false precision, false certainties etc.
            • Above all, never fool yourself, and remember you’re the easiest person to fool.
          • Analytic rigor: use the scientific method and effective checklists to minimize errors and omissions
            • Determine value apart from price, but progress apart from activity, wealth apart from size.
            • It is better to remember the obvious than to grasp the esoteric
            • Be a business analyst, not a market, macroeconomic, or security analyst.
            • Consider totality of risk and effect; look always at potential second order and higher level impacts
            • Think forward and backwards: invert, always invert.
          • Allocation: proper allocation of capital is an investor’s number one job
            • The highest and best use is always measured by the next best use(opportunity cost)
            • Good ideas are rare: when the odds are in your favor, allocate heavily.
            • Don’t fall in love with an investment: be situation dependent and opportunity driven.
          • Patience: resist the natural human bias to act
            • Never interrupt Compound interest unnecessarily
            • Avoid unnecessary transactional taxes and frictional costs; never take action for its own sake.
            • Be alert for the arrival of luck
            • Enjoy the process along with the proceeds, because the process is where you live
          • Decisiveness: when proper circumstances present themselves, act with decisiveness and conviction
            • Be fearful when others are greedy and greedy when others are fearful
            • Oppurtunity doesn’t come often, so seize it when it does.
            • Oppurtunity meets the prepared mind. That’s the game.
          • Change: live with change and accept unremovable complexity
            • Recognize and adapt to the true nature of the world around you; don’t expect it to adapt to you.
            • Continually challenge and willingly amend your best-loved ideas
            • Recognize reality even when you don’t like it- especially when you don’t like it.
          • Focus: Keep things simple and remember what you set out to do
            • Remember that reputation and integrity are your most valuable assets and can be lost in a heartbeat
            • Guard against the effect of hubris and boredom
            • Don’t overlook the obvious by drowning in minutiae
            • Be careful to exclude unneeded information of slop
            • Face your big troubles; don’t sweep them under the rug.
    • Worldly wisdom as applied to stock picking.
      • A good model to simplify what goes on in the market for common stock is the pari-mutuel system at racetracks. Everyone goes there and bets, and the odds change based on what’s bet. It’s difficult to beat the system. Also the house takes a percentage on the top. Not only do you have to beat all bettors, you’ve got to have such a large margin, that you can afford to pay the house. Intelligence alone cannot assure success. You need a combination of fanaticism and discipline. You also need to bet seldomly.
      • the market is efficient as a pari-mutuel system is efficient-with the favorite more likely than the long shot to do well in racing, but not necessarily give any betting advantage to those that bet on the favorite. once you put the price into the formula, it isn’t so clear anymore what was going to work best for a buyer choosing between the stocks. So it’s a lot like a pari-mutuel svstem. And, therefore, it gets very hard to beat.
      • It’s not given to human beings to have such talent that they can just know everything about everything all the time. But it is given to human beings who work hard at it-who look and sift the world for a mispriced bet-that they can occasionally find one. The wise ones bet heavily when the world offers them that opportunity. They bet big when they have the odds, otherwise they don’t bet.
      • The way to win is to work, work, work and hope to have a few insights.
      • With stock managers, what makes sense for the investor rarely makes sense for the manager. What determines the behavior are incentives for the decision maker, and getting the incentives right is a very important lesson.
      • To beat the market, a stock picker can do the following
        • Ben Graham’s approach( The concept of value to the private owner): Calculate the price the whole enterprise would sell for if it were available. I then take the stock price and multiply by the number of shares and if you’ve got something that was a third or less the sellout value, you’ve got a lot of edge going for you. You have a huge margin of safety, by having the big excess value going for you. It’s very difficult in a modern market.
        • Berkshire’s approach: sometimes a company that was selling at 2 or 3 times its book value could still be a huge bargain because of momentums implicit in its position, sometimes combined with an unusual managerial skill plainly present in some individual or system. Load up on the very few good insights you have instead of pretending to know everything about everything at all times. Over the long term, it’s hard for a stock to earn much better return than the business which underlies it earns even if you buy it at a huge discount. If you buy a business that earns 18 percent on capital over twenty or thirty years, even if you pay an expensive looking price, you’ll end up with one hell of a result. The trick is getting into better businesses.
          • You could find them small
          • Finding them big: get into a great business which has a great manager because management matters. When you get an opportunity to get into a wonderful business being run by a wonderful manager. Occasionally, you’ll find a human being who’s so talented that he can do things that ordinary skilled mortals can’t. However, betting on the quality of a business is better than betting on the quality of management.
        • Cancer-surgery formula: The sick business fix game. They look at the mess and figure out if there’s anything sound left that can live on its own if they cut away everything else. If they find, they just cutaway everything else.
      • Taxes. Take care to run from tax shelters. Also avoid paying transactional taxes by making good decisions where you don’t need to make another. Take care of the do-something psychological tendency:
      • The dangers in this philosophy: companies can fall off the wave and investment disasters resulting from their too high prices.
      • There are a few businesses where any manager could raise the return enormously just by raising prices – and yet they’ve not done it. There are actually people out there who don’t price everything as high at the market will easily stand.
      • The dream is to get into a situation where you had the top hand in a game that is clearly going to end up with one winner and a management with a lot of integrity and intelligence.
  • For coping with life’s challenges
    • Have low expectations
    • Have a sense of humor
    • Surround yourself with the love of friends and family
  • The best way to avoid envy is to plainly deserve the success we get.
  • The best way to try to get what you want is to try to deserve what you want. You have to deliver to the world what you would buy if you were on the other end.
  • There’s no love as right as admiration based love, and such love should include the instructive dead.
  • The acquisition of wisdom is a moral duty. Without lifetime learning, you’re not going to do very well. You can only progress when you learn the method of learning.
  • When dealing with a system that involves many factors, it’s best to look at it as a whole rather than examining the components in isolation. This brings to fore the importance of the multidisciplinary approach.
  • If you would persuade, appeal to interest, not to reason.
  • Engaging in routines that allow you maintain objectivity are very helpful to cognition. They are required to maximize correct thinking
  • Maximizing non-egality often works wonders
    • Maximizing the experience of people who have the most attitude and determination as learning machines. It’s necessary if you want to reach the highest of human achievement.
    • Provide a lot of playing time for your best players
  • Assiduity is very important to success
    • Sit down on your ass until you do it.
    • Select partners full of assiduity.
  • Life is likely to provide terrible and unfair blows. Some people recover and others don’t. Epicetus’s morals come in handy here
    • Every mischance in life creates an opportunity to behave well and learn something useful
    • My duty is not to become immersed in self-pity, but to utilize each terrible blow in a constructive fashion.
  • Manage your income with prudence
    • Net worth enables you serve better
    • Always understand your income.
  • Go through life Anticipating trouble and be ready to perform adequately if trouble comes.
  • The job of managing people often involves getting a such responsibility into the people with real knowledge and away from people who feign knowledge.
    • People who are selling something often rate their goods above average regardless of the evidence to the contrary.
  • The highest form of civilization is a seamless, non-bureaucratic Web of deserved trust
    • In life, maximize the seamless Web of deserved trust.
  • An excess of professionalism often hurts, because the careful l procedures themselves often lead to overconfidence in their outcome.
  • Extra care in thinking is not all good, but also introduces extra error. The best defense is systematic self criticism to an extreme degree. You must not fool yourself, and you’re the easiest person to fool.
  • If you must depend on external advice, you must suitably control the high talents of consultants so that the servant becomes the Useful tool of the master instead of serving itself under perverse incentives for

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