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Investing and business books are complicated. Picture doodles are not.
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MENTAL MODELS

To a man with a hammer, everything looks like a nail. This is trying to solve all problems in one way. To avoid applying inappropriate solutions to problems, you need a wide set of tools.





This is why it is important to collect fundamental mental models - tool sets - from various fields (economics, psychology, biology, physics). They are fundamental in the sense that they can be applied across disciplines and problems. Some models such as math and hard sciences, are more reliable and fundamental than others. Models should be organized and ranked by their degree of fundamentalness.

As an aid, it is important to use lists and checklists in evaluating a company. This is merely a tool to to remedy the limitations of memory, as without continual use, it will be difficult to recall important models.


INVERSION

Due to the way complex adaptive systems and mental constructs behave, it is often illuminating to consider problems in reverse. Instead of solely focusing what makes a good investment, consider what would be the reverse and what you should avoid.





With this, you can at least determine what immediate steps to avoid, even if you do not know the exact path to your goal, which can simplify a problem tremendously.





Alternatively, some math problems can only be solved in reverse or are easier to solve in reverse. When going forward from start to finish there are many valid and non-valid paths. Going in reverse there may be fewer paths.

Going forward: Many paths

Going in reverse: Fewer paths


COMBINATIONS AND SECOND-ORDER EFFECTS

Factors can combine to create an effect that is greater than the sum of its parts. In some cases, an extreme non-linear effect can occur when the right positive variables combine and feed off each other in a positive feedback loop. The more factors involved can often lead to greater non-linear results.





Some factors might include: incentives, conditioning, social proof (psychology), critical mass, conversion (physics), compounding, probability (mathematics), competitive destruction, adaptation, and survival (biology).

However, the mind tends to think in a linear fashion without considering second and higher order effects.

A common second order effect is how the competition will react to actions taken by the company to stay competitive. For example, the purchase of state-of-the-art capital equipment may look like a good investment to improve competitiveness, but if competitors are forced to upgrade in response, the return on investment is greatly offset. The benefit may end up going to the consumer in the form of lower prices or a higher quality product, rather than profiting either producer.