The Principle of Cumulative Advantage, as noted on Thwink.org, states that:
“…once a social agent gains a small advantage over other agents, that advantage will compound over time into an increasingly larger advantage.”
Cumulative Advantage is sometimes known as The Matthew Effect or Accumulated Advantage or “the rich get richer, the poor get poorer”.
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. …
This article on Compound Interest continues my quest to list out the Top 100 Mental Models Needed to Succeed in Business, inspired by Charlie Munger.
Munger calls compound interest “one of the most important models there is on Earth.”
It arises when interest is added to the principal.
If you don’t know how to use compound interest on a calculator, there are a couple of excellent online compound interest tables/calculators that do all the work for you here:
For example, …
You know the story of the man who wanted to know where he was going to die, so he could make sure not to go there?
That’s a favorite story of Charlie Munger’s to explain the concept of inversion.
Munger credits mathematician Carl Jacobi (who famously said: “Invert, always invert”) who recommended working through math problems in reverse.
As A Margin of Safety wrote in Invert, Always Invert, an example of inversion (working through a problem backwards) came from University of Florida professor Jay Ritter who looked at the problem of whether to invest in Facebook around the time of its IPO. …
I write a to-do list at the start of just about every day, but it can be tedious so I look for ways to shake up the process. Here are some ideas I find useful (in no particular order):
1) ABC Method — Try the ABC Method in which you write down the tasks you need to do and categorize them by:
2) The 1-to-10 Stress Method
3) Andreessen’s 3 to 5 Things on an Index Card — Marc Andreessen found it valuable to write down 3 to 5 things that you want to get done the following day. He does the following:
I first heard of AutoCatalysis being used as a business tool from reading Charlie Munger.
AutoCatalysis originates in chemistry, a subject I did poorly in in high school, so I’ll give this definition from The Focus Investing Series Part 3: The Munger Network of Mental Models:
“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.”
Attribution Theory could easily be called “Cause Theory” or “Explanation Theory” because it centers around the cause or explanation of why something happens.
This is critical to understand in business.
Let’s say, for example, your Web designer builds a new home page and it is considered by users to be awesome — if they attribute it to their own brilliance then that’s internal attribution.
If, on the other hand, the designer’s new Web page is criticized as shoddy and the designer attributes the fault to having too little time to do a good job, then that’s external attribution. …
Back when I was a journalist, I used to be a horrible headline writer — my editors would replace whatever headline I wrote just about every time. I would get pi$$ed, but they were right.
I’ve since embraced the notion that if a headline is no good, the reader won’t continue on to your actual story or ad.
I’ve studied headlines over the last 5 years and gotten a bit better. Whenever I see a good headline idea, I try to jot it down, especially if it strikes an emotional chord.
Below are a list of my favorite headline templates/examples by categories. The categories are proven winners …
The Circle of Competence was one of the most important exercises I did before founding our current company Ongig.
The Circle of Competence is simple: you write down the things that you are competent about and draw a circle around it. And then, as Buffett explains, remember that the more you go outside your circle of competence, …