This article on AutoCatalysis continues my quest to list out the Top 100 Mental Models Needed to Succeed in Business.
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.”
Munger gives one example in air-conditioning: …
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, …
In sales & marketing we take it for granted that we should always follow the A.I.D.A approach to a conversion funnel: you “Attract” and “Interest” prospects, then generate enough “Desire” (by showing benefits & pushing their emotional buttons) for them to finally take “Action” (i.e. pay you money).
But is attracting potential customers always a good idea?
I’m fascinated by these models and decided to keep a listing of ones I run across (some are related to Munger and others are ones I hear about outside of Munger but which I believe Munger might appreciate).
I’m an optimist by nature but — hopefully you see that through the rest of my articles here — but I’m also practical.
And there’s a weird amount of $hit going on in the U.S. and abroad these days that’s got me preparing for a possible economic meltdown.
And I’m not talking about the staggering U.S. federal deficit — that’s got serious longer-term consequences. I’m talking about a handful of other scary items that worry me more in the short-term. …
My brother-in-law Rich recently asked me for my favorite business book. I had a tough time answering because a slew of book titles raced through my mind.
Well, make room on your bookshelf because I dove in and came up with 20 top business books below:
The Best Business Books Of All Time
If I had to pick just one business book for folks to read, it would be this illustrated tome by Charlie Munger — Warren Buffett’s long-time right-hand man — with its folksy and entertaining tales of business and life (see Charlie Munger Quotes for a taste).
There’s plenty of Buffett tips in here too so you get two-for-one! …
You guys know I love Charlie Munger and Warren Buffett… I consider them American hereos.
I read an interesting book called The Four Filters Invention of Warren Buffett and Charlie Munger (by Bud Labitan) the other day — if you like business, investing or Buffett or Munger, you should buy this book.
I thought I’d briefly summarize their “Four Filters” below — I paraphrase Bud Labitan’s book at times and add in a dose of quotes I’ve collected (see my past postings on Charlie Munger Quotes or Warren Buffett Quotes) as well as some quotes and insights from other folks.
Circle of Competence
Buffet advises investors to focus on their “circle of competence” (that which they know the most about).
“Draw a circle around the businesses you understand and then eliminate those that fail to qualify on the basis of value, good management and limited exposure to hard times.” — Warren Buffett
Michael Porter suggests that there are two major types of competitive advantages:
1. A Cost Advantage
2. A Differentiation Advantage
“Something Special in People’s Minds”
Buffett and Munger have simplified this to “something special in people’s minds.”
“American Express has financial integrity; there’s worldwide acceptance of its name. It holds two-thirds of the market while charging more for its product…you have something special in people’s minds.” — Buffett at Berkshire’s 2000 Annual Meeting
“A Moat Around Their Economic Castles.”
“We look for moats around the castle. We think in terms of moats and the impossibility of crossing it — we want it widened every year. If it’s too narrow, we leave it alone.” Buffett at Berkshire’s 2000 Annual Meeting
The strong consumer brands of CocaCola and Gilette (later bought by Proctor and Gamble) were examples that Buffett gave in his 1993 Letter to Shareholders: “The might of their brand names, the attributes of their products and the strength of their distribution systems give them an enormous competitive advantage…”
Here’s another classic Buffett quote on the topic: “I look for businesses in which I think I can predict what they’re going to look like in ten to fifteen years time. Take Wrigley’s chewing gum. I don’t the think the Internet is going to change how people chew gum.”
“We look for a horse with a one in two chance of winning and which pays you three to one. You’re looking for a mispriced gamble. That’s what investing is. And you have to know enough to know whether the gamble is mispriced. That’s value investing. Charlie Munger from Poor Charlie’s Almanack.
Margin of Safety — Benjamin Graham called this “margin of safety” — that is, the difference between the intrinsic value of a business versus what the asking price is.
How do you calculate intrinsic value?
Patience For A Sensible Price Tag — Munger & Buffett refer to waiting for the “fat pitch.” Be very patient, but be very aggressive when it’s time.
I’ve been into motivational business quotes lately and I was reading the Tao of Warren Buffett (which I highly recommend!) and it reminded of the great quotes Mr. Buffett has shared.
Here are some of my favorite Buffett quotes:
How to define friendship …