by | 18, Aug 2022

Book Deep-Dive: The Great Mental Models

To the man with a hammer, everything looks like a nail.” But the more tools you have at your disposal, the more likely you’ll use the right one for the job. The same is true when it comes to your thinking. The quality of your outcomes depends on the mental models in your head. And most people are going through life with little more than a hammer. The Great Mental Models: General Thinking Concepts is the first book in The Great Mental Models series designed to upgrade your thinking with the best, most useful and powerful tools so you always have the right one on hand. This volume details nine of the most versatile, all-purpose mental models you can use right away to improve your decision making, productivity, and how clearly you see the world.

Remember, with each episode, we will provide a helpful Deep-Dive infographic where we break down the entire book on to 1 page! And we finally have a link for you to find all of them! Visit invictusmultifamily.com/notes to find all of the sophisticated investor notes!

Here are our top 10 takeaways:

  1. Flawed Education
  2. Knowledge Is Not Power
  3. Maps
  4. Competency Circle
  5. Incentives
  6. 2 Models For 1
  7. Socratic Questions
  8. Inverse
  9. Occam’s Razor

Tweetable Quotes:

“And knowledge for the sake of knowledge is very problematic because unless you change your behaviors, it doesn’t do you any good.”  – Anthony Vicino

“Humans tend to gravitate more towards complicated narratives and the more variables that you have in any sort of situation, the more probability there is for error to be made.”  – Dan Krueger

LEAVE A REVIEW if you liked this episode!!

Keep up with the podcast! Follow us on Apple, Stitcher, Google, and other podcast streaming platforms.

To learn more, visit us at https://invictusmultifamily.com/

**Want to learn more about investing with us?**

We’d love to learn more about you and your investment goals. Please fill out this form and let’s schedule a call: https://invictusmultifamily.com/contact/

**Let’s Connect On Social Media!**

LinkedIn: https://www.linkedin.com/company/11681388/admin/

Facebook: https://www.facebook.com/invictuscapitalventures/

YouTube: https://bit.ly/2Lc0ctX

five rules of investing

The Five Rules of Investing

** Transcripts

Mental Models

[00:00:00] Anthony: Hello, and welcome to multifamily investing made simple. This is podcast where we take the complexity out of real estate investing so that you can take action today. I’m your host, Anthony Vino of Invictus capital joined as always by Dan look at that book report. That’s for the call.

[00:00:28] Dan: Me dude, I book report Kruger.

I did my homework. Uh, I feel like yours is incomplete. If I were grading that you’d get an IC.

[00:00:37] Anthony: Uh, so this is a, like, just before we went live on this episode, this is an interesting glimpse into like, our two minds and how we work differently. So if you’re, if you’re listening to this, you’re not gonna probably be able to fully, uh, appreciate this.

But if you’re watching the videos, you can go over to YouTube, uh, multifamily investing made simple, and you can see what we’re about to show you. So when we come to these book review episodes, we want to be [00:01:00] prepared so that we can give you the most value, right? Like our goal is to save you time and distill these books that we love down to their most like salient, important points.

Mm-hmm right. Yeah. That’s great. So, so we, we take this serious. Um, Dan, show them how seriously you take them. Show, show them your notes. Page one.

[00:01:19] Dan: That,

[00:01:19] Anthony: that, that’s the, there’s a staple

[00:01:22] Dan: involved. Page two. Yeah, there’s a staple. All right. Um, yeah, that’s okay.

[00:01:26] Anthony: Now, now let’s take a look at my notes.

[00:01:31] Dan: Now you probably can’t see this but I’m gonna just point out that there are four bullet points, bullet points.

Now, fifth spot where he knew he needed five. Get stopped. I

[00:01:42] Anthony: don’t even my notes. I don’t even come fully prepared. I don’t even have all full bullet points, but when I do bullet, like these are one sentence each, whereas Dan has like subpoints. Yeah, he has

[00:01:54] Dan: paragraphs over here. There’s a lot of stuff that I don’t wanna forget when we go live.

There’s just so much, I mean, we [00:02:00] read good books, so there’s like a lot that I wanna make sure I communicate to the audience. So, okay. So

[00:02:05] Anthony: for the listeners at home, um, as always our goal with this, these episodes, these book deep dives is just to try and take a book that we love trying to steal it. Save you time.

Cuz breeding is, is a time consuming activity. I know we all wish we had more time for it. But seriously, like this book that we’re gonna talk about today, it’s fantastic. It’s really cool. I think you guys are really gonna like it and it’s kind, it’s kind of worth going to buy, just to have for like a coffee table book.

Yeah. It’s

[00:02:29] Dan: less than 200 pages. So I mean, if you actually read it, it’s not gonna, it won’t take you super

[00:02:33] Anthony: long. Yeah. Lots of cool pictures, lots of cool vignettes and stories in there. But as always, we are creating a sophisticated investor note for this. If you guys want to download those all 17 of them, you could just go to Invictus, multifamily dot.

Back slash not forward slash notes. And that’s gonna take you to a Dropbox folder filled with these beautiful infographics where we distill all the, uh, takeaways into one [00:03:00] single page. And it’s absolutely free. It doesn’t cost you anything. We’re not even collecting an email. So you got nothing to lose there.

Um, you just gotta be willing to click on some strange links on the. Don’t worry, just click they’re probably come on the next questions. Okay. We’re good for it. Justice. all right. So

[00:03:16] Dan: what’s, what’s the book today, Dan? Uh, today we are doing the great mental models by Shane Parrish volume one. So I wanna say he’s got at least three volumes,

[00:03:25] Anthony: two that I know of.

I’ve only listened to and I, I, I, I tried to collect them all. Yeah. So

[00:03:29] Dan: this is like, kind of like, um, general thinking concepts and the other was I believe, um, kind of science and physics space. Yeah. And that one’s way bigger.

[00:03:37] Anthony: Yeah. Way, way thicker. And. But I think today we’re just gonna do volume one, which is general thinking principles and, and really we’re I think just diving into the world of mental models.

Mm-hmm and so real quickly, before we dive into what that actually is, let’s talk about Shane Parrish, the writer of this, um, he has a great. Blog. Have you ever read his blog farm street? No.

[00:03:57] Dan: No. This is my only experience with him. This is focus. His [00:04:00] blog

[00:04:00] Anthony: is fantastic. Foreign M street. I think it’s like fs.com or something like that.

Go check it out. It’s fantastic. It just a lot of thinking mental models, a lot of, um, productivity. This guy’s really sharp, really smart. I can’t remember what he did in the past life was, but he was like NASA or something like that. And then, uh, he started what’s called the knowledge project. He has a podcast called the knowledge project.

It’s like, I wanna say it’s like top hundred. On apple.

[00:04:23] Dan: I know that name. I don’t think I’ve listened to it, but I’ve, I’ve heard of it.

[00:04:25] Anthony: Yeah. He does really good interviews. He’s kind of hard to listen to cuz he is very Placid and like tell me more about that thing. But he brings on really cool guests and has awesome

[00:04:33] Dan: conversations.

It’s kinda what licks, like what lick Friedman’s like too, you know,

[00:04:37] Anthony: I tried, I’ve been trying for the last couple of weeks to get into L Friedman cuz everybody’s like Lexus is so cool. He’s so awesome. And I’m like, yeah, he is pretty cool and awesome. But I can’t listen to that guy. He’s very

[00:04:46] Dan: robotic.

Listen to him much every once in a while they have like a great guest on, I, I tune in for that, but whenever Lex starts, I’m like, the things he’s saying are, are great. Love it. They’re profound. But his voice is just like, it’d be great to go sleep too. [00:05:00] A

[00:05:00] Anthony: hundred percent. I could listen to him. Him being kind of robotic is on brand for him.

Oh yeah. Like he’s all about robotics and AI and machine learning. And like, that’s another great podcast, honestly, like shout out to Lex, but yeah, he’s killing it. Um, I, I just can’t make it through a full episode without getting a little.

[00:05:15] Dan: Yeah. Um, should we do it? Should we break down this book? Yeah. Tell me,

[00:05:20] Anthony: tell me what a mental model is.

Mm. Do we even have that? Is that one of your takeaways?

[00:05:24] Dan: Uh, I believe it is. So I know what my takeaways are only got four of ’em. Let me double check. I think it might be. it’s in here. I’m gonna give you a quick rundown. Yeah. This is what happens when you

[00:05:34] Anthony: have an encyclopedia of

[00:05:35] Dan: notes. you just see,

[00:05:38] Anthony: you just see him like I’m

[00:05:39] Dan: scrolling.

I didn’t know. You were gonna ask me to do a word search here. I mean, I control F I could. Yeah, I can. I could get there, but this we’re going analog. I got paper. So I’ll do a quick definition and there’s probably gonna be a little bit of a repeat when we actually dive into these. But a mental model is effectively just.

A, uh, a framework for thinking through something or a lens to look at something through. [00:06:00] Um, I don’t wanna go too much deeper cause I don’t wanna ruin my takeaways, but it, oh, okay. It’s a way to, it’s a framework for how to think about something or to think, or to look at something and ideally a mental model will get you to take a look at a certain circumstance or a certain thing in a slightly different way than you normally.

is that a pretty decent definition?

[00:06:24] Anthony: Yeah. Yeah, I think so. It’s a, it’s a shortcut, I think in a lot of ways to it’s like thinking in metaphor, that’s how I’ve, that’s how I’ve kind of treated. It is you have this encyclopedia of metaphors that are rooted in science or other, you know, fundamental principles.

That then you can take that metaphor and apply it to a different context. And so then you can learn that new context much quicker, cuz you’re like, oh, this thing is like this other thing that connects in this way. And so the relationships, if are consistent over here, then they [00:07:00] should be consistent over here.

Mm-hmm and this is a great way of taking a problem and turning it and looking at it from a completely different.

[00:07:10] Dan: Mm-hmm . Yeah, I think, uh, I think another way to kind of sum up mental bottles is taking a, a larger abstract con uh, concept and distilling it down to something that’s very basic, like a soundbite.

So that you can quickly recall all the fundamental elements of that concept without having to go and reference, you know, a chapter in a book. Yeah. And

[00:07:31] Anthony: this will be way more useful once we actually start talking about what the mental models are. So if you’re confused by our definitions and our explanation, just stick with us.

Cuz as we start to explain these, you’re gonna, you’re gonna be familiar with some of ’em and you’re gonna be like, oh the, the real takeaway, this is my first takeaway of this book. And it’s not even written down on the sheet. It’s just coming to, this is your number five. Yeah. It’s this it and Charlie Munger talks about mental models all the time.

If his book, um, uncle Charlie’s or poor Charlie’s Almanac, isn’t on [00:08:00] your reading list, it should be it’s so good. He talks a lot about mental models and how 90. Mental models will pretty much get you wherever you want to go in life. And of those 90, about 10 are gonna do all the heavy lifting. I think you said, or five it’s.

Yeah, it’s, it’s very, very few. And, and I think that’s the big takeaway of mental models. It’s, it’s nice to have this encyclopedia of references, but realistically you’re not, you’re not. Sitting down to solve a problem and being like, Hmm, lemme just go through my, uh, my encyclopedia. Let me try this mental model.

Let try this mental model. It’s like you figure out the ones that seem to be the most effective for you consistently, and that keep cropping up or that you just naturally gravitate towards. And you just, you start to instinctively apply them in non-intuitive situations. And I think that that’s the real takeaway here is like not getting tied up into this because a lot of people will try to take a book like this.

And make it into a how to like how to think better, like do [00:09:00] X, Y, Z when you’re trying to problem solve. It’s like, it’s not like that. Yeah. Yeah.

[00:09:04] Dan: Is that what you. Um, no. Okay. No, um, I just copy and pasted all the pages from the book onto this paper. um, no. So I guess, was that your first takeaway? That was my first takeaway.

Okay. Uh, so my first takeaway is, uh, and this is kind of where I talk a little bit more about mental models. So this is, uh, I think apropo with our kind of intro here. Uh, education doesn’t prepare you for the real world. Uh, so the book opens up with the author talking about his experience in his MBA program.

and how he, um, showed up for his, I think it was his first set of exams or something, uh, all prepared. He’d studied, he’d done all his work. He’d memorize all this stuff. And he showed up to his first exam and found out that, oh, it’s actually open book. And so his expectation of that was way off. And so what he realized was that, you know, he could stop putting his effort into, uh, study and doing homework assignments because he didn’t really need to know.

He didn’t need to memorize a bunch of stuff. He just needed to know how to find the [00:10:00] answers in the. And word find them. And in this classroom, in one of his classes, uh, there was an individual brought up, I, I guess, some somewhat in passing, named Charlie Munger, like Anthony just mentioned. And, um, so, uh, the author, Shane put his, put a lot of his effort into starting to study.

Charlie Munger found out the Munger has a way of thinking through problems using what he calls a broad lattice work of mental models. And this is kind of the problem with, with, uh, Western education and, and modern education is that it’s traditionally focused on memorizing facts and figures and things like that, but that doesn’t really prepare you for the real world, uh, in order to be prepared for the real world.

You need to learn how to think. And how to problem solve, and you don’t necessarily need to know all the answers, but you need to know how to work through the information, to find the proper answer. That’s really where mental models, uh, come into play here. Mental models distill more complex topics down to bite size nuggets, which can be applied across many disciplines.[00:11:00]

And these little sound bites provide you with a lens to look at things through. They should force you to view certain situations. Different way than you normally would’ve. So my first takeaway from this book, uh, wasn’t really a specific mental model. It’s just the fact that the traditional way of learning things and, uh, the traditional way that people are educated in this country and generally in Western society, uh, doesn’t really set you up to Excel in the real world.

You’ve gotta learn how to think and mental models are those tools in your tool toolbox that’ll help you.

[00:11:32] Anthony: The I hate the school system. It’s stupid because again, it goes back to the memorization and recitation, and this type of thinking is what’s called convergent thinking. It’s the it’s, it’s the, the thinking that there is a set answer.

And if you follow this set process, you will converge inevitably inexorably on the answer. And in the real world, I don’t care if you’re working a w two, if you’re a business owner or investing or whatever, the problems that need to be [00:12:00] solved. are not convergent. I’m sorry, not convergent. They’re divergent, which means there’s many different ways that you can arrive at a solution.

There is no in business. It’s like, Hey, our business is flagging. We need more sales. There’s many ways you could solve that. There’s not just one. And so thinking creatively with curiosity and having good judgment, the ability to think, um, from a problem solving perspective and try to come to as many. use cases like we’ve talked about the brick experiment.

Mm-hmm right. Like a great way of, of measuring this of like how creative you are is an exercise called the brick exercise. I just call, I just named it that now, I guess where you take a brick and you set a timer five minutes and you say, okay, how many uses for this brick? Could you come up? And that’s, that’s divergent thinking when you start thinking like, Hmm, I could use it as a paperweight.

I could use it as a weapon. I guess if it had a hole in the top of it, I could use it as a [00:13:00] flower stand. Right. You could, if it’s a gold brick, you could use it as money, right? Like, so you start to come up with all these things. And I think creativity, curiosity, judgment. Those are skills that they don’t teach you in school.


[00:13:12] Dan: yeah, maybe in art class, Ah,

[00:13:16] Anthony: honestly, an art. I sucked an art class because I felt like even there, and this is probably my art teachers, probably this is more reflection of my teachers. Is that it didn’t, it felt like it was like, how closely can you simulate this thing? And I don’t know, like that’s what a photograph is for.

I don’t know. Yeah,

[00:13:35] Dan: that makes

[00:13:35] Anthony: sense. My second take. Understanding only becomes useful when we adjust our behavior and actions accordingly. And this is a really, this is an important takeaway, I think has nothing really to do with mental models. It’s just the recognition that, uh, for Shane, you know, his project is called the knowledge project.

And knowledge for the sake of knowledge is very problematic because unless you change your behaviors, it doesn’t do you any good mm-hmm you hear it all the time. Knowledge is power, but it’s like [00:14:00] no knowledge. Plus action is power. And I think that’s a really important thing to take into consideration when you’re reading a book like this is, there’s so many great frameworks, but they’re gonna do you nothing.

If you don’t find a way to actually apply them into your

[00:14:11] Dan: life. Mm-hmm I love it. Um, By number two, the map is not the territory now. Um, uh, the author talks a lot about maps in this book and, um, uh, a map may have, I’m sorry, a map may have a structure similar or dissimilar to the structure of the territory.

So you might think, um, you know, like a topographic map or like, um, more of a standard map that has like state lines and stuff like that. Um, Now this it’s supposed to be a map is supposed to be an illustration, a representation of a certain thing, so that you can understand this, uh, theoretically larger or more complex thing in a, a simplified version in the London underground map is a perfect example of this.

And for those who [00:15:00] not aware what that is, it’s basically the subway in London. They call it the underground. Um, the passengers on the underground use the map quite a bit, but the drivers of the. Of the trains do not, cuz that that map serves no purpose for them. They look at things from a different perspective.

So a map can’t be, you know, one thing for everybody, um, everything around us could effectively be used as a map. What I mean by that is a book, a YouTube video, a blog article. Um, this podcast episode, this could be a map, right? And a good example of this is Felix Dennis’s book, which we did I believe last week, right?

How to get rich. that’s a map. That was a map that he drew from his perspective at a certain time, which, uh, was a great representation of the territory he was looking at at that time. But things change. And so the main takeaway here is that, uh, , you know, the, the territory might change from when a map that you’re referencing may have been written.

This could be a YouTube video by Gary vainer, Chuck from five [00:16:00] years ago. That was about how Instagram’s the next big thing, right? Probably not applicable anymore. Not a great map for what’s going on. Uh, Felix Dennis’s book had to get rich. That was his time, his perspective. Uh, so to Anthony’s point, they made a second ago.

You can’t look at, uh, this book as how to manual and take it. Literally, uh, you can take information that is applicable, uh, in the new. Paradigm in the new environment that you’re trying to work from, but you can’t look at the maps around you, which are, you know, books, courses, mentors, YouTube videos, whatever, as the be all end all, you’ve gotta be able to pull out the nuggets, uh, interpret what’s actually being communicated and apply it to the new territory that you’re dealing with now, which is gonna be a little bit different than, uh, it was when the original map was created.

So I hope I sum that up.

[00:16:45] Anthony: I, I found this section super interest. because a map is a representation, as you said, and a representation by definition is not the thing mm-hmm . And as you start to extrapolate out [00:17:00] the fact that no map has a hundred percent fidelity, it can’t be an accurate reflection of the territory becoming the T.

That’s that’s the, that was like super fascinating to me where it was like, okay, if say we had a map of Europe for that map to be a hundred percent accurate, it would need to be the size and the scope and the depth in everything of Europe. That’s the only way it could have a hundred percent fidelity, but then that would be.

Completely unhelpful as a representation of the thing. So the representation, the goal is to simplify into a context, given a lens that you’re looking at the problem through in that moment. But recognizing that, that thing is not the thing. And sometimes we’ve fall into these traps where we start to idolize the map mm-hmm and not the thing.

And what say a lot of the time about to get religious on some people. But like a Bible or a Quran is a really good example of a map. It’s, it’s a lens. It’s a, it’s not the territory. It’s not God, it’s not the thing itself. I [00:18:00] mean, I’m getting theological here, but yeah, it’s

[00:18:02] Dan: not a video of those things happening.

It’s, you know, uh, you know, it’s stories to. Communicate what happened, but it’s not like it’s a, it’s a map. Yeah. It’s a

[00:18:12] Anthony: representation, right? Yeah. So it’s not the thing. And I think that’s, it’s so easy in business or wherever in life, just to like, sometimes we, we glom onto the map and, and, and. Forget. It’s not the thing.

It’s not the thing. Okay. I’m rambling. Sorry. Anyway. All right. My, my third takeaway here is there are three key practices needed in order to build and maintain a circle of competence, curiosity, and a desire to learn monitoring and feedback. And this goes back to, uh, one of, uh, the, the mental models he talks about, which is like the zone of competence or circle of competence.

And. any of us are probably very competent within a very narrow range. And the key to being successful in a lot of cases is try to stay inside that range and, and not deviate too far. And, um, for me, this [00:19:00] one was really helpful. Be it were really interesting because to. Maintain that circle of competency.

You have to have curiosity and desire to learn. Otherwise that, that, that circle kind of stays static while the area itself continues to grow, which all things do monitoring and observing, like how is this thing growing over time? And then the feedback of like, how am I growing relative to it? And so curiosity monitoring feedback, I find that to be a really cool framework for learning any new thing or just, um, keeping your skills.

Because it’s so easy to get good at a thing and then stop growing at that thing because you stopped getting curious, you stopped monitoring your feedback. Uh, well I just gave it, gave it away there, so monitoring and then also getting that feedback. So there you go.

[00:19:49] Dan: I like it. I’m gonna fly through this because.

almost the same thing. My number three was the circle of competence. I said seven bullet points there. Right. So a lot of it you’ve already said. [00:20:00] And I, I took this one out because it ties into so many other things that I’m, uh, passionate about, which is, you know, journaling and kind of, um, you know, unpacking what’s going on and why it’s going on in a certain way, which is basically what Anthony was just talking about when he said feedback.

Um, so kind of breeze through these, cause I don’t wanna be too repetitive here, uh, within your so circle of competence, you know exactly what you don’t. um, you possess detailed knowledge, uh, of additional information that we might need to take, uh, that we might need to make decisions. What is this? Hold on.

this is, this is his book or I’m gonna skip that line. There is, that is a poorly written line there. The ramblings of a madman pretty much, pretty much, but yeah, basically one of the big things here was that when you’re operating within your circle of your circle of competence, you know exactly what you don’t.

Um, there are three key practices like Anthony just mentioned, I’m not gonna repeat ’em, uh, feedback and monitoring can be tough due to ego. And [00:21:00] this is the part that, that really got me going, because I can relate a hundred, 10%. We tend to act unconsciously all the time, but if you are proactively monitoring yourself, uh, by, you know, journaling or taking notes or, or somehow, um, tracking what’s going on and then going back and looking at that and, and honestly assessing it, um, that’s how you really.

True progress. And, uh, it could be difficult because the ego gets in the way and a lot of time external feedback is gonna be incredibly valuable. So that could be a partner that could be a mentor that could be somebody else, a third party looking at you, giving you feedback. So not just you giving yourself feedback from journaling, but what does the rest of the world think about your performance on a certain thing?

Incredibly valuable. And then there’s another piece in here. Um, the problem is of incentives. So let’s say for example, that, uh, you’ve identified, uh, an area. Financial management that that’s not your circle of competence and you want to outsource that to somebody else. And you’ll hear us talk about this all the time on this podcast.

You’ve gotta [00:22:00] look at incentives. If you are trying to get expo, if you’re trying to do something that’s outside of your circle of competence and you’re gonna bring in somebody else to assist you or give you advice or do work for you, you’ve gotta make sure, uh, that you understand the incentives in this, uh, situation.

So I, I think the, uh, the financial advisor example is a good. Because you might say, you know, I don’t know anything about investing. I’m gonna outsource it to this guy, Joe Schmo at this firm, he’s gonna invest my money for whatever percent the issue there is that, you know, uh, I don’t wanna turn this into a big hate session on financial advisors, but a lot of times the incentives for somebody who’s managing money for somebody else are not actually tied to how well they are doing the managing.

They’re just tied to how much money they have under management. Right? So they get a management fee, whether things go up or down. And so there’s, there’s. An issue there with incentives. And so we say it all the time. You’ve gotta follow the money. If you’re going to be going outside your circle of competence, and you’re gonna be bringing somebody else in to help you on that thing, whatever it is, it could be a mechanic fixing your car.

[00:23:00] You’ve gotta make sure that the incentives are aligned. If you’re gonna outsource anything to somebody, uh, to do something that’s not in your circle of competence.

[00:23:07] Anthony: Charlie Munger talks about all the time, if, as a CEO or owner of a company, uh, if you can spend all your time on the principal agent problem, you should.

And the principal agent problem is the fact that as an owner or CEO of a company, you’re gonna have you’re, you’re the, you’re the principal. And you’re have agents who are acting on your behalf and incentivizing and getting an alignment of interest between them and what they want versus what you as the owner want them to want is incredibly D.

And I don’t have any answers here for you, so good luck. God speed. Um, but what I do have in my fourth takeaway is two mental models for the price of one. And these are probably in my estimation, the most referenced mental models in the world and possibly the most important. Okay. So number one [00:24:00] is first principle thinking number two.

Is second order thinking, and these are not the same thing. This is not like, okay, first principle, second order. Like they’re, they’re very different. So first principle thinking is all about taking things down to their absolute basic, most structural foundational truisms. Elon Musk does this all the time with Tesla and SpaceX, you know, SpaceX is a great example where when he set out to, to, to get to Mars and build these rockets, everybody’s like rockets are so expensive and he is like, well, why are rockets so expensive?

In starting just with that question and the take one of the big takeaways us. Well, these are kind of like single use bad boys. They go up in the air, they blow up. They’re they’re done. We can’t really use ’em again. And so then the first principle thinking was like, okay, What if that wasn’t true. What if we could make these reusable, right?

Or with Tesla? You know, a lot of people are like, oh, the cost of batteries will never be such where this is going to be effective at scale. And so he is like, all right, what, uh, what makes up, what makes up a battery? [00:25:00] Some nickel, some cadmium, some, you know, you went to all the basic parts of a battery. And he is like, well, why don’t we just make our own batteries?

These pieces are of the puzzle. They’re so small. And so then they created their own battery factory. Right? And so that’s first principle thinking is not just looking at the problem that is, but then saying, why is that problem working all the way down to the foundation? Now, second order thinking is taking the answer, the solution, the problem, whatever you’re looking at and not just jumping to.

The first order consequences, like the first things that occur as a result, but then looking deeper and saying, okay, if I do this, then the likely result is that this is gonna happen. But then what happens as a result of that happening and what happens as a result of that thing that happened as a result of the previous thing and going to second and third and fourth order consequences.

And that’s where like really deep thinkers start to Excel. And it’s like the game of chess where instead of just looking at the consequences of the next. You know, really good chess players are able to look at what are the consequences of the [00:26:00] next five sequences of, of moves and then working back and, and then making a decision based on that.

And so those two cons, so those two concepts, I hear Charlie Munger talk about ’em all the time, first order. I’m sorry. First principle thinking. And second order thinking.

[00:26:15] Dan: I like it. Um, I got a little nervous there because you said two models and you got two. Well, okay. So by one of ’em I see, I can see your sheet.

You got one of ’em here. Yeah. Yeah. So the next one I was gonna have is basically first principle. Thank you. So I’m gonna, uh, luckily I pulled out a little bit different piece sure. Of that than you did. So I’m gonna quickly go through that. And then I just hope your number five is in the same as mine. Um, No,

[00:26:38] Anthony: probably it’s not, it’s not okay.

I can see yours and I can see mine. They’re completely different. Perfect. Good for

[00:26:42] Dan: you listeners. Only one overlap. That’s not bad. All right. So first principle thinking this probably should be a big red flag for people that this is a fairly important one. If we both pulled this out. Um, and like, uh, Anthony mentioned it’s, it’s basically a distillation of, of a concept down to its most basic elements.

Uh, but the piece that I pulled out here was the, [00:27:00] uh, Socratic questioning, uh, which is a detailed questioning process, used to uncover truths. Um, and, uh, and real, real underlying assumptions and separate knowledge from, from ignorance. Right? And so there’s this little framework for basically what Anthony just kind of walked through there.

Uh, the author provides a set of, um, questions to ask yourself to help you work through this first principle thinking process. So, number one, you clarify your thinking and explain the origins of your ideas, which is, you know, why do I think this, what exactly do I think? Right. Get real clear on that. Number two, you challenge your assumptions.

How do I know this is true? What, uh, what if the opposite were true? Number three, you look for evidence. How can I back this up? Uh, what are the sources number four, consider alternative perspectives. What might, what might others think? Uh, and how do I know? I’m correct. Uh, number five, examining consequences and implications.

Uh, what if I’m wrong? What are the consequences? If I am in number six, [00:28:00] question the original questions. why do I think that? Why, why did I think that was I correct? What conclusions can I draw from the reasoning process? And, uh, this kind of ties in nicely to, um, stuff I’ve talked about on, you know, episodes in the past, I call it mental modeling or, or mental mapping, I should say where you, you basically think through an issue, a circumstance or something, and you really unpack why you thought something.

Why you felt a certain way, why you behaved a certain way? Um, it’s a really, really good process. And I think this, this ties in nicely to the, um, um, the monitoring, what was the word they used for the, um, circle of competence monitoring feedback, feedback, right? This would be a great, uh, exercise to use in the, in the feedback, um, uh, portion of that.

So. That’s that’s what I pulled out from it. I think anytime we can get some kind of really actionable type of stuff from a book like this, uh, sequence [00:29:00] of questions, especially, um, I find that really engaging because it gets your mind working right away. So first principle thinking it’s a big

[00:29:06] Anthony: one. There’s a, there’s a question in there in that framework that I think is super helpful in powerful.

Um, where you question, why do I believe this to be true? Like what’s the evidence that I have, and it reminds me of that quote from Hermo and he’s quoting somewhere else where. We question all of our beliefs except for the ones that we actually believe. Yeah. And yeah, and it’s like, okay, what if we were to take our deepest beliefs and actually question, why do I believe this?

What proof do I have? And then in this book, he talks about something else, which is, if you can’t disprove a thing it’s not, and this is based off of Carl popper, it’s a fantastic thinker. If you can’t disprove a thing, if it’s not falsifiable, it is not helpful. Mm-hmm , it’s not a helpful framework. It’s not scientifically based.

It’s. Thinking.

[00:29:51] Dan: Yeah. And there’s one other, uh, piece in this, in this section, which I thought was, um, very actionable because it’s so simple and it was called the five [00:30:00] whys. Why? Wow, exactly. Like every little kid does when they hit a certain age, they just ask why over and over and over again, probably drives a lot of parents nuts, but in reality, it’s a really great way to get to the true reason for something.

Um, cuz the author talks about, um, Nevermind. That was, that was something else from somebody else talking about the same concept, but it, it was like a, a coach or something. I was listening to, uh, who came from like the personal training world. And it would take several sequences of the question, why to figure out what was somebody’s actual reason for walking into the gym.

They say they wanna lose weight. Why cuz they wanna look better? Why? Because you know, by the fifth or sixth, why they get to the true reason for the action. So five wise. Oh, mistake away. Yeah,

[00:30:46] Anthony: we, we use this exercise at escape actually pretty frequently. And we had a really cool instance, uh, a number of years ago where it was really helpful.

Uh, we had the situation where one of the air conditioners, um, in our warehouse was [00:31:00] consistently. Not working in the, the, the, in the summertime in manufacturing environment. Uh, it gets really, really hot. And so we were going through the whys and it was like, okay, so why is the thermostat saying it’s 80 degrees and why is it not telling the air conditioner that we want it to be like 72 degrees?

And, you know, you’re like, oh, the battery’s dead. Okay. Uh, why is the battery. It’s because it keeps trying to send this message up to the thing and it’s not responding. Okay. So we go up to the roof and we look at the, the machine it’s like, okay, is why isn’t it working? And you go through all of these whys.

And eventually it got down to the fact that the, the, the air conditioning unit was working so hard. And burning through belts or some, some piece of the puzzle that was working way harder than it needed to because there was a dead squirrel in one of the ducks that was clogging it up. That’ll do it. And like, if you looked at it at any given point, you would’ve been like, oh, just this part broke, but why did that part break?

Why? And if you can’t answer that question, then you haven’t really solved the root issue [00:32:00] about that. All right. My fifth takeaway, uh, was probably one of my favorite. Mental models of all time. And, uh, our boy NACE led talks about this. He actually calls it via Neva. Um, this is inversion, the inversion principle, which is from, I wanna say Jacoby, this old mathematician who said invert.

Always invert. And it’s this idea that is this like top gun, like inverted that I’m inverting. Exactly. Always. Yep, exactly. Okay. And it’s no, it’s this idea that it’s, um, it’s I have it written here avoiding stupidity is easier than seeking brilliance. And so like, if you wanted to sit down, like a lot of people have the goal of living a healthy life, it could be kind of hard to know what it would take to live a healthy life.

If you are not yourself healthy already. Right. You, you can guess. Uh, but you don’t really, really. And so the inversion principle is to say, okay, well, if my goal is to be happy, how would I invert that? Well, um, inverting, how to be happy would be, how would I, how do I be [00:33:00] unhappy? How would I live a life of misery?

And then you start solving for that problem. Like if I wanted to live a miserable life, what would I have to do? And you start to answer things like, wow, I’d probably blow up my relationships. I’d be alone all the time. I’d probably eat too much food and not exercise. And so I’d, I’d hate my body. I’d be uncomfortable.

I wouldn’t have any energy. And then I would spend all my money and I would, uh, be dirt, poor living in the, in the, in the ditch. And, you know, you can quickly, you can quickly problem solve for the negative because the brain is really designed to think paranoid, pessimistic thoughts. And so you can solve for those.

And then you reinver it. And you’re like, okay, well I know what it takes to live a life of misery. What if I just

[00:33:40] Dan: don’t do those things or do the opposite, right? Yeah. Just instead of being addict to everybody, be nice to everybody. Yeah. And

[00:33:45] Anthony: suddenly you have the blueprints for how to live a good life. Now that’s a simplistic solution and you can apply to, uh, much more complex variables.

Like how do I build this business? Like, well, what would you do to not build the business? Well, I would sit at home and I would never talk to anybody and I wouldn’t try to [00:34:00] sell this product and I would never actually create the product and. Oh, okay. The path forward is actually pretty simple. Yeah. When you start to invert things or you look at them via

[00:34:09] Dan: negative, I felt I had a good feeling that you were gonna pull that one.

partially because you referenced it on something else. Very recently. Probably in the same slide.

[00:34:18] Anthony: Yeah. I, I love the concept. It’s

[00:34:20] Dan: so valuable. Yeah. I saw that when I was like, Anthony’s definitely pulled this

[00:34:23] Anthony: out. I mean, based on this, like I would say the three mental models I used to most frequently is inversion.

Um, first principle and second order. Those are, those are the things I think about most frequently. I like it.

[00:34:34] Dan: Um, yeah, I guess before I even knew what, you know, first principle thinking was by that name. Um, I’ve always tried to kind of do that, tried to simplify things, to understand them, not knowing that that was like, you know, a specific framework, so to speak.

But, um, my last one I pulled out because I, I figured this may be for those of you who aren’t really aware of what. Mental models were coming into this, [00:35:00] or maybe you were, but you didn’t know much about ’em. I figured that this one, this mental model might be something that you’ve at least heard of before.

So I thought I’d pull it all, break it down because I think it’s one, that’s pretty easy to wrap your head around, uh, throw into your toolbox and start to start to implement. And, um, that is AKA’s razor. Um, I wanna say that this is probably one of the better known ones. I, that was, I agree with that. Yeah, I would.

Cause I know, I knew what this was. Um, When I was like probably 10 or 12 mm-hmm um, so if I knew it at that age, then most other people probably heard it at least. So

[00:35:34] Anthony: have you heard of O’s reor? Yep. He knows. Yeah. You heard of the other ones. So, all right. Yep. We have confirmation S

[00:35:41] Dan: razors Reed said yes.

AUMs, RA kins razor, and no, to all the others. So, so yeah, this one, this is probably gonna be a little bit of repetition, uh, for you guys, but the simpler explanations are more likely to be true than more complicated ones. Um, humans tend to gravitate more towards complicated narratives [00:36:00] and the more variables that you have in any sort of, um, situation.

the more probability there is for error to be made. And so what I liked about this, um, this piece was that, uh, he actually used a little bit of math to, to. to bring some color to this because I’ve always heard. Okay. The most simplest, the simplest explanation is probably the accurate one. Okay. That sounds great.

Uh, but he broke it down with math, which I liked a lot. Um, the other said that if we have two explanations that we’re looking at, one requires three variables and the other requires 30 variables, which do we think is more likely. And so this could be simply like, um, we go out into our office here and there’s, uh, um, Uh, a pile of mail on the, on the counter.

Well, simple explanation is someone went, got the mail put on the counter. The more complicated one is some robber Baron broken. Our mailbox came in here to [00:37:00] steal all our podcast, studio equipment, left the mail for whatever reason did all these other things. Right. So wait,

[00:37:05] Anthony: wait a Robert

[00:37:07] Dan: Baron. So I dunno, Rockefeller or like Nike, like Brooke into my, I don’t know why I said Robert burn.

I was picturing the hamburger in my head when I said that. I don’t know if that helps. I know what you,

[00:37:16] Anthony: I totally know what you. I know that Baron just got thrown at the end of it, but that makes it

[00:37:20] Dan: beautiful. Yeah, I’m just, I’m shooting from the, so the hamburger anyways, let me get through this. all right.

So we’ve got two. Stay with me. You’ve got two explanations. One requires three variables. One requires 30 variables. Which one do you think is more likely UN dead

[00:37:36] Anthony: zombie robber barren coming, getting her mail dead zombie

[00:37:39] Dan: see even more variables. Oh man. All right. Now here’s the thing. Each of these variables has a 99% chance of being accurate, which means that the first, uh, explanation that we’re looking at that has three variables has a, um, 3% chance of.

Wrong, which is pretty good, but [00:38:00] our 30 variable scenario, which we’ve concocted in our crazy brain, I can do this. 30%, almost 26%, right? Nine times, nine times less likely to be accurate. Um, so this is the first time I’ve ever heard, uh, this concept quantified, which for me, I, I like numbers. So this made a lot of sense, but this is one that people can throw into their, their toolbox now because it’s so simple.

Um, a hundred

[00:38:26] Anthony: percent. Yeah, the, so the, I use this on a daily. because, um, when I’m dealing in the world and you will inevitably deal with people in the world who annoy you, if you’re on the road and somebody cuts you off, or somebody is annoying at the coffee shop and or the movie theater, they’re talking too loud, always assume ignorance, not malice.

Mm-hmm the reason for that is because ignorance is a far simpler solution that is stupidity. Like the person’s just stupid. Um, versus that person is. Because being a Dick actually is like, is a fairly [00:39:00] complicated solution. But if they’re ignorant, that’s pretty, that’s pretty simple. Answers are well too, because you can forgive stupidity.

[00:39:07] Dan: Yeah. And I think the, um, I think the author called out, uh, ignorance of mal in here as well. If I maybe that’s I remember maybe you did. Yeah. I thought you did. I’ll let I’ll.

[00:39:16] Anthony: I had to believe it. Yeah. Yeah. So that’s a book guys. That’s uh, the great mental models by Shane. Far Shane for Shane Parrish.

[00:39:25] Dan: My one great.

At this book, if I’m gonna be honest is, uh, he put these like cardboard dividers in here, which

[00:39:31] Anthony: yeah, it makes it hard for the book to look flat. I agree, but

[00:39:33] Dan: sophisticated investor notes do not have cardboard pieces in there. It’s just one page. One page. You don’t have that

[00:39:39] Anthony: problem. Will you solve this for you?

You’re welcome. There’s I think the only place you can really get this is on his website. You might be able to get on. Kind of expensive. I got on Amazon. Oh yeah. Okay. I’ll be honest. It’s kind of expensive. So those investor notes are gonna save you not only time, but also save you some SC Scrilla. So you’re welcome.

You know what book is expensive.

[00:39:56] Dan: S Scrilla by the way, what is that word? I, I,

[00:39:59] Anthony: what really? [00:40:00] say it again. I don’t wanna

[00:40:04] Dan: I regret, you know, what, whose book book is expensive, Felix, Dennis’s other book? Uh, the road thingy. The

[00:40:10] Anthony: narrow road. Yeah. Okay. Yeah. What the. I don’t know what it’s outta print. What do you want?

Is that why he’s a dead man? Oh yeah. You can’t keep printing off dead people stuff. I don’t know how

[00:40:20] Dan: this works. I mean, his other book is $12 when

[00:40:23] Anthony: somebody dies. You can’t print a book anyways. Okay. So that’s gonna do it for us guys. Uh, and gals. Hopefully you got some thing that you can take away from this and apply it to your life.

If you did. I would actually, I’d be really curious of these mental models. Which one is the, the most interesting, which one do you find that you used the most frequently? Uh, leave a comment, maybe leave a review if you’re on YouTube, hit that lake and the subscribe button and, uh, join the conversation. Let us know which one or which one did we not talk about?

Which you’re like, Hey, you guys, you dumb dumbs, you missed this one. This one’s so good. Uh, I I’m collecting mental models and I’m putting them into my little mental model doll house. And so I [00:41:00] have a couple spare bedrooms that still need some reside. . Hmm. So as a mental model, within a mental model, I was using the dollhouse model.

It’s it? I’m still workshopping. So that’s gonna do it. I’m not sure what to do with that. Uh, let’s just all kind of like

[00:41:14] Dan: walk away. Yeah. I’m gonna just get back out of the room. Yeah. Okay. So,

[00:41:18] Anthony: uh, take us outta here.

Share this post

LEAVE A REVIEW if you liked this episode!!

Where To Listen:

Be sure to subscribe via email notifications first in order to never miss new episodes, videos, or events.

You Can Also Find The Show On All Your Favorite Podcast Players


The secret investing strategies of the ultra-wealthy is at your fingertips

Are you ready to fast track your learning, reduce avoidable errors, and accelerate your progress towards your financial goals?

Are you ready to take control of your financial destiny?

Join Anthony Vicino and Dan Krueger every week on Multifamily Investing Made Simple to learn more!

This field is for validation purposes and should be left unchanged.