Mental Models

Latticework of Mental Models: Storytelling

This article is the third of this new weekly series called Latticework of Mental Models, which will be authored by my friend and partner in writing the Value Investing Almanack, Anshul Khare. Anshul will write on various mental models – big ideas from various disciplines – which can help you think more rationally while analyzing businesses and making your stock investment decisions.

What if I told you that the DCF (discounted cash flow) analysis and the principle of time value of money was first discovered in 600 B.C.? And the person who discovered it was neither an economist nor a mathematician. He was a storyteller called Aesop.

“You must be kidding,” you might say. Well, let’s find out.

In my personal experience, one of the most effective ways to make a conversation (written or verbal) interesting is to tell a story capturing your idea. In fact, I can safely claim that whenever I hear or read something that starts with “let me tell you a story,” it gets me hooked for at least few minutes. I am sure your experience won’t differ too much from mine.

Even most of the holy texts in different religions contain lot of stories. Questions is, why is it so?

Latticework of Mental Models: Occam’s Razor

This article is the second of this new weekly series called Latticework of Mental Models, which will be authored by my friend and partner in writing the Value Investing Almanack, Anshul Khare. Anshul will write on various mental models – big ideas from various disciplines – which can help you think more rationally while analyzing businesses and making your stock investment decisions.

Have you ever wondered why Mark Zuckerberg (founder of Facebook) always wears the same grey t-shirt? Do you remember Steve Jobs’ black turtleneck that he wore for all his stage appearances?

These billionaires could afford anything in the world. Then what’s going on here? I’ll give you a moment to think about it and come back to it later in this post.

Last week, we delved into the characteristics of complex systems and discussed few ideas to protect ourselves from unintended consequences produced by complex adaptive systems.

However, just because we have discovered a tool to address a problem doesn’t mean that we should go on using it for every problem. Charlie Munger nailed it when he said –

To a man with hammer everything looks like a nail.

We don’t want to be that ‘man with hammer’. So what am I suggesting here?

Perhaps you have heard it numerous times before but let me just make you read it once more – “An ounce of prevention is better than a pound of cure.”

How about dealing with a situation just by avoiding it?

Latticework of Mental Models: Complex Adaptive Systems

This article is the first of this new weekly series called ‘Latticework of Mental Models’, which will be authored by my friend and partner in writing the Value Investing Almanack, Anshul Khare. Anshul will write on various mental models – big ideas from various disciplines – which can help you think more rationally while analyzing businesses and making your stock investment decisions.

Let me share with you two very interesting case studies. The first one is set in the time of British India.

The British government was concerned about the number of venomous cobra snakes in Delhi. The government therefore offered a bounty for every dead cobra. Initially this was a successful strategy as large numbers of snakes were killed for the reward. Eventually, however, enterprising people began to breed cobras for the income. When the government became aware of this, the reward program was scrapped, causing the cobra breeders to set the now-worthless snakes free. As a result, the wild cobra population further increased. The apparent solution for the problem made the situation even worse. (Source – Wikipedia)

Now there is no way to validate the authenticity of above story but the second one is very recent and a true incident set again in the city of Delhi. It’s equally amusing.