Seeki g Wi d

W a

Genes and ana om

Life e periences
Make ph sical changes o o r brain
En ironmen al si a ion
Randomness

Our life is what our thought make it, Marc s A reli s

Is no ha happen o s, is ha e hink happen o s

Beliefs ha e ph sical conseq ences, good and bad

Comple emerging s s em made of man non iden ical componen s, non e cl si e rela ionships, and se eral
a s of prod cing he same res l s

E a a a

E ol ion
M a ions -cop ing errors-; hen na
ral selec ion of m a ions
The m a ion is an ad an age for he c rren en ironmen ?
Process of elimina ion
E ol ion has no goal, i doesn care ho s r i es and ho ge s killed
E ol ion made an beha ior ha help s s r i e pleas ring and re arding, and he opposi e.
O r a ersion o pain makes s look a hings as more re arding han he are
O r brain is no a logic s s em like a comp er
Comp er: if- hen based on logic machine and da a base
We seek pa erns recogni ions from he pas
We as me ha ha orked in he pas ill ork in he f re
Elimina e possibili ies b gro ping and pa erns
H mans ha e spend 99% of heir ime on ear h as h n ers

A a a a a

Indi id als are self in eres ed

Pro ec s and famil
Famil g aran ee genes o s r i e
We share same genes
Al r is ic are a disad an age
Na ral e ol ion fa ors self in eres
 Na ral e ol ion fa ors self in eres
Some al r is ic beha ior is in fac self in eres ed
Social recogni ion
Fear of disappro al
Shame
A oid g il

Our fears are alwa s more numerous than our dangers, Seneca

Fear is o r mos basic emo ion

Being fle ible and learning a arie of op ions o choose from is a grea al e
O r brain is ired o percei e before hinking, o se emo ions before reason
Reprod c ion is he cen ral ac in life
Once he indi id al passes he fer ile ime is seless o e ol ion
Pro iding reso rces increase s r i al ra e
More reso rces, higher s a s in socie
Rejec ion h r s as m ch as ph sical pain
Man na res are alike; is heir habi s ha he se hem apar , Confucius

We en o r s people e like
Based on firs impressions!

IQ and alen s are horsepo er, ho e er o p is based on ra ionali

Do no le irra ionali and people opinions ge in o a

H mans are so hard o each, b er eas o decei e

28 biases
A a a a a a
Crea e nega i e emo ion if o o change a beha ior
Pas e periences are of en con e dependen

U a a a
Yo ge ha o re ard for!
The chains of habi s are oo eak o be fel n il he are oo s rong o be broken
Praise is more effec i e o change beha ior han p nishmen
Freq en re ard ork be er
Immedia e loses are preferred
We do no impro e he man e hang! We impro e o hers b him.
Make people share he pside and he do nside
Roman arc b ilder m s s and nder i
Make clear link be een performance, re ard and ha o an o accomplish
 p , p
Make ndesirable beha ior e pensi e and cos l

U a a a
People ac in self in eres
Wha are e in eres s? Who benefi s?
The are no onl financial
Ask q es ions o ill mina e conseq ences ra her han elling ha o do
Recogni e self in eres beha ior in o hers
Projec ions sho ld be handled i h grea care, speciall if he are pro ided b someone ho has
self in eres in hem
Projec ions are ill sions of apparen precision
The more me ic lo s he more concern o sho ld be
A oid si a ions here o need o change people
Is er er er er hard

O a a a a
Op imism is good, realism is be er
Tr e ise person is color blind and i ho passiona ed
Tr no o be s pid ra her han s per in elligen
B ild margin of safe in decisions
There is no hing like s ccess o blind one of risk of fail re
The more e hink e kno abo a s bjec , he less e are able o sol e i sing o her ideas
Do no define problems in he a i fi s o r ools!!!!

D a a .I
We dis or reali speciall hen i goes agains o r self in eres
The firs principle is no o fool o rself, and o are he easies person o be fooled! Fe man

C a a a , a a a .
I a a
B ffe does no ha e a s ra egic plan: Is no be er o simpl do ha makes sense ra her han
s icking o a plan ha is no orking?
The ask of man is no o see ha lies diml in he dis ance b ra her clearl a hand
Gi e a label o a person and he ill beha e in order o alida e ha label!
Firs ask for small commi men , hen o a larger one. The ill compl in order o be consis en .
There is no hing rong in changing a plan hen si a ions change

D a .W a a a
Wha o pa for some hing has no rele ance o i s al e

Sa , a a a a
Predic ing rain does no co n . B ilding arks does.
 Do no hing is also a decision
Once o kno ha o do, j s do i .
The mos al able res l of all ed ca ion is he abili o make o rself do he hings o ha e o do
hen i o gh o be done he her o like i or no .

I a , a a
Pleas re sho ld be a oided if he end p in larger pains; and pains aken if he end p in larger
pleas res

E a a
Comparing o similar persons o s is ha h r s he mos
Do no compare, j s do ha o need o do

C a a , a a a a
The order in hich hings are presen ed ma ers.
B adding an inferior op ion, ano her one seems more a rac i e
Small incremen al hings is ha harm s he mos
E al a e hings b hemsel es and no b con ras

A
Consider choices from a ero base le el
Remember ha o an o achie e in he end
Adj s informa ion o reali

O a
S a is ics rarel sparks o r emo ions
Back p i id s ories i h fac s and n mbers
Ask: is i rele an ? Is permanen or emporar ?

O a a
We see and j dge ha is presen ed, no ha is missed
Missing informa ion does no dra o r a en ion
Consider al a s missing informa ion

R , a a a
People do no an o feel indeb ed

L , ,a a a a a
Do no a oma icall mis ake peoples appearance for reali
Lo e o r enemies for he ell o o r fa l s

O a ,
 When people are free o do ha he an he s all imi a e each o her
Blindl follo ing he lead of o her can ha e dangero s conseq ences
Madness is a rare hing in indi id als, b in gro ps is he r le
Discard ha o her are doing. Think for o rself!
Does i make sense?

O a ,
An one can call himself a e per
E al a e nderl ing r h, no he person

S a , a a a a a
Look for al erna i e e plana ions

R a , a a a
We nderes ima e he impor ance of gi ing people a reason

B , a
We are no make o do b
Do b ! Think i hro gh!

M a , a a
Keep records of impor an e en s

D - a a
Do no conf se ac i i ies i h res l s
There is no se in r nning if o are on he rong road

Sa , a a
Wise men alk beca se he ha e some hing o sa ; fools beca se he ha e o sa some hing
I ha e of en regre m speech, ne er m silence

E a a a
Emo ions al a s come before reason
Hold off impor an decisions if o ha e been in he hea of passions and emo ions
Cool off periods are impor an

M a
The more s ress, he more shor erm decisions

M a a

Ba a a
T o or more biases orking o ghe er
 T o or more biases orking o ghe er
Yo rarel see people aking ac ions before he are hrea ened

A dollar is a dollar, i is origin agnos ic

We li e p o ha is e pec ed from s
We of en do no see ha e do no e pec o see

P a Ma a M

S
Falling o consider ha ac ions ha e bo h in ended and nin ended conseq ences
B sol ing a problem e genera e o her
Secondar and higher order conseq ences
Falling o consider he hole s s em
The reac ion of o hers
Incl de heir misj dgmen s in o r anal sis
All par s orking oge her
O eres ima ing he al e of inning a bid
Pa ing oo m ch
Consider sellers mo i a ion?
Wh are he selling?
Using nkno n fac ors o make decisions
Good hinking is be er han good in en ions
Ask:
Wha fac ors ca se he o come?
Ho do he in erac ?
If someone co ld forecas he s ock marke , h o ld he sell ad ice for $100?
To convert a model into a quantitative formula is to destro its value, Ke nes

S a a
Falling o consider changes in si e
Breakpoin s, hreshold, limi s
Do no see con rains
Doble one fac or does no mean doble he o her: no linear
Small changes compo nd o er ime make a h ge difference: i.e. e ol ion
Si e and freq enc = 80/20 r le
I 's no necessar o do e raordinar hings o ge e raordinar res l s
Iden if ha reall ma er. Poin s of le erage!
Find cons rains firs ! Then sol e hem!

Ca
No nders anding ha ca ses res l s
 Belie ing ca se resembles effec s
Big ca se, big effec is rong!
Underes ima ing randomness
Mis aken ca se for effec
Man effec s ma be ca sed b one common ca se, and ice ersa
Mis aken correla ion for ca se
Dra ing concl sion from selec i e da a
S ar b defining ha fac ors de ermine res l s
Then ho he are connec ed
When e plaining beha ior, hink in erms of m l iple ca ses
B siness performance is rela i e, no absol e
Compare o ha ?

N a a
Looking onl a isola e n mbers, falling o consider rela ionships and magni des. Error!
Underes ima ing he effec of e ponen ial gro h
Underes ima ing he ime al e of mone

P a a
Underes ima ing he n mber of possible o comes
O eres ima ing he chance of idel p blici ed e en s and nderes ima ing he chance of common
e en s
Falling o consider bo h probabili ies and conseq ences (e pec ed al e)
Belie ing one can con rol o comes of e en s here chance is in ol ed
J dging financial decisions b e al a ing gains and losses ins ead of final s a e of eal h and personal
al e
Falling o consider he conseq ences of being rong
Mos people hink drama icall , no q an i a i el !
Chance has no memor
E en s ha are independen ( ossing a coin) ha e no probabilis ic memor
Al a s e al a e cos of conseq ence
E pec ed al e $9 and -$90 cos of conseq ence
E cep ed al e $9 and -$10 cos of conseq ence
Yo sho ld ne er e er risk some hing o ha e and need for some hing o do no ha e and do no
need

S a
O eres ima ing he probabili of scenarios here e er s ep m s be righ o ha e s ccess
Underes ima ing he scenario of s s em fail re
Time hori on changes probabil ii es
No adding a fac or of safe for kno n and nkno n risks
The more par s in a s s em, he more probabili of fail re.
 Al a s ass me ha acciden s ill happen and prepare for hem
Add al a s fac or of safe
Consider breakpoin s
B ild con ingenc plans
Simplif and s andardi e eq ipmen s and process
Use checklis s! Use checklis s!

C a a
Underes ima ing ha s rprises and improbable e en s happen
Looking for meaning in random e en s
Falling o consider cases of absence of ca se or effec
When n mbers are big eno gh, improbable hings happen
H mans are pa ern seeking animals
We need o crea e a coheren s or !
Look and lis ho fac ors migh be correla ed!

R a a a
O er eigh indi id al case e idence and nder eigh he prior probabili
False posi i e
False nega i e

M a
Pas e idence is no g aran ee of f re performance
The man ho feed he chicken e er da is he man ho ill break his neck and ea him
O eres ima ing e idence from one single case
Underes ima ing chance in performance
Onl seeing posi i e o comes
Onl pa a en ion o he inners
Where are he losers?
E idence m s be dra n from inners and losers o er ime
Falling o consider regression, coming back o he mean
In an series of e en s ha chance pla s a par , er good and bad performances end o come o
he mean.
Yo ma ha e a grea s rike, b he ne one ill no be as good.
When condi ions change, change fas o r ass mp ions o be er reflec he presen en ironmen !
Be er be ro ghl righ han precisel rong!
Do a pos mor em
Wha as he original reason for doing his?
Which ere he ass mp ions?
Which ere he al erna i es?
Ho did i reall res l ?
Wha orked?
 Wha did no ?
Gi en he informa ion a ailable in he firs momen , co ld I ha e made a be er choice?
Wha m s I do differen in he f re?
We end o forge o r errors and mis akes
Wri e reasons do n and af er some ime re ie hem!
Do a pre mor em
Imagine a fail re! Wha did rong?

Ra ional hinking for:

Achie e goals
Learn h happen
Pre en and red ce mis akes
Sol e problems
E al a e s a emen s

M a
The mos impor an hing o do is o impro e o r hole men al process!
To do so, mas er he m l iple models hich nderl reali !
A model is an idea ha helps s be er nders and ho he orld orks.
Ho and h ?
The help s a oid problems
Eas o se. Ne er e er complica ed!
Problems are mess and need o be s dies from differen angles sing differen models
Use models dail so o can incorpora e hem
Ask h for hings ha happen e er da
There are no foolish q es ions and a no man becomes fool n il i s ops asking q es ions

M a
Bad erminolog is he enem of good reasoning
Wha do ords mean?
E press o rself i ho sing comple ords and jargon
Wha do I an o sa ?
Do no se EBITDA, se real hard solid cash flo for e al a ing in es men s!
Do no se a precise n mber, se range of possibili ies
Yo can des ro al e if he in es men needs large amo n s of cash in he beginning and can no gi e i
back in he ne ears
The ne er ending need for cash o gro a compan !
S ick o in es men s ha :
Yo nders and he nderl ing fac ors and economics
 Simple, no comple
S able, no prone o cons an change or disr p ion
Can predic someho cashflo s
Insis on margin of safe , al a s! Le i be o r corners one
Take all ariables and calc la e hem conser a i el
Appl margin of safe
Si on o r cash n il o see he oppor ni
Do no pin poin n mbers, o are kidding o rself!
Think if he compan or projec ill be able o main ain prices hen compe i ors ge s hard. If so, i has a
moa , is differen !
Price change can each o if f ndamen al economics are solid or no
When hiring look for
In elligence
Energ
Charac er
A good managerial record is far more a f nc ion of he boa o ge in (ind s r ) han ho hard and smar o
ro . Choose isel he boa ! Yo do no an o be pa ching leaks!

S a
Clear ho gh minded people are simple!
Bes if o :
T rn problems easier
Elimina e non essen ials
Break do n he problem a i s componen s b look a i holis icall
Be problem orien ed, no me hod orien ed
Use ha e er orks!
Make fe er decisions, b be er ones!
Is harder o make a lo of good decisions.
Be smar a co ple of imes, no all ime.
The ar of being ise is he ar of ha o o erlook
Ge rid of nonsense fas !
The harder o ork, he more confiden o ge
Be are! Yo migh be orking in some hing ha is no correc
People calc la e oo m ch and hink oo li le
B ffe lo es foc sed managemen !
A oid managers or b siness ho are nfoc sed d e o boredom or h bris
One of he mos impor an skills is o form la e he problem in he righ a !
Which is he ke q es ion here?
Ha e pa ien :
Ma be is no ha o are no smar eno gh, ma be o did no s ick o he problem eno gh
Resis he emp a ion of al a s doing some hing.
Search al a s for oppor ni ies
 B , ai for he righ oppor ni !

R a
Wha o do r les
Wha o a oid r les
Walk a a from hings I do no nders and and from people I do no r s
Mis r s shor erm million deals
Dedica ion and pa ien ar e he s res mean of plen
Wha are he mos cri ical fac ors ha ill ca se ha I an o achie e or a oid?
Rank hem
Use hem as fil er
Ne b siness idea B ffe fil er:
Can I nders and i ? Wha is he prod c ? Wha does for people? Ho ill i be doing mone in 10
ears? Then,
Does i look o ha e some kind of compe i i e ad an age? Then,
Is he managemen able and hones people? Then,
Is he price/re rn righ ? Wri e a check!
Elimina e op ions and s ick o he bes ones
Science orks b elimina ing

G a
When a man does no kno ha harbor he is heading for, no ind is he righ ind
Do no kno ha o an ?
Make a lis of ha o a oid!
Goals sho ld be:
Concre e, p sh for concre e
Foc sed on res l s
Realis ic and logical
Ne er ork for seless or impossible goals
Mes rable
Tailored o indi id al needs
S bjec o change
Ask: gi en o r c rren kno ledge, hich is he bes co rse of ac ion?
Checklis
Wha end res l do I an ?
Wha ca ses ha ?
Wha fac ors ha e major impac on he o come?
Wha is he single mos impor an fac or?
Do I ha e he ariables needed?
Wha is he bes a o achie e i ?
Wha o her effec ill m ac ions ha e?
Wha sho ld e do firs ?
A a
O r ime and mone are limi ed
Choices ha e cos s!
Cos of oppor ni
Make a lis of reasons for and agains and assign hem eigh s

C
And hen ha ?
Yo sho ld:
Pa a en ion o he hole s s em
Conseq ences ha e implica ions, an ed and n an ed
Consider feedback, ime and scale, repe i ion, cri ical hresholds and limi s
Es ima e ne effec s o er ime and ho desirable hese are

Q a a
Be ro ghl righ han precise rong
There are fac ors ha o can no meas re i h n mbers
Be are! Those are impor an fac ors!!
Do no r s managers ha claim o kno ho m ch mone he b siness ill make ne q ar er

E
E idence comes from:
Fac s
Obser a ions
E periences
Comparisons
E perimen s

S ri e for objec i i
Scien is r o describe he orld as i is, no as he an ed i o be
Ins ead of pro e a s a emen r e, i is be er o pro e i false.
No n mber of e perimen s can pro e me righ , one can pro e me rong
Take o r ass mp ions and r o dispro e hem

T a a
S ar i h end in mind, ork back ards
A lo of s ccess in life and b siness comes from kno ing ha o reall an o a oid!
Wha ac ions can e ake o des ro he mos amo n of al e in he shor es ime?
Wha do no an o achie e?
Wha o a oid?
Ca se?
An ido e?
 An ido e?
S ar i h ero based hinking!
If ere no doing his oda , ha o ld e be doing?

R
The bes a o minimi e risk is o hink!
J dgmen
Discipline
No h perac i i
Independen hinking, emo ional s abili and keen nders anding of bo h h man and ins i ional beha ior
Ask al a s: ha are he conseq ences if e are rong?

A
Yo ha e o s ick o o r circle of compe ence
Does no ma er if i is large
Wha ma ers is ha o kno he perime er ell
Do no r o s cceed on ha o are bad a
Hones is he firs chap er of he book of isdom
Blessed is he ha e pec s no hing, for he shall ne er be disappoin ed
Li e in he presen
Si do n in fron of fac s like a child i ho preconcei ed ideas
In erse, al a s in erse

F 1 - Ca I a - a ?

Reasons for demand

Ho cer ain am I ha (and can e plain h ) people are likel o con in e b his pe of prod c or
ser ice in he f re?
Wha has happened in he pas and ha is likel o happen in he f re?
C clicall in demand?
Capaci ers s demand?
Return characteristics
Ind s r and compan re rn charac eris ics and change o er he las en ears?
Industr structure
No of compe i ors and si e?
Who dic a e he erms in his ind s r ?
Wha is needed o make mone in his ind s r ?
Posi ion i hin he ind s r ?
 Posi ion i hin he ind s r ?
Do I kno ho is going o make he mone in his marke and h ?
RealCustomer
Who decides ha ob and ha are his decision cri eria?

F 2- D a a a a a a ?
Competitive Advantage
Ho cer ain am I ha (and can e plain h ) he are likel ob he prod c or ser ice from he
compan ra her han from someone else?
Are he reasons ir all nchanged from ha he ere en ears ago?
Are hese mo i a ions likel o be nchanged o er he ne en ears?
Value
Ho s rong and s s ainable is his ad an age?
Ha e he ad an ages be come s ronger and more d rable o er he ears?
Wha can des ro or red ce hem?
Barriers o en r ?
Brand lo al ?
V lnerable o change in demand or prices?
Eas o cop ? Shor prod c life c cle?
C s omer cos and incen i e o s i ch s pplier?
Ann al cos differen ial agains compe i ion?
Capi al in es men s needed?
Bargaining po er?
Obsolescence risk?
Ne c s omer al erna i es?
Change in b ing habi s or po er?
Compe i or po en ial o nderc prices ass ming same cos s r c re?
Wha is needed o make s re he ad an ages s a s s ainable?
Gro h oppor ni ies lef ?
Is he demand for he prod c likel o gro ?
Un apped ni ol me demand?
Pricing po er?

Profitabilit
Can he ad an age be ransla ed in o profi abili and h ?
Ho does hecompan make mone ?
Ho m ch capi al is needed o prod ce incremen al re en es?
Financial charac eris ics - re rn on capi al (opera ing margins and capi al rno er), grossmargins, sales
gro h, cos - and capi al s r c re and efficienc ?
Normali ed free cash flo ?
Ad an ages of scale?
Cri ical ariable?
F 3-A a a a ?
Is he managemen composed of compe en and hones people ha nders ands and foc ses on crea ion of
al e?

F 4-I ?
Can I b a a price ha pro ides a good re rn i h a h ge margin of safe meas red agains o her
a ailable al erna i es and i h e idence from fac s and fig res?

F 5-D

Ho can he b siness ge killed?

If he compan co ld kill one of i s compe i ors, ho o ld i be and h ?
If he compan o ld go a a for 5 ears hich compe i or o ld he be on and h ?
Ho resis an is he b siness o ad ersi ?
Ass me he compan paid o all i s eq i capi al, o ld i s ill ha e an al e?
Co ld someone i h he access o billions of dollars and alen , s ccessf ll compe e i h he compan ?
Ho m ch damage co ld a compe i or do if he doesn' care abo re rns?
Recession sensi i i ?
E ec ion risk?
Will ne echnolog help or h r ?

F 6-W a a I' ?