The Rational Reminder Podcast – Mental Models, Knowing Your Variables, and Achieving Positive Outcomes with Shane Parrish

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Key Takeaways
  • The highlight reel of social media, makes us feel as if we have to “catch up” with others, and that they’re getting ahead of us
    • This makes us focus overly on the potential rewards of what we’re doing, instead of the risks or possible downfalls
  • “We live in a world of mostly uncertainty, but we’re taught to think in terms of risk” 
    • Risk is like roulette – You know the outcomes, and the odds of each individual outcome, but you don’t know which outcome will occur
    • Uncertainty – You don’t know all all the possible outcomes, therefore you can’t know the odds of any single outcome
    • Be careful – often when you think you’re aware of all possible outcomes (risk), you’re really operating in a situation of uncertainty
    • So some advice – move away from uncertainty, and towards risk
      • With investing, what might this look like?
        • Focus on industries that aren’t prone to technological disruption
  • “The key to happiness is letting go of expectations, letting go of the feeling that people are going to reciprocate, letting go of the idea that the world is fair, and just going at each moment as if that moment is the most important moment in your life. Life is so fragile, we never know when it’s going to end.”
  • One of the biggest things that derails happiness as a parent? – The tendency to always be waiting for the next phase of your kid’s life
  • When you pick up a book, you might not be ready for the message it’s going to contain
    • Put it down, and come back to it in the future
Intro
What are mental models?
  • They are a representation in your mind of how something works
  • We think in models
    • This is the way we determine what’s important, how we predict the future etc.
  • “The better the models that you have in your brain, the better able you are to see reality”
  • Check out this excellent blog post by Shane which goes further into mental models
Investing
  • “You want to have a general knowledge of how the world works, and you want to have that be reliable, and by reliable, we mean time tested”
  • Mental models are important for overcoming biases
    • Which biases are most harmful to investors?
      • Overconfidence
      • The bias for action
        • People tend to overvalue information, leading them to take unnecessary risks in investing
        • “A little knowledge is a dangerous thing” – Alexander Pope
        • We often convince ourselves that we’re smarter than we actually are
Decision Journals
  • Shane has written about them
  • They are very good at helping to keep your ego in check
    • With a decision journal, you’re outlining not only an outcome, but why you think that outcome will occur
    • Many people get outcomes that they thought they were going to get, but they happen for different reasons than they thought, and that can be very humbling 
  • “If you don’t understand the thinking behind your decisions, you won’t be able to make good decisions as effectively moving forward”
    • Answers to questions don’t necessarily help you for the future:
    • An example:
      • If you’re trying to find a doctor, you wouldn’t go to someone and ask “Who would you recommend?”- this doesn’t help you in the future
      • Instead ask – “What would you consider if you were looking for a doctor? What variables would matter to you?”
        • Repeat this with multiple people – you can start to learn what does/doesn’t matter – it helps you make not only this one decision, but future decisions
The Ability to Look Stupid
  • “The ability to looks stupid is an absolutely underrated aspect, to not only to investing, but life”
    • “If you show me a man who’s not willing to look stupid, I can show you a man that I can beat every time” – Lou Brock
  • “If we’re not willing to look stupid, we’re doomed to average results”
  • In addition – If we’re not willing to do something different – we’ll just be part of the herd
  • But……
    • Charlie Munger has famously said  “It is remarkable how much long term advantage people like us have gotten by trying to be consistently not stupid, instead of trying to be very intelligent” 
      • Note from Podcast Notes – We realize this directly contradicts the above, but this is how it was discussed
    • How can we implement the idea of trying not to be brilliant, but instead just trying not to be stupid?
      • If you avoid negative outcomes, you’re going to have a positive outcome
Comparison
  • Humans are very apt to compare themselves to people who are doing better than them
  • The comparison network has changed over time…
    • Things used to be different – 100 years ago, you might only compare yourself to people living on your street
    • But in this age of social media – we can compare ourselves to everyone, every hour, of every day
      • The highlight reel of social media, makes us feel as if we have to “catch up” with others, and that they’re getting ahead of us
        • This makes us focus overly on the potential rewards of what we’re doing, instead of the risks or possible downfalls
        • “We don’t think about the ways that things could go wrong, we just think about the way they could go right”
        • If we try and we lose – we convince ourselves that other people are lucky (this lets our ego off the hook), rather than realizing that what we did was a stupid decision
        • Think about this in terms of wealth
          • People essentially want to get rich quick, in order to “catch up” to who we’re comparing ourselves to – this is a problem
          • This causes us to negate the possibility of avoiding errors
The Difference Between Uncertainty and Risk
  • With certainty – you know what’s going to happen
  • Risk is like roulette
    • You know the outcomes, and the odds of each individual outcome, but you don’t know which outcome will occur
  • Uncertainty – you don’t know all all the possible outcomes, therefore you can’t know the odds of any single outcome
  • “We live in a world of mostly uncertainty, but we’re taught to think in terms of risk”
    • This leads to a false confidence – we think only the things we can anticipate/see, are the things that can happen
  • So some advice – move away from uncertainty, and towards risk
    • With investing, what might this look like?
      • Focus on industries that aren’t prone to technological disruption
Gray Thinking
  • We live in a world, where we tend to assign things as being one of two things – black or white
    • “Either or” thinking, is poor thinking – It’s very rare that something is literally always one thing or another
  • A good question to ask yourself when examining a situation – “Under what circumstances would I change my mind on this?”
  • “Black or white thinking is basically saying you’re 100% certain in your opinion”
    • But this shouldn’t always be the case
    • A good tip – Verbally (or mentally) ascribe the degree to which you think you’re probably right (assign a percentage)
      • This opens you up mentally to being able to change your mind – this is a move towards gray thinking
How does Shane define happiness?
  • “The absence of desire”
  • “Being able to do what I want to do”
    • Every year Shane simply tries to do more of what he wants to do, and less of what he doesn’t want to do, and arranges his life around this
  • “The key to happiness is letting go of expectations, letting go of the feeling that people are going to reciprocate, letting go of the idea that the world is fair, and just going at each moment as if that moment is the most important moment in your life. Life is so fragile, we never know when it’s going to end.”
    • “When I’m with my kids, I’m 100% with my kids.”
  • What derails happiness as a parent?
    • The tendency to always be waiting for the next phase of your kid’s life
      • They’re born, and it’s “I can’t wait until they sleep through the night”, then they sleep through the night and it’s “I can’t wait until they’re out of diapers”, then they’re out of diapers and its “I can’t wait until they go to school”
What has Shane learned about parenting?
  • Shane’s kids are 8 and 9
  • “My kids point out how much I don’t know, on a regular basis”
    • Kids tend to ask “Why?” many times in a row – the deeper this gets, the more Shane realizes he doesn’t know about certain things
  • But the biggest lesson – connection
    • Just taking the time to be with them, and be present, and enjoy their company…is amazing
    • “Physical connection is important for kids” – Cuddle your kids
    • Parents too often get busy, and forget about connecting
      • This not only occurs with parenting, but with other relationships in our lives
  • Your kids internalize your feelings, your emotions, and how you think about money – no matter how much you try to hide it
  • When it comes to buying things for his kids, Shane doesn’t like saying “no” to his them
    • Instead, he prefers to say something along the lines of – “Hmm that costs $X, how do you think you could make that money?” – and he’ll help them to whatever it is to make it (sell brownies, make lemonade etc.)
  • Shane has his kids save half the money they receive from gifts etc.
    • The money saved, goes partly in the bank, and some gets invested in companies
      • Shane invests in companies for them that they all can talk about – Something like Kraft Hines (because his kids understand ketchup)
        • “Ketchup becomes the means through which I teach them about money”
  • The ultimate lesson to teach your kids – happiness is the absence of desire
    • “Whatever circumstance you’re in in life, doesn’t have to be better”
What books has Shane changes his mind on?
  • Meditations by Marcus Aurleius
    • He read this in university, and didn’t like it at all – it’s a much different story now
  • When you pick up a book, you might not be ready for the message it’s going to contain
    • Put it down, and come back to it in the future
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