Saturday Serendipity

Quote, Mental Model, Interesting find.

Hi.

Reading time: About minutes

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Quote

‘‘It is not the strongest or the most intelligent who will survive but those who can best manage change.’’ – Charles Darwin

Mental Model

Multiplicative systems: Multiplying by zero

This is an easy one. Multiplying anything by zero gives you a simple result. Zero. For instance if I say what is 1,543,698*98324*4035*0 the answer is zero even though there are so many big numbers there before.

Systems usually don’t understand the implication of one huge negative which can wipe out all the positives.

For instance:

There is a player in Cricket who has the following qualities:

1. Talent: He is extremely talented he is probably one of the best left handed batsman the country has produced.

2. Confidence: He had the confidence in his game to perform at the highest level.

3. Environment: He got into the Indian team with his friend, he lived in the city which is labelled as the ‘Mecca of Cricket’.

4. Support: He had the support of the country of crazy cricket fans as everyone saw his potential. He had the backing of his family and team.

With all these qualities surely this player goes on to be the greatest of all time.

Well reality is he didn’t even stay in the Indian team for long. He is forgotten by most people and the people who do remember him remember him as a disappointment.

What happened to him that he couldn’t succeed?

Well he had one other quality

A lack of commitment to the sport: This made him disregard fitness, drink alcohol and partake in a lot of activities which had nothing to do with cricket.

The player I am talking about is Vinod Kambli. He was one of the best batsmen the country has had. He was as good as Tendulkar if not better when they both started off. Sadly it did not work out for him and he had a very short career compared to what was expected,

The failure of Vinod Kambli is a lot of positives multiplies with a zero (negative aspect). All his qualities are useless because he did not give enough dedication to the sport and got swayed by the success and his personality.

This shows that a system is very fragile if the weakest link has the capability to destroy everything.

Let’s look at an additive system now. If I take the same numbers: 1,543,698+98,324+4,035+0 . The answer comes up to 1,646,057. Zero is useless.

In an additive system the result is not as bad.For instance if you are having dinner and there is dessert made but the fridge is spoilt you cannot have dessert.Now you will have dinner without dessert. It’s a bummer.

But of course you’re not going to starve. Dinner is an additive system.

Understanding the difference between the two is key. This because in Multiplicative systems the result is win/lose. There is no in between, like there is in Dinner.

In Life

I know coming from a college undergrad student who has no job this is not the place to read about career advise. But this is what I think. Life is a multiplicative system and so is your career. You can have the best resume in the world, the best grades, the most charisma, a good body, etc. but this all will be useless if you end up getting addicted to alcohol/drugs or you have a reputation of cheating people. At the end of the day these things matter a lot. Reputation matters the most. It’s very difficult to build one but very easy to destroy it.

Buffett said,

“It takes 20 years to build a reputation and five minutes to ruin it. If you think about that, you'll do things differently.”

I think this is the best career advise or life advise one can get. Think long term and think about the consequences of the actions you take today. This may or may not end up biting you in the ass later.

One zero can remove everything that you think matters. Remember that.

In Business/Investing

Fun fact even the businesses are multiplicative systems not additive systems. You cannot sacrifice on any of the important things. You cannot make the best product in the world without caring for what the consumer and expect the product to be a huge hit.

Farnam Street wrote in their blog,

“Financial systems are, of course, multiplicative. General Motors, founded in 1908 by William Durant and C.S. Mott, came to dominate the American car market to the tune of 50% market share through a series of brilliant innovations and management practices and was for many years the dominant and most admirable corporation in America. Even today, after more than a century of competition, no American carmaker produces more automobiles than General Motors.

And yet, the original shareholders of GM ended up with a zero in 2008 as the company went into bankruptcy due to years of financial mismanagement. It didn’t matter that they had several generations of leadership: All of that becomes naught in a multiplicative system.”

As an investor you have to think about what are the things that act as ‘zero’ and take away every single positive of the company and destroy the business. There are many such as debt, lack of change, lack of care for customer, short term sight, etc.

If you want to find out more about this mental model read farnam street’s blog.

Interesting find

A guide to navigating quarterly noise-flow

That’s it! Enjoy your weekend.

Thank you,

Samvit