What are the most useful business wisdom? ( 1)

(Speech by Charles Munger at Marshall School of Business, University of Southern California 1994)

1. What is basic and universal wisdom?

Rule number one, you must have a thinking model.

1. 1, people must hang their own experience in a framework composed of many thinking models. If we only use one or two modes of thinking, from the perspective of human psychology, we will certainly distort reality until it conforms to these two modes of thinking, or at least we think it conforms to the mode. As the saying goes, every problem is a nail to the person with a hammer.

1.2. These thinking patterns must come from different disciplines and span different knowledge.

1.3, you need to master eighty or ninety models, which can almost make people have universal wisdom. Of the eighty or ninety models, only a few are very important.

1.4. Among these very important models, mathematics is the first. Must be able to handle numbers and quantities, including compound interest principle, permutation and combination principle, quantitative analysis method principle (decision tree).

1.5, the human brain nervous system evolved through long-term gene and culture, which is very rough and convenient. It contains the elements of the above mathematical model, but it is not easy to use and is a rough estimate. And people can't do it naturally and automatically.

1.6, so it is necessary to learn mathematics, and make these basic but not so active basic mathematics and probability methods a solid study and become a part of life.

1.7, followed by accounting. Accounting is the language of business activities and should be mastered. The second-round exam bookkeeping method is very good, but we should have enough understanding and grasp its limitations. Although accounting is the starting point of business activities, it is only a rough estimate.

1.8, (Hint: When telling people to do something, always tell them the reason, so that they can understand what they want to do more deeply, listen to the arrangement and try their best to complete the task. If it is a communication between people, we should also make it clear why.

Second, which thinking modes are the most reliable?

2. 1. First of all, those thinking patterns from hard science and engineering are the most reliable thinking patterns on earth. Such as engineering quality control theory, backup system and breaking point theory. The concept of critical mass in physics.

You don't need to be proficient in statistics, as long as you can roughly understand the meaning of that bell curve.

2.2, followed by biology and physiology, after all, everyone is the same in gene and structure.

2.3, the third is psychology. It's complicated, but it's too important to have any universal wisdom.

The reason is that people's sensory organs are sometimes short-circuited, and those who know how to use these shortcomings to make their brains work incorrectly can let you see things that don't exist at all. This involves cognitive function, which is actually more misleading than perceptual function, deceiving the audience like a magician. On the other hand, this knowledge can be used to manipulate and motivate others.

The most useful and practical part of psychology is misjudgment psychology, which includes 20 small principles, some of which are complicated, but their importance is unbelievable.

Pascal said: "The human mind is both the glory of the universe and the shame of the universe". It means that the human brain is very powerful, but it often makes mistakes and makes all kinds of wrong judgments, which is easy to be manipulated by others.

Third, the thinking mode of microeconomics.

Two-track analysis: First of all, rationally speaking, which factors really control the interests involved? Secondly, when the brain is in a subconscious state, what subconscious factors will automatically form? These subconscious factors are generally useful, but they often fail.

3. 1. Like ecosystems, people with narrow professions can do particularly well in some narrow areas, and animals can breed in suitable places. Similarly, those who focus on a certain field in business and become very good because of their focus often get good economic returns that cannot be obtained by other means.

3.2. Scale advantage plays a vital role in the success or failure of an enterprise. A huge scale advantage is that costs will fall along the so-called empirical curve.

This can be illustrated by simple geometry. If you plan to build an oil tank, with the increase of oil tanks, the steel required for the surface of the oil tank will increase at a square rate, while the capacity of the oil tank will increase at a cubic rate. In other words, when you enlarge the fuel tank, you can get more volume with less steel.

For example, when TV commercials first appeared, it was a very powerful and incredible thing. If it is an enterprise with scale advantage, it will have enough financial resources to use this new advertising method, while those enterprises with weak resources will not be able to afford it and cannot use TV advertisements. Therefore, as soon as TV advertisements appear, those well-known brand companies that are already very large will get a great impetus.

3.4, there is a scale advantage from psychology, we will subconsciously, and to some extent consciously influenced by others' recognition. If everyone is shopping, we will feel good.

This can also be called information advantage.

3.5. Of course, if the scale is reduced and the degree of specialization is strengthened, it will bring you great advantages. Big is not necessarily good, the smaller the focus, the better.

3.6. At the same time, large-scale also has defects. It is also human nature that bureaucracy will appear, leading to perfunctory situations. For example, in a bureaucracy, when the work is transferred from you to someone else, you will think that the work has been completed.

The disadvantage of large-scale has always been that it will lead to a huge and clumsy bureaucracy, multiple management levels and unnecessary related costs, and its incentive mechanism is really poor. Of course, the biggest ones are government departments at all levels.

3.7. Another psychological principle, Pavlov Association: If someone says something you really don't want to hear and makes you unhappy, you will naturally have resistance. You must train yourself to get rid of this reaction. Not that you will, but if you don't pay attention, you will probably. Right things, not people.

3.8, is an endless struggle between two forces, one is scale advantage, the other is overstaffed.

The great significance of microeconomics is that people can tell when technology will help you and when it will destroy you. Most people don't understand this. How much benefit will flow to producers and how much will flow to consumers?

For example, some people say that a new textile machine has been invented, which is twice as efficient as the old one. Better machines can greatly improve productivity, but in the end, people who buy textiles will benefit, and manufacturers will get nothing. The benefits of improving the production process to consumers.

But for example, if you own an old newspaper, someone has invented a more effective typesetting technology, and then you throw away the old technology and buy a fancy new computer or something. Then your money will not be wasted, and the cost saved will still come back to you.

3. 10, there is a phenomenon of competitive destruction, such as a whip facing the society without a car or a horse, the result is self-evident. When new industries emerge, the pioneers will gain great advantages. If they can rush to the waves and stay long enough, they will gain great benefits, otherwise they will be swallowed up by the waves. (Current tuyere concept)

In the long life, as long as you cultivate your wisdom and seize a good opportunity to surf once or twice, you can earn a lot of money.

3. 1 1, but it should be clear that everyone has his own ability circle. If you want to play a game that others play well but you know nothing about it, you are doomed to fail. To find out where your strengths lie, you must compete in your own ability circle.

In a word, a little psychology, a little mathematics and the microeconomic model above constitute the universal foundation of universal wisdom.

to be continued

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