Consulting.com
Consulting.com
 

Long-Term Thinking, 2nd Order Consequences & Effect Horizons

Long-Term Thinking, 2nd Order Consequences & Effect Horizons

Summary


The thing about money is TIME.

The thing about time is that nobody knows how it works.

The result? Frustrated people who don't have money or time.

Time is the most powerful variable in any equation, yet it's the variable nobody understands, and forgets to consider in their mental models, and daily decisions. 

In today's video I take you on a journey to better understand time, how it works, how you can use it to make money, win at anything and live a better life. 

We discuss short-term thinking VS long-term thinking, instant gratification VS delayed gratification, 2nd order consequences, causal chains, effect horizons, exponential functions... 

All sorts of shit that will blow your mind, grow your bank account and turn you into your competitors worst nightmare. 

Check out the video and resources and let me know what you think in the comments below?


Here's what we cover:

1. Why humans suck at understanding the concept of time and how to deal with decisions that include the time variable.

3. Why things that are good for you in the long-term aren't fun right now and why things that are fun right now ruin your life tomorrow. 

4. Why most people choose to have a better today at the cost of tomorrow, sweep it under the rug and get bitten in the face. (this is a BIG one). 

5. "The Marshmallow Experiment", a fascinating experiment psychologists did with children and why the kids who delayed getting their marshmallow did better in life.

6. 2nd order consequences -- Why every action has a consequence, and each consequence has another consequence. Then another consequence, and another, in a infinite chain. (when you understand this you'll get richer and smarter). 

7. The story of "Valeant Pharmaceuticals" and how it became the hottest company in the world and then blew up, spectacularly, due to the CEO's short-term thinking and not understanding 2nd order consequences. 

8. Why I refuse to have Cable TV and a home phone, despite it being free. And the funny story of my argument with the customer service lady at Verizon. 

9. Effect horizons -- How to analyze your decisions based on their effects over both a short, mid and long-term time horizon. Learn this one and you'll change your life (seriously). 

10. Why time is exponential and compounds the outcome of your decisions for your entire existence, good or bad! 

11. Warren Buffets net worth and why 95% of it was earned in the last few years, not evenly over time. (graph image included for reference). 


Resources mentioned in this video:

1. Warren Buffets net worth over time -- Get the graph image here.


Check out the video and let me know what you think in the comments below?

To Your Success!

Sam Ovens & the team at Consulting.com.

Transcript / MP3

00:00
/
00:00
Hi everyone. Sam Ovens here. In today's video, I want to talk to you about long-term thinking, second-order consequences, and time-based decisions. And basically, I want to have a conversation with you about time because the thing about money is time. And in business, the one variable no one seems to account for, and the one variable that has the most profound effect on your success, your company's success and everything is time, yet nobody seems to pay any attention to time. And the number one cause of business failure is time, and pretty much everything to do with business and life is to do with time. And human beings just naturally suck at dealing with the concept of time, and playing with and optimizing and making decisions when it comes to any equation which includes the time variable. And so, in today's video, I want to show you how I think about time, and how I use time, not as an enemy, but as a friend, as a friend to help me make money, as a friend to help me take out competition, and as a friend to help me build competitive advantage, wealth, and a company that lasts over the long-term. So, probably the biggest mistake I see entrepreneurs and business people make is ... It's just short-term thinking, and short-term thinking is basically that ... It's instant gratification. Short-term thinking is, "Well, I want to have a better today at the cost of tomorrow," you know? It's basically ... pretty much everything bad for you is short-term thinking. So, let's take a look at debt. So, debt is basically enjoying a bit of today at the cost of tomorrow. So, you can live better today, you can buy that 42-inch TV today, then you can start watching it, or you can buy that Xbox today, you can start playing on it, but you'll pay for it tomorrow. And later on down the path, that's going to whip back around and bite you in the face, and hard. And most of the time it's not worth it, but what people do is they just kind of brush it under the rug and they just forget about about it. And same thing with fast food. It's like, "I want to have a burger that tastes real good right now, but at the cost of my health, and potentially shaving years off my life tomorrow." Or exercise. "I don't want to sweat and work hard now. I just want to lie down on the couch and be lazy now at the cost of heart disease tomorrow," right? And no matter where you look, the relationship between time, and decision-making, and benefit, and all of that is generally things that are good for you, they kind of suck right now, and they're good for you in the long term. And the things that are bad for you, is they're kind of awesome right now, but they're really bad for you in the long term. So, it's kind of like an inverse relationship. And you have to learn in life and in business to choose between these two things. What people don't understand is that their business and their life and everything is made up ... it's the sum total of all the decisions that they make, and you make hundreds, thousands of decisions every single day. And whenever you're making these decisions, you always have the option between short-term or long-term, right? And what I see more and more often is people taking the short-term path. And we see this, this is prevalent right now in 2018 with social media and things, you know? If you post on Instagram or whatever, then you get a bunch of likes, then that's a dopamine spike. And so, you're training your brain to appreciate that loop. "Do this action. Get this instant reward/chemical in my brain that feels good. Do it again," and it's reinforcing, right? That's a instant-gratification feedback loop, and that's to do with dopamine. It's very addictive, the same way slot machines and everything are addictive. Once you get hooked on that, now you need to find that everywhere in life. And so, you'll want fast food. You'll want instant business results, which basically don't exist. And you'll want everything instant now, and you'll become an impatient person, and you'll basically end up suffering horribly in every way, shape, and form in every different facet of your entire existence. However, on the inverse of that is long-term gratification. And so, if we go to the gym now, it kind of sucks now. We got to sweat and work hard, but in the future it's great. If we eat healthy now, it's not that tasty right now, but in the future it's great. If we read books now instead of playing Xbox, it's not that awesome right now, but in the future it's great. If we save money, not that awesome right now; future great. So, you get my point here. Things that are good for you, things that are good for you immediately, be careful of them. But things that kind of like a little bit in the beginning, but are good for you later on, those are the things that you should be doing. The more of them you do, the better. And you have to train yourself to become this way, and you have to always think to yourself like, "Am I gonna take the electric wheelchair path?" which is what I call the easy way, "Or the hill?" And the hill is the big, gnarly thing you don't really want to do, and there is an easier path, the wheelchair path. But if we take the hill, then if we keep taking hills, before we know it we're winning, and we've got competitive advantage, and we've taken over our market, and we're making a killing. And also, if you take the hill psychologically and biologically too, then you're going to be fitter, healthier, happier, and all of that. So, always think to yourself, "Am I going to take the wheelchair path, or the hill?" Take the hill. And, "Am I gonna take the short-term payoff with the instant gratification? Or am I gonna take the long-term payoff?" And take the long term. Now, that's basically long-term thinking, and if you do that it'll change your life completely. It's a very simple thing to do, and its payback is immense, and it'll help you in every way, shape, and form. There's no real argument against it, so that's a good tip. But now, let's talk about some more advanced stuff to do with time, especially time in the context of business strategy and making decisions within your business. So, one thing I see with business owners, and entrepreneurs, and CEOs is they are very bad ... number one is that they don't understand the long-term thing, which is so simple. It's like elementary stuff. And to drive that point home even more, there's actually this psychological experiment that's well-documented, you can look it up, and it's called the Marshmallow Experiment. Basically, what they did is they got a group of children together, young children, like four, five years old or something, and they presented them with two options. Option one was to have one marshmallow and you could eat it right now. Option two was you could get two marshmallows if you waited for a period of time. And what happened is a lot of kids, most kids, they just chose the one marshmallow right now. And a rare, small group of kids, they chose to delay that, and they chose to get two marshmallows after a period of time. Now, what's fascinating here is two things. First thing is that most people chose the instant gratification, which I'm totally not surprised at. I mean, just go look outside your front door and you'll see this. It's prevalent everywhere. But the second thing is is the more interesting thing, and that is that they tracked these children over the course of their life, and they measured them in terms of success, not just financially but in their health, their income, their happiness, their family life, and their fitness, and their everything. So, they tracked them on a basket of metrics which together represents success, which I think is quite accurate. They weren't just measuring them on wealth because obviously there's more things to success than just wealth, right? So, if you're thinking that, they had a basket of things. And the children that delayed the gratification and chose to wait some time before getting two marshmallows? They did better in life. Way better. And the kids that went for the instant gratification, and the one marshmallow now, they didn't do so well. And so, this thing is true, and it's true for everything. It's one of those universal laws, you know? It's not just something that applies to business. It's not just something that applies to health, or ... It applies to everything, literally everything. And so, if you just build this one thing into your worldview and your heuristics of making decisions, then it can't ... you're going to have a better life, so make it a priority and do it. But, like I said earlier, the second thing I wanted to talk to you about was time in the context of business, and really the thing that I see people that are terrible at, like CEOs, entrepreneurs, business owners ... and I'm going to draw this on the whiteboard ... is it's something called second ... just make sure you can see this ... second-order consequences, all right? So, you can see that. So, this is something that nobody understands, and ... Actually, I shouldn't say "nobody" because obviously some people understand this thing, but almost nobody, like 99.99%, they do not understand this. Even business owners who are making money, they don't understand this. And if you don't know what a second-order consequence is, then you obviously don't know what it is, right? So, you should pay attention right now if that's you. And what second-order consequences are is when we make a choice or a decision, things happen, things change, right? But those decisions, those actions, they create reactions. And then those reactions create actions, which create reactions. And it keeps going, right? It keeps going over time, and it feeds back on itself and it goes exponential, right? And so, not only is there second-order consequences, but there is third-order consequences, fourth-order consequences, fifth-order consequences, all the way to infinity basically. But most people, and especially ... Actually, it's most people in everything. If they are human, they're doing this. If they're human, they don't know what this is and they're making this mistake. And so, most people they only think about the first-order consequence because that's just the easy thing to see, right? And so, what this is is ... let me give you an example. Let's say I want to buy a 42-inch TV, and I don't have enough money for it. And so, I buy it using debt at a high interest rate because my credit rating sucks, because I've been doing this sort of dumb shit for years, and I haven't learned my lesson, right? And so, let's say you buy this TV and you think, "Aw, it's not that bad. I just got some interest payments." That's all you can see, is the first-order consequence, but that comes and creates something else. So, now that you've got this TV in your house ... Not only is it bad that you spent money you didn't have, and that you're now in debt and you're going to have to face that debt in the future, but now you have this TV in your house. And in order to get any sort of satisfaction from this TV you just purchased, you're going to have to watch this TV. And so, now you're watching this TV, and now you're wasting your time. And first of all, you already wasted your money that you didn't have, that you're paying ridiculous amounts of interests on, but now you're wasting your time watching this damn thing, right? So, let's say first decision here at this block in the chain, let's say here we buy TV with debt, right? Now, the second-order consequence is that I'm going to be watching TV, and here I'm wasting time. Now, what's going to happen is now that I'm watching TV, wasting time, and I'm in debt, which already is bad, now what I've done is I've trained myself psychologically to be lazy. And now what's going to happen is whenever I come face-to-face with some hard work or some challenges or something, I'm going to be more disposed to taking the lazy path and just forgetting about it, right? And so now, the third-order consequence is that pattern of lazy behavior repeats over time, right? And so, already you can see that a small decision that we thought wasn't that bad because we're just going to have to pay a bit of interest, right? And we might think, "Oh, well, it doesn't matter because I might be getting a pay raise next year," or something like that, right? So, most people they just look at this. They just look at the first-order consequence, but they can't even see the second one, which is ... sorry, it's a bit wonky here. They can't even see the second one, which is that they're going to have to watch the TV and waste time. And they can't see the third one, that this pattern of behavior is going to become their new mode of operation, and it's going to ruin them. And also, it's going to become their new mode of operation when faced with a decision, where it looks like this, where if we can have a better today at the cost of tomorrow, then we should go with the better today at the cost of tomorrow. So, in so many different ways, this one thing that looks trivial and small screws us royally. And I see people do this all the time. I see people do it with fancy cars. I see people do it to themselves with choosing to fly on private jets. And if you choose to fly on private jets, and you've got more than $100 million in your bank account, sure, go for it, right? But if you have less than $100 million in your bank account, and you're constantly flying on private jets, then you're an idiot because not only is that a waste of money, it's a poor use of money, but second of all, you're now training yourself to expect this level of luxury. And if you expect this level of luxury, it's very hard to go back, right? It's hard now to go back to it, so you're probably going to continue this habit of behavior even when it's probably not the best thing for you to be doing. Even if your company starts making less and you start having less money, you're still going to keep up this pattern of behavior. And you see people get into these vicious loops all the time. They keep buying cars, and they keep upgrading their cars, or they keep buying clothes, and they have to keep buying more clothes. And you see it with addictions too. People who drink alcohol, it has to be stronger alcohol, more often, more frequent. You see it with social Frequent, and you see it with social media, you see it with everything right. And, it's ... It has a really harsh consequence, and most people can't see past just the first thing. And in business you need to get real good at spotting this. And to really drive this point home, I guess that the example there about the 42 inch TV, there's more of a personal thing than a business thing, so let me give you a business example. And if you want to see stupidity on a mass scale and not understanding seeking order consequences in short term verse long term thinking on a mass scale, then you need to look at the story of Valiant, V-A-L-I-A-N-T. It was a public company, and it was the hottest company in the world until it wasn't and it failed, like in a big blow up kind of explosion way. And the story is real fascinating. And so what ... I'll tell you it real quick, I'll just synthesize it and give it to you in as short amount of time as I possibly can. But, this guy formed this company called Valiant, it was a public company, on the stock market, and what his strategy was, was to buy up pharmaceutical companies. So companies that were making drugs. And what he noticed is that, pharmaceutical companies they have a huge ... most of their expense goes into R&D, research and development. And what is R&D, well, it's basically it's just a bunch of scientists in a laboratory experimenting, and looking at new possible mutations of their existing drugs, improvements to them, or potentially completely new lines of drugs. And a lot of R&D's aren't successful. A lot of R&D funds and R&D is very expensive, a lot of it goes to waste, because experimentation is like an inseparable twin from failure. And so, if you're going to invent something you're going to fail a lot, those two come together, but, it's worth it in the long term. And so what this dude did is, he looked at these pharmaceutical companies and he thought, "Wow if I buy these pharmaceutical companies, and I just cut off the R&D department, I'll save 40% on expenses. That 40% I save will go straight to the bottom line in terms of net profit, and then I'll be making way more money. And I'll just roll all of these different pharmaceutical companies into my investment vehicle called Valiant, and cut off R&D in all of them, and then I'll have spectacular earnings and net profits that investors will love. Because investors are like drug addicts, they love net profits, and they love growth, and they love earnings. And so if you keep showing them that, they will keep showing you love in the form of a higher stock price." So that was his strategy. And so, he did that, he started buying up all of these pharmaceutical companies, rolling them into Valiant his vehicle, and then cutting off R&D departments, saving huge amounts of money in terms of cutting expenses. Net profits went through the roof, and then he's financial statements in his earnings reports, they looked spectacular. And so this guy became the god of business, and he got a private jet, and then he started sitting front side at basketball games, and he basically became a celebrity. And he became famous not for really inventing drugs, but for basically just having a fancy private jet, and knowing a lot of celebrities, and sitting court side at all sorts of basketball games, which is kind of funny. Whenever a CEO is known for that, you know they're about to fail. And so he continued to do this, and it worked for a few years. I think it worked for like three or four years right. And then what happens? So, then all of a sudden it just collapsed. The whole thing blew up spectacularly, and it just went bankrupt, and investors lost everything. Why? So just think to yourself for a moment why would that have happened, where did this dude go wrong? And this is short term thinking and not understanding second order, third order consequences, alright. And it's not that hard to think about this. So if you cut off the R&D departments, it is obvious that today you're going to make more money, that ... How could you ... Oh, that's obvious. If we cut 40% of our expenses, and our income remains the same, we are going to make a lot more profit. Then investors are going to see that and think we're doing something right. And we're going to make a lot of money, but what's going to happen with time? Time is the thing people don't understand, they don't account for, it's the variable that blows peoples minds, but does R&D not have a purpose? Why would all of these pharmaceutical companies have an R&D department if it was not necessary? Why do they have scientists? And so R&D typically costs a lot of money for a long period of time, and most of it goes to waste. But every now and then, generally after a few years or whatever, there's a breakthrough. And that breakthrough is typically a new drug, a new revolution, and that then is the new product that the pharmaceutical company is able to release, and they make a spectacular amounts of money from it. And they're able to beat their competition, and to just dominate. That is the purpose of R&D. And the short term R&D looks like a waste, and the long term R&D is the smartest thing in the world. And so what happened with time is, this ... they had no new products, and with this time when they had new products ... when they had no new products, then it's pretty obvious what's going to happen here. And so ... Sorry I just had to let that cat out. This is the sort of professional production value you get when you watch my You Tube channel, just might get up in the middle of it and let out a cat. And so, back to where we were, was ... What happened with Valiant, is they didn't come up with new products obviously, because they spent no money in R&D, they had no scientists. Then their competitors were spending money on R&D and they had scientists. They came up with time with new drugs, better drugs than what Valiant had in it's companies. And so then Valiant couldn't keep up, all the customers were buying other stuff. They stopped buying Valiant's stuff, and then Valiant collapsed, and their competitors dominated them. And so this is just a really good case study and a really good lesson in long term thinking and second order consequences. Because that dude who purchased Valiant, or sorry the dude who ran Valiant and purchased all of these different companies, and cut off their R&D departments, he was only thinking about the short term. And he wasn't thinking about second order, third order consequences, he was only thinking about first order. First order he makes more money, he looks like a god. Second order, he fails and looks like an idiot, and he didn't see that one and it got him. It flew back around and bit him in the face. And I see this happen to people in business all the time, and I know because I have overtaken many of them. And what I see that's common among all of these people which generally fall behind, is bad decision making when it comes to time and second order consequences. And what these people do is, they typically once they get good and they're winning, they start spending a lot of money. And when they start spending a lot of money, they now have all of these toys. And now that they've got these toys, they need to use these toys. And now that they're rich, they're famous, or semi-famous. And now they want to hang out and talk about how cool, and famous, and rich they are, and how many new toys they've got, right. And then very quickly this person has forgotten what actually created all of this stuff. They forget that the hard work and the frugality, and working on their craft is the original source thing that created the wealth, that created these things they could buy, that created the fame, that created the ability to talk about how cool they were, they forget about what created it. And now they spend all of their time screwing around with all of these things that are just a fifth order consequence by-product of this original thing. And so now the original thing goes away and now they're busy neglecting the original thing, focusing on talking about how cool they are, and then it disappears, and then they can no longer talk about how cool they are because it's gone. And this happens all the time. This is a pattern that exists through history since the beginning of time. It's how empires and civilizations fall. It's how great companies fall. It's basically how everyone makes a spectacular mistake and blows stuff up. And so you can never forget this. You can never forget what the main thing is, you must keep the main thing, the main thing. And the main thing is always going to be in business, the product or the service that you're delivering to your customers. Or if you're an athlete, the main thing is going to be playing basketball and being the best, winning, right. And so this happened to Michael Jordan too. I've watched pretty much all of his documentaries, they're great. The one I'm going to reference right now is called "Michael Jordan to the Max", it's really good you should watch it. And he said that in one point of his career he got really "Who's the best in the world?" And he had all of these sponsorships. So he was doing all of these ads, getting all of these photo's with all of these products, going out and doing all of this cool stuff because everyone who was famous in the world wanted to hang out with him. And very quickly he just got overloaded, he had ... it just became too chaotic, and he started making errors in his game. And he sat down and he thought to himself like, "All of these things they're by-products of being the best, and if I let these by-products distract me from the thing that created these by-products, then not only am I going to lose and not be the best, but then everything that I'm distracted by is going to evaporate and disappear too." So he was like, "This is a really dangerous trap." And so he decided at that moment to just black out, completely shut everything off. He canceled all of his sponsorships, he stopped doing media, interviews, everything, he just said no to everyone, told his agent, "I don't want to talk to anyone about anything. I don't want to do any sponsorships, I don't care how much money they're paying. No." And then he just shut off everything and then just focused on the game. And then he climbed back up to be the best player of all time, and he was one of the smart ones. He was able to see the second order consequences, and he was able to analyze the time variable in his decisions. And he was ... He's an example of doing it right. There's more examples of people doing it wrong, like the Valiant example, or that dude that I was talking about before who bought a 42 inch TV with debt. And I will tell you a funny story about this too. Whenever I move into a new place, I just moved into this place here in LA, it happened when I was in New York too, I get a new internet connection right. And I typically get the fastest, best one I can, because internet is a pretty important ingredient for what I do. And then pretty much all the time what comes with that fast internet connection is free cable connection to TV, right, with a whole bunch of channels and a landline, and all of this crap. And whenever I talk to the person on the phone that works at the company. What is it, horizon or whatever, this lady is like, "Sir, you know that if you get cable it's free. You get like 250 channels or whatever ..." or maybe it's two and a half thousand channels, I don't know. And then they're like, "You get it for free sir. And also you get a landline for free." She was like, "It would be stupid not to get this free cable connection and this free landline." And I'm like, "Look lady, you don't understand. It's not free. I don't want this. Do not put this thing in my house. And you know what, in fact, you couldn't pay me to hook that cable up to my TV." I was like, "You couldn't pay me to hook it in." And she was like, "Sir, I don't think you understand, it's free. Why would you not get it?" And I was just playing with her just to see, because there's no way in hell I'm hooking that cable up to my TV, even if you paid me to do it, I'm not doing it. Why? Because, I don't want to create any sort of thing in my house that is going to distract me and suck my time into something that isn't going to have positive benefits. It's thinking about the second, third order consequences. Sure it's free to hook up this TV in my house to cable, but wasn't isn't free is wasting finite hours of my life and my existence watching TV. That is a cost, and so the lady couldn't see that. And so this thing is everywhere, and once you learn to see it, it'll change your life and you'll get way better at everything. Seriously, that's not even an exaggeration. It's when you get good at this stuff, you get good at life. And so that's why I don't even have a TV in my house. When I moved to this place in LA, I went ... there was all of these TV's everywhere, I thin there was five. Americans are crazy, and it also had cable hooked up to all five. And so what I did on the second day we were here, I got a socket set and went around the house and I took all of them down. I'm not kidding you. I took all the TV's off the wall with like a ratchet, and then I went and put them all in a closet, and just closed the door, and I was like, "Good riddance to these things." And then I disconnected the cable. And then I got the landlines that were plugged in, then I just unplugged the landline phones and just put them in the closet as well. I just got rid of it, eliminated it, because the last thing I wanted to do was get distracted even for a minute and spend 10 minutes or an hour watching a stupid TV, or having the cable hooked up. It's temptations that are going to lead you to dumb stuff. So get rid of them. And so that's thinking of the second, third order consequences. And I challenge you to do this for yourself right now. Think about not just what will happen if you make this decision and take this action, but if you take this action what is that going to automatically create? And then what's that automatically going to create? And what's this chain ... What is the chain of events that's going to unfold and start developing? And a lot of people don't understand this one, I see it all the time with books too, and online courses, and trying to do anything meaningful. If you read a book today, you're not going to see money appear in your bank account tomorrow. And so people can't get their head around that. They're like, "Why would I pay money to do a course, or why would I buy a book and then read it if I'm not going to make any money?" And they just don't understand. They're like, "Why would I pay money and then have to spend time doing something that isn't really fun to then not even make any money immediately?" And it's because these people have been conditioned to doing work by the hour or whatever and then getting paid. So it's like instant feedback, instant gratification. And when work presents itself and they have to pay to do work, they're like, "Whoa, this looks weird. Scam." Like, "If I'm going to have to pay to do work, scam. Because I know what happens in life is, I do work to get paid." So if they see the inverse of that it's obvious why it blows their little mind. And then when they see too that they're going to have to pay to do work, that then they don't get paid for immediately, they're like, "It's the ultimate scam." But these people can't think- They're like this is an ultimate scam. Right? But these people can't think properly. And so sure, that is true in the short term, but what happens in the long term? Well, you get smart. What happens when you get smart? Well, then you make better decisions. What happens when you make better decisions? Well, you have a bit of life, and you have more fun, and you make more money. Because all you need to do to make more money than the average person is be smarter than the average person, and therefore make better decisions than the average person. So in order to achieve all of these things, all we have to do is have something on the positive side that the average person does not have. And one of the easiest ones of those to obtain is the perception and understanding of time, and decision making. Alright? So, long-term thinking, second order consequences. This is how you do really good.And I'll give you something that's helped me a lot, I'll just draw it here, is whenever I'm thinking about a decision, alright? I will think of like it's effect horizon. And an effect horizon is basically ... Now let's say we have this chart here, and across here we have time on the x axis, and then let's say here we have upside. And what I mean by upside is it's basically like positive results. So that could be health, fitness, relationships, it could be financial, it could be improved product. It could be anything, right? Anything positive. And then down here, the inverse of this we have downside. And so an example of downside could be debt, an example of upside could be profit. Right? And time? Well that could be down here could be today, this hour, this minute, the shorter we get. And the longer we get along this axis we're gonna have a month, a year, five years, whatever, right? So you understand this simple model. Now, whenever you're making a decision you want to just mentally map this, and this is what I do in my mind whenever I think about a decision, it just happens automatically, because it's being practiced and trained. But I'm looking at a decision, and I wanna look at what happens if I make this, if I choose this option or that option, right? And if there's a decision with more than one option you want to really boil it down to its core options, which should ... Most of the time there's two, and if you've got more than five options, then you haven't broken the decision down into a small enough piece. And you've got, you're looking at a macro problem, and you need to break the macro one into a micro piece, and work on all the micros, and then the sum of the micros is the macro, which will give you your decision for that. And so that's what happens if you can't partition the thing, the decision into something that has less than or equal to five options, right? And so when you're looking at this, what you wanna do is say you've got option A, and it has immediate upside, and then with ... In the short term. And then with time, it has catastrophic downside for a long time, right? That one got pretty long so we'll just do that. And then, this is option A, by the way. And this one looks like a typical instant gratification, debt, stupid decision. Alright? Have a better today, get the 24, I mean get the 42 inch LCD TV and the XBOX complete with lots of games. Start playing it today. Satisfaction is big immediately. But what happens with time is I get royally screwed and fail at everything. And then, option B is to ... Would look like this. Let's say it has immediate downside, but then it has long-term upside. Alright? We'll call this one option B. Now, typically two options that are gonna be the inverse of each other are going to look like this, they're basically gonna be mirror reflections of each other. So if one has this sort of ... What do we call this? Pattern. If this one has this sort of pattern, then it's obvious that the inverse of this is gonna have the inverse pattern, which is gonna look like a mirror reflection on the other side. And so, what is the opposite of buying a 42 inch TV on debt today? Well it would probably be not buying that TV and instead starting to read some books. Right? And this one has immediate downside in the perspective of the person making the decision, because it's not very fun. I'd admit, it would be more fun for me to not to read a book, and to just play XBOX with my friends all day. Today, that would be more fun, and I don't think that ever changes. I think some people think that people who are successful or they're in business and they seem to have more discipline, that they're just weird people that don't enjoy the same things that other people enjoy. That's not true. I prefer to eat, if we're talking strictly in the short term, I prefer to eat a burger and drink a full-sugar red Coke, and a chocolate bar, and some ice cream, and just play XBOX all day. That sounds like a pretty fun day. In the short term. But what gets the people who don't make those decisions is the longer-term thinking. Then they think about it in terms of the long-term and they're like, "I can't do that. I cannot do that. Why? Because I'll get fat, I'll get lazy, and I will become broke, and then I won't be able to do anything because I've psychologically ruined myself and hooked myself onto instant gratification, and I just can't do it." Right? And so, that's why some people choose the other things. It's not that they don't enjoy it. They do. But, they are more long-term thinkers and second order consequence thinkers than the people who choose to do that thing. And so let's say you choose not to buy the 42 inch TV on debt and you instead use money that you do have so you don't go into any debt to buy some books, and you start reading them. So it's not as fun today, so there's some downside. But with time, you get smarter. You start making better decisions, might start a business. You might start buying some courses. You might start creating a really good product or service, helping customers, adding value to your market, and then making money, making more money, and all of the stuff starts exponentially compounding on itself. Because as the chain of events fires down like this, right? So let's say these are chains of events, and we've got first, second, third, fourth, fifth, sixth order consequences, right? It's not linear. So you might think that, "Oh, if you just do the dumb stuff up until this point in time, then you're only that far behind. But it doesn't work like that. At each note in this chain down here, there is feedback. Right? And it looks like this. It comes back, and it feeds back 'round on itself, and it has an amplifier of let's say this is going to be to the power of two. Alright? And so it's got a feedback mechanism with an amplification, and that's gonna come back 'round and boost that, and so let's say you have a one here, and then as soon as you make that decision, you get out a two, and then let's say you get another one here, that's not now three. That's not how it works. This thing now is gonna start blowing up. Now you're gonna get to a six, and then this is gonna feed back 'round again, and it's gonna keep feeding back around, and keep feeding back around, and keep feeding back around, and now it's gonna go 18, say now it's gonna go 36, and then let's say now it's gonna go 78, and then 116, and then 334. Alright? It's now going exponential. And that's why if you look at successful people, they're ... It's never linear. It's always exponential, and what I mean by that is you'll see boom, just like that. And if you don't believe me, just Google, "Warren Buffet's net worth over time." Right? Google that, and I'll tell you what, I'll actually include the image, the PDF beneath this video in the resources section for download, just so that you ... If you're a lazy person, you can just click the link and have a look. But you'll see that his, Warren Buffet, most of his net worth and most of his wealth was accumulated exponentially, rapidly, at a later point in time because of the way time works. And so once you understand this, a small decision today, like reading a book, it's going to not be as fun as getting into debt and buying a 42 inch TV and playing XBOX. Alright? You're also not gonna make any money today, but with time, it's gonna grow exponentially, and before you know it, you're rich, and you're making a lot of money, and you're having a lot of fun, and you're way smarter. Right? That's how it happens. And once you learn to understand this and see it this way, you'll make better decisions. And so you've just got to practice it. I wasn't born doing this, no one is, and I was actually ... I made the dumb mistakes, and that's actually how I learned. I would do things, I don't think I bought a 42 inch TV, but I definitely did some dumb stuff. I would spend a lot of money on alcohol, and I would buy fast food, and I would buy a fancy car, like a Ferrari, instead of ... I would look at money and I would be like, "Well I could buy a fancy car and look real cool, like a Ferrari. Or I could invest that money back in my business. Hire some talented people. If I do that, then we're gonna do better, make more money, and then I could buy more cars if I wanted, but why would I do that, I would just put it back in and do it again, and keep getting better, better, better, better, better," and then you don't even care about cars anymore, because you can buy a car like a Ferrari in a day. And so it's no longer cool. Alright? And so, that's what happens when you think about how this thing works, but I wasn't that smart. I bought the Ferrari, and so, and I didn't invest it in my business, and then I had to pay taxes, and then drive the stupid thing. And don't get me wrong, it was fun. But, thinking about it now, if I didn't do that, and I took the smarter path, I would be way further ahead. And as soon as I learned not to take that dumber path, and take the smarter path, I started getting way further ahead. Right? So, I wasn't born like this. Nobody is. I actually learned by making the wrong ... By doing the wrong thing, and then learning what was right later. But, by watching this video and listening to this today, then you'll be able to do the right thing, and understand how time works, how effect horizons work, how time has a logarithmic, exponential function, it's not linear. And how there's generally two options, A and B. They're typically the inverse of each other. One will have immediate upside, terrible, shocking, long-term downside. The other will have the inverse, which is ... Which will have short-term downside, and long-term, awesome upside, which is the good decision. And option A is what we call the motorized wheelchair path. This makes it simple. And then option B is the hill. And you generally always come into these ... You always face these decisions, all the time. And you always just gotta ask yourself, to make it simple, forget about this logarithmic, exponential stuff, because this might blow some people's mind if they haven't looked at these sorts of things before. So just think about it like this: wheelchair path, or the hill. Take the hill. And if you keep taking hills, then you'll learn to like the hills. And when you learn to like the hills, then you'll kick everyone's ass, because they're all afraid of the hill, and doing whatever they can to avoid it, and you just want to eat the hill. And when you start doing this, you'll start winning, big-time, and your life will be better, and you'll be having much more fun. So that's pretty much today's lesson. Think about the long-term. Think about how time works and how it's exponential, and take the hill, not the wheelchair path, and think of the second, third, fourth order consequences, and don't be stupid like the guy who bought the 42 inch TV on debt, or the person who started Valiant, and cut off their R&D department, and then blew up. Right? Don't do those things. Do the other thing instead. And if you liked this video, then just click that like button. Also, let me know what you think in the comments section below. Leave me something there, give me some feedback, and click that subscribe button. I release low-production videos like this, but with high quality content, once per week. And you won't see fancy edits, and you won't see any real high-production stuff. You won't see actors or anything, or really anything fancy at all. It's just, I'm holding my iPhone, and I stopped in the middle of this video to let my cat out. So it won't be high production, but I promise I'll teach you stuff that will actually make your life better. So if you liked this video, click that subscribe button, and thanks for watching, and I'll see you in the next one, next week.

Comments