David Gardner: And it is in fact this love of thinking, about thinking how to think,
the meta-game of thought that I want to spend a little bit of time this week. Specifically
I want to review three types of thinking and illustrate them for you each. Three of my
favorites. By no means am I student. I did take Shakespeare in college, I mentioned that.
I never took any class on cognition. So please don’t view me as anything more than a fellow
noob, a fellow traveler on the path of life just trying to figure out how things work.
But I’ve definitely started to aggregate my thoughts around three buckets of standard
forms of thinking that I find very helpful for me as an investor. And so let’s cover
the first one right now. The first one is systems thinking. There’s a wonderful book
called Thinking in Systems written by Donella Meadows, kind of regarded as one of the forerunners
of the whole systems thinking movement. She wrote the book, she was an MIT systems
professor in the 1990s, she wrote the book partly back then, but died suddenly unfortunately
in 2001. Never finished her book and then an associate started to get all the rest of
her thought together and compiled it into this book which was published in 2008. So
little storytelling around Donella Meadows’s book. But systems thinking something that
you may have heard about, something you might well do sometimes subconsciously, sometimes
very consciously. I bet some of you know a lot more about systems thinking than I do.
But let me give a couple of examples of systems thinking.
First of all just to define this one, because this is a little bit more technical than my
other two. Donella Meadows defined it as a system is an interconnected set of elements
that is coherently organized in a way that achieves something. So that was her definition
of a system: an interconnected set of elements that is coherently organized in a way that
achieves something. It’s more than the sum of its parts.
So for example a body is a system versus just the individual cells. A university, the system
more than the sum of its parts, its individual students. An ecosystem versus an individual
plant or animal. A living being is a system she would say, but it loses its systemness
when it dies. So that’s a little bit about what a system is. And when you start thinking
in systems, it involves largely try to get up above what you’re looking at and seeing
how those cog wheels are spinning and what they’re striking, and how the whole thing
works. And while it’s easy often for us to do this
in our professional or hobby lives about things that we know really well, sometimes we get
so inured to how things are, or we get so down in the weeds it is hard for us to get
up above and see the system. And I think that I’m a systems thinker. Again I’m not a
practiced particularly or certainly studied systems thinker, but I think some of things
that we do with this podcast in our investment approach indicates systems thinking.
So two quick examples. I would say the very concept of rule breaker like the very name
of this podcast, really our investment approach -- that is a system, right? We’re looking
at how the world works and we’re saying here’s the story of business, I sometimes
say. Every great company starts, it needs to provide a better solution, maybe a better
product or service. Usually it comes along and disrupts the status quo. We call those
“the rule breakers”. They’re breaking the rules of how things
are done and in time they hope one day to move from breaking the rules to making the
rules. Rule breaker to rule maker. That’s a narrative I just gave you a story. It’s
in my head, it’s a model. Maybe you see it. Maybe you agree with it, maybe you don’t.
But I think we can both agree that’s kind of a system that we have in place. The very
concept of being opposed to the majority in a self-conscious way and asking, “Why will
that be valuable?” If everybody’s doing one thing we’re going to do something else.
That’s systems thinking inherently. And then let me give a second example which
goes back to one of my earliest podcasts when I was talking about the six signs of rule
breaking, and the sixth sign in particular which is that we’re looking for our stocks
to be called overvalued. We want there to be a general perception, even better if it’s
on the headline of Businessweek or a big Wall Street Journal article, taking down this company,
calling it out whatever it is as overvalued. We want that.
Why do we want that? Well that means that there’s a lot of money on the side lines.
Probably a little bit more scared money, as a big negative article’s written about how
overvalued that stock is. If the perception is that something is dramatically overvalued,
then of course most people aren’t going to be investing in it. Their money stays outside
it. But usually in my experience things are called overvalued because they’re really
good. It’s just that people think it’s trading for way too much.
There’s no profits yet, “Google hasn’t even figured out how to make money yet”
was one of the big arguments about Google back in the day. How’s that company ever
going to make money? So as people don’t invest in it, but if that excellent thing
is truly excellent and continues to perform over time, what naturally happens is converts
start showing up and they start saying, “Well you know, I missed it early, but I’m going
to buy some shares now.” And that’s what ultimately drives stock
market pricing and great stocks over time. That’s more systems thinking, right? That’s
looking specifically for an attribute based on how we see the system functioning.
And I meant to close my systems thinking one by saying that if you can do this well, what
you’re going to be able start doing is playing things forward, right? If you’re looking
at the system and you can see the full manufacturing right from the start of the conveyor belt
right to the end, you’re going to be able to predict what things are going to look like
at the end, because you’re able to see the system and you just play it forward. And most
people don’t do that very well or aren’t even looking to do that. So you can get a
little edge here by playing things forward with your systems thinking. That’s your
slightly more awesome superhero power you’ll be gaining from form of thought number one.