Perhaps you are interested in retiring early as a full-time investor?
Maybe you need your business to become profitable in the next six months?
Or perhaps you just want to nail that exam that you have in school, three weeks from now?
These three tasks have at least one important thing in common
– they become sooo much easier to achieve if you know how to maximize your own productivity.
Productivity is defined as the ratio between output and input, and I will assume that
you want to generate as much output as possible for a given timeframe
– a few weeks, months, or perhaps even years.
In this video, we shall have a look at five different types of activities,
in something that I will refer to as the hierarchy of productivity,
and find out how moving between these
will help you in boosting your output over a given timeframe tremendously.
This is the Swedish Investor, bringing you the best tips and tool for reaching financial freedom.
Usually through stock market investing, but sometimes through related topics too.
At the top of the food-chain in this hierarchy we have the most useful activity to increase
your productivity, which is Leverage.
I’ll start at the top because, perhaps counterintuitively,
I think that the most important lessons from this hierarchy are at the bottom,
because yes, I’d love it if you’d stay for the whole video.
First, let’s define productivity mathematically.
Think about this rectangle as a representation of your productivity.
One side symbolizes your effort, as measured in the number of hours that you put into your work
whether that is investing, creating a business or studying for an exam.
On the other side we have what I call leverage
– basically how powerful those hours that you put in are.
If you multiple your effort with your leverage, you’ll get your productivity over a given timeframe.
Let me tell you a quick story to illustrate this.
Henry and Mark are two brothers who are both in the lemonade business.
Henry works 10 hours a day, every day of the week at his own lemonade stand,
which he put up just outside of his garage.
He makes $10 an hour doing this, and so, his income is something like $3,000 a month.
Not too shabby, but 10 hours a day is tough.
His brother Mark is not working as much, he does something like 5 hours a day.
On the other hand, Mark has developed his own brand, “Lemon-Aid”,
which he sells as a thirst-extinguisher at basically every convenience store in the country.
He has outsourced all of the production and distribution of his product.
Mark makes $1 million per month.
Now, you’ll realize that Henry cannot possibly work so many hours
that he can beat Mark in monthly income.
That’s because effort in the productivity equation is capped, while leverage is not.
That’s why activities which are likely to boost your leverage
are at the top of the hierarchy of productivity.
The investor will be able to retire much earlier from his portfolio if he knows how to make
a 20% return per year rather than the market average of about 8%.
Or, even better, if he is allowed to manage money of those who are already wealthy.
The entrepreneur will have a profitable business really quick if he has skills that are highly marketable
and if he has been able to identify a business with high profitability and low competition.
Outsourcing and hiring people qualifies as Leverage activities too.
For the student, improving his studying technique is one way to increase his leverage.
Perhaps through learning how to summarize stuff well, or getting a hold of old exams
or summaries from people who have done the course before him.
Abraham Lincoln was quoted as saying:
“Give me six hours to chop down a tree and I will spend the first four sharpening the axe.”
Leverage activities are those that sharpen your axe.
Next up among the activities in the hierarchy of productivity are those that I call Primary.
We are still at the activities which improve your productivity score at the moment,
but we’ll soon get to the negative ones too, which are at least as important,
because as both you and I know, life is full of … distractions.
Primary activities are those that you’d say belong to the “daily grind”
for that particular activity.
For the investor, it might be searching for individual stocks that are likely to overperform,
for the businessman it’s probably administrative stuff, decisions that don’t come with a high impact,
and for the student, yeah, it’s sitting on your butt studying the subject
that you are required to.
Going back to our rectangle and the mathematical definition of productivity,
your Primary activities are your effort in this equation.
Even though we’ve concluded before that leverage is more important than effort,
leverage with no effort is still going to yield you 0,
and effort is a fairly simple way of getting perhaps 2-3x your productivity
if you weren’t too dedicated before.
So, naturally, it is very important to be able to spend as much time as possible
doing your primary activities.
If you have ever tried to keep up a high effort over a long period of time, you’ve probably,
just like me, realized that you are not a machine, no matter how much you wish you were.
I’ve crashed and burned on multiple occasions while building this YouTube channel,
and I did so even more previously when I studied Industrial Engineering and Management at university.
I find it pretty much impossible to allocate all my time towards
only Leverage and Primary activities over any longer duration of time.
One must learn to negotiate with himself when motivation is low.
When this happens, there are three types of activities that you can retreat to
– I call them Support, Breaks and Timesinks.
It is very useful to be able to distinguish one from another
if you want to keep up your productivity.
The activities that belong to the Support-category do not immediately impact
neither your effort nor your leverage.
However, they tend to have an indirect impact on your productivity over time,
some much faster than others.
These are activities such as sleeping,
tending to the needs of your loved ones,
exercising & socializing, to some extent,
eating & cooking …
Lunch?
You’ve got to be kidding be me, lunch is for wimps!
meditating, cleaning, reading a book on an unrelated topic etc.
The support activities are pretty much universal, no matter what you are trying to achieve.
If you want to be as productive as possible, these activities should be your preferred choice
whenever your motivation is low.
Perhaps if you didn’t feel like making sales calls today, you could at the very least cook
a huge batch of meatballs and potatoes,
so that you’ll have food prepared for the next few days.
Also, the longer the time frame that you have,
the more you’ll have to think about how to incorporate these activities.
For example, I could probably survive on 5 hours of sleep per night for a week
if I was studying for an exam, but if I’d want to create a seven-figure stock portfolio,
something which takes a little longer, I’ll probably have to average at least 7.5 to work properly.
Sometimes even a Support activity seems like much of an ask, and then you must renegotiate
with yourself so that you at least choose a Break over a Timesink.
Both of these types of activities are completely useless for your productivity.
They do not count towards neither effort nor leverage in our equation,
nope, not even indirectly.
Rather, they are going to detract from your effort,
but they differ in how much they are expected to do that.
A Break is just what it sounds like.
It’s a temporary, unproductive activity.
A few of my own favourite ones include:
- Watching a movie with an IMDb rating of above 8
- Going on a vacation to a country I've never visited before;
and - Powerlifting
When trying to distinguish between a Break and a Timesink you must consider two variables
– how repeatable they are and how much dopamine they produce.
Something which is less repeatable and produces less dopamine would be considered a Break.
It is not as troublesome as a Timesink as it isn’t as likely to become a non-productive habit.
Watching a movie may produce a lot of dopamine, but it is not very repeatable.
If you set up some standards, there’s only a limited number of movies out there
that would interest you anyways,
and rewatching the same movie comes with some diminishing returns.
Going on a vacation I’d say is quite low on dopamine, and it is also quite expensive
so there are limits to how much you can do it.
Powerlifting does not produce a lot of dopamine, so even though it is quite repeatable,
you are not likely to do this to such excess that you’ll have no time left over to be productive.
Any type of sport, and pretty much any type of creative endeavour are activities
that I’d say belong to the Break category.
Compare this to the Timesink activities.
These are often both pretty much uncapped in how much time your can spend with them,
while also being really dopamine inducing,
so they are more likely to become new unproductive habits.
A few activities which belong to this category are:
Playing video games, watching series on Netflix,
excessive partying, consuming social media other than for productive purposes,
and self-pleasuring, especially in conjunction with … online entertainment.
Video games have probably been my own Achilles' heel historically.
It is possible for me to sit many days straight with games such as World of Warcraft and Hearthstone.
The repeatability is in another dimension and the dopamine rush,
although it comes with a diminishing return, is sky-high.
Always negotiate with yourself before deciding to take up a Timesink activity.
Perhaps just a regular Break will do it?
Then you might be able to get back on track in a few hours or the very next day.
A Timesink activity is by far the most unproductive activity that you can venture into,
because it has the highest likelihood of detracting a ton from your future effort.
Please note that these are only viewed as Breaks or Timesinks
as long as they do not belong to your primary activity.
If you are a professional gamer, obviously playing videos games do not belong
to the Timesink category.
And if you are an adult entertainer, well I guess anything could be considered “research”.
So – to become as productive as possible you want to:
- Increase your Leverage whenever there’s an opportunity to do so
- Spend as much time as possible on your Primary activity
- Include enough Support activities for your timeframe
- Retreat to temporary Breaks if you are feeling down
and there’s no Support activity that you feel like doing
- Fight every urge you have to venture into a Timesink
Cheers guys.