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The Big Idea: Humans are at risk for a number of cognitive biases that hamper our ability to think analytically and exhibit good judgement.

Introduction

It is the overdramatic worldview that draws people to the most dramatic and negative answers to my fact questions. The overdramatic worldview is so difficult to shift because it comes from the very way our brains work.

Our quick-thinking brains and cravings for drama — our dramatic instincts — are causing misconceptions and an overdramatic worldview.

Factfulness, like a healthy diet and regular exercise, can and should become part of your daily life. Start to practice it, and you will be able to replace your overdramatic worldview with a worldview based on facts.

CHAPTER ONE THE GAP INSTINCT

Do you know why I’m obsessed with the numbers for the child mortality rate? It’s not only that I care about children. This measure takes the temperature of a whole society.

You won’t find any countries where child mortality has increased. Because the world in general is getting better.

Most of us are stuck with a completely outdated idea about the rest of the world.

Today, most people are in the middle. There is no gap between the West and the rest, between developed and developing, between rich and poor.

To summarize: low-income countries are much more developed than most people think. And vastly fewer people live in them. The idea of a divided world with a majority stuck in misery and deprivation is an illusion.

Factfulness is recognizing when a story talks about a gap, and remembering that this paints a picture of two separate groups, with a gap in between. The reality is often not polarized at all. Usually the majority is right there in the middle, where the gap is supposed to be.

Beware comparisons of averages.

Beware comparisons of extremes.

CHAPTER TWO THE NEGATIVITY INSTINCT

I never trust data 100 percent, and you never should either. There is always some uncertainty.

And look at the last 20 years. Extreme poverty dropped faster than ever in world history.

There’s a dip in the global life expectancy curve in 1960 because 15 to 40 million people — nobody knows the exact number — starved to death that year in China, in what was probably the world’s largest ever man – made famine.

People are consistently more negative than the data says they should be.

There are three things going on here: the misremembering of the past; selective reporting by journalists and activists; and the feeling that as long as things are bad it’s heartless to say they are getting better.

Now girls have almost caught up: 90 percent of girls of primary school age attend school. For boys, the figure is 92 percent. There’s almost no difference.

Remember that the media and activists rely on drama to grab your attention. Remember that negative stories are more dramatic than neutral or positive ones.

Factfulness is recognizing when we get negative news, and remembering that information about bad events is much more likely to reach us.

To control the negativity instinct, expect bad news.

Good news is almost never reported. So news is almost always bad.

More bad news is sometimes due to better surveillance of suffering, not a worsening world.

Beware of rosy pasts.

CHAPTER THREE THE STRAIGHT LINE INSTINCT

The dramatic drop in babies per woman is expected to continue, as long as more people keep escaping extreme poverty, and more women get educated, and as access to contraceptives and sexual education keeps increasing.

The new balance is nice: the typical parents have two children, and neither of them dies.

The only proven method for curbing population growth is to eradicate extreme poverty and give people better lives, including education and contraceptives. Across the world, parents then have chosen for themselves to have fewer children.

The best way of controlling the instinct to always see straight lines — whether in relation to population growth or in other situations — is simply to remember that curves naturally come in lots of different shapes.

Factfulness is recognizing the assumption that a line will just continue straight, and remembering that such lines are rare in reality.

Don’t assume straight lines.

CHAPTER FOUR THE FEAR INSTINCT

Critical thinking is always difficult, but it’s almost impossible when we are scared.

The media can’t waste time on stories that won’t pass our attention filters.

The media cannot resist tapping into our fear instinct.

The world has never been less violent and more safe.

330,000 child deaths from diarrhea.

Today, conflicts and fatalities from conflicts are at a record low.

March 11, 2011. Fukushima. Not one person has yet been reported as having died from radiation. It wasn’t radioactivity, but the fear of radioactivity, that killed them.

We have been left with a level of public fear of chemical contamination that almost resembles paranoia. It is called chemophobia.

In a devastating example of critical thinking gone bad, highly educated, deeply caring parents avoid vaccinations.

DDT is harmful but I have been unable to find numbers showing that it has directly killed anyone either. DDT should be used with great caution, but there are pros and cons.

Improvements in regulations have been driven not by death rates but by fear, and in some cases — Fukushima, DDT — small but scary chemical contaminations receive more news coverage than more harmful but less dramatic environmental deteriorations, such as the dying seabed and the urgent matter of overfishing.

Terrorism is one of the exceptions to the global trends discussed in chapter 2 on negativity. It is getting worse.

No matter how much I love Wikipedia, we still need serious researchers to maintain reliable data sets.

Since 2001, no terrorist has managed to kill a single individual by hijacking a commercial airline.

On US soil, 3,172 people died from terrorism over the last 20 years — an average of 159 a year. During those same years, alcohol contributed to the death of 1.4 million people in the United States — an average of 69,000 a year.

In the United States, the risk that your loved one will be killed by a drunk person is nearly 50 times higher than the risk he or she will be killed by a terrorist.

One week after September 11, 2001, according to Gallup, 51 percent of the US public felt worried that a family member would become a victim of terrorism. Fourteen years later, the figure was the same: 51 percent.

Fear can be useful, but only if it is directed at the right things. The fear instinct is a terrible guide for understanding the world.

Natural disasters ( 0.1 percent of all deaths ), plane crashes ( 0.001 percent ), murders ( 0.7 percent ), nuclear leaks ( 0 percent ), and terrorism ( 0.05 percent ). None of them kills more than 1 percent of the people who die each year, and still they get enormous media attention.

Factfulness is recognizing when frightening things get our attention, and remembering that these are not necessarily the most risky.

To control the fear instinct, calculate the risks.

The world seems scarier than it is because what you hear about it has been selected — by your own attention filter or by the media.

Risk = danger × exposure.

Make as few decisions as possible until the panic has subsided.

CHAPTER FIVE THE SIZE INSTINCT

Organizing, supporting, and supervising basic community – based health care that could treat diarrhea, pneumonia, and malaria before they became life – threatening would save many more lives than putting drips on terminally ill children in the hospital.

Paying too much attention to the individual visible victim rather than to the numbers can lead us to spend all our resources on a fraction of the problem, and therefore save many fewer lives.

The size instinct directs our limited attention and resources toward those individual instances or identifiable victims, those concrete things right in front of our eyes.

But almost all the increased child survival is achieved through preventive measures outside hospitals by local nurses, midwives, and well-educated parents.

So if you are investing money to improve health on Level 1 or 2, you should put it into primary schools, nurse education, and vaccinations. Big impressive-looking hospitals can wait.

The wars with China had lasted, on and off, for 2,000 years. The French occupation had lasted 200 years. The “Resistance War Against America” took only 20 years. The sizes of the monuments put things in perfect proportion. It was only by comparing them that I could understand the relative insignificance of “the Vietnam War” to the people who now live in Vietnam.

In Sweden, a fatal bear attack is a once-in-a-century event. Meanwhile, a woman is killed by her partner every 30 days.

The news coverage for TB was at a rate of 0.1 article per death. Each swine flu death received 82,000 times more attention than each equally tragic death from TB.

By 2100 the new PIN code of the world will be 1-1-4-5. More than 80 percent of the world’s population will live in Africa and Asia.

By 2040, 60 percent of Level 4 consumers will live outside the West.

Whether measuring HIV, GDP, mobile phone sales, internet users, or CO2 emissions, a per capita measurement — i.e., a rate per person — will almost always be more meaningful.

Factfulness is recognizing when a lonely number seems impressive

Always look for comparisons. Ideally, divide by something.

80 / 20. 20% is likely more important than the 80% put together.

Look for rates per person when comparing between countries or regions.

CHAPTER SIX THE GENERALIZATION INSTINCT

Everyone automatically categorizes and generalizes all the time.

Misleading generalizations and stereotypes act as a kind of shorthand for the media, providing quick and easy ways to communicate.

The gap instinct divides the world into “us” and “them,” and the generalization instinct makes “us” think of “them” as all the same.

Almost everyone in the world is becoming a consumer. If you suffer from the misconception that most of the world is still too poor to buy anything at all, you risk missing out on the biggest economic opportunity in world history

The challenge is to realize which of our simple categories are misleading — like “developed” and “developing” countries — and replace them with better categories.

One of the best ways to do this is to travel.

Africa is a huge continent of 54 countries and 1 billion people. In Africa we find people living at every level of development.

It makes no sense to talk about “African countries” and “Africa’s problems.”

Be cautious about generalizing from Level 4 experiences to the rest of the world. Especially if it leads you to the conclusion that other people are idiots.

Sweeping generalizations can easily hide behind good intentions.

Factfulness is recognizing when a category is being used in an explanation, and remembering that categories can be misleading.

Avoid generalizing

Look for differences within groups. Especially when the groups are large, look for ways to split them into smaller, more precise categories.

Look for similarities across groups. If you find striking similarities between different groups, consider whether your categories are relevant.

Look for differences across groups.

Beware of “the majority.” The majority just means more than half. Ask whether it means 51 percent, 99 percent, or something in between.

Beware of vivid examples. Vivid images are easier to recall but they might be the exception rather than the rule.

CHAPTER SEVEN THE DESTINY INSTINCT

He was having a hard time making his clients understand that the most profitable investments were no longer to be found in European capitals boasting medieval castles and cobbled streets, but in the emerging markets of Asia and Africa.

I said that the best places to invest right now were probably those African countries that had just seen decades of rapid improvements in education and child survival.

The destiny instinct is the idea that innate characteristics determine the destinies of people, countries, religions, or cultures. It’s the idea that things are as they are for ineluctable, inescapable reasons: they have always been this way and will never change.

Societies and cultures are not like rocks, unchanging and unchangeable. They move.

Five large African countries — Tunisia, Algeria, Morocco, Libya, and Egypt — have life expectancies above the world average of 72 years. They are where Sweden was in 1970.

Thirty-five years ago, India was where Mozambique is today. It is fully possible that within 30 years Mozambique will transform itself, as India has done, into a country on Level 2 and a reliable trade partner. Mozambique has a long, beautiful coast on the Indian Ocean, the future center of global trade.

The same destiny instinct also seems to make us take continuing Western progress for granted,

Iran — home in the 1990s to the biggest condom factory in the world, and boasting a compulsory pre-marriage sex education course for both brides and grooms — has a highly educated population with excellent access to an advanced public health-care system.

Exaggerated claims that people from this religion or that religion have bigger families are one example of how people tend to claim that certain values or behaviors are culture-specific, unchanging and unchangeable. It’s just not true. Values change all the time.

Swedish culture changed.

Even changes that seem small and slow add up over time.

The annual increase was absolutely tiny, almost imperceptible. Today a stunning 15 percent of the Earth’s surface is protected, and the number is still climbing.

To control the destiny instinct, stay open to new data and be prepared to keep freshening up your knowledge.

If you are tempted to claim that values are unchanging, try comparing your own with those of your parents, or your grandparents.

Many Swedes think of the United States as having very conservative values. But look at how quickly attitudes to homosexuality have changed.

Some Americans think of Sweden as a socialist country, but values can change. A few decades ago Sweden carried out what might be the most drastic deregulation ever of a public school system

Factfulness is recognizing that many things (including people, countries, religions, and cultures) appear to be constant just because the change is happening slowly, and remembering that even small, slow changes gradually add up to big changes.

Slow change is still change.

Keep track of gradual improvements.

Update your knowledge. Some knowledge goes out of date quickly.

If you want to be reminded of how values have changed, think about your grandparents’ values and how they differ from yours.

Challenge the idea that today’s culture must also have been yesterday’s, and will also be tomorrow’s.

CHAPTER EIGHT THE SINGLE PERSPECTIVE INSTINCT

I have found two main reasons why people often focus on a single perspective when it comes to understanding the world. The obvious one is political ideology, and I will come to that later in this chapter. The other is professional.

When you have valuable expertise, you like to see it put to use. Sometimes an expert will look around for ways in which their hard-won knowledge and skills can be applicable beyond where it’s actually useful.

Though we absolutely need numbers to understand the world, we should be highly skeptical about conclusions derived purely from number crunching.

Medical professionals can become very single-minded about medicine, or even a particular kind of medicine.

Big Pharma companies have been dropping. Most of them are fixated on developing a new, revolutionary, life-prolonging medicine.

Experts in maternal mortality who understand the point about hammers and nails can see that the most valuable intervention for saving the lives of the poorest mothers is not training more local nurses to perform C-sections, or better treatment of severe bleeding or infections, but the availability of transport to the local hospital.

Similarly, educators know that it is often the availability of electricity rather than more textbooks or even more teachers in the classroom that has the most impact on learning.

But ideologues can become just as fixated as experts and activists on their one idea or one solution, with even more harmful outcomes.

And if I were to choose where to live, I would choose based not on ideology but on what a country delivers to its people.

The United States spends more per capita on health care than any other country in the world, but 39 countries have longer life expectancies.

Instead of comparing themselves with extreme socialist regimes, US citizens should be asking why they cannot achieve the same levels of health, for the same cost, as other capitalist countries that have similar resources.

The communist system in Cuba is an example of the danger of getting hooked on a single perspective: the seemingly reasonable but actually bizarre idea that a central government can solve all its people’s problems.

The health-care system in the United States is also suffering from the single-perspective mind-set: the seemingly reasonable but actually bizarre idea that the market can solve all a nation’s problems.

I strongly believe that liberal democracy is the best way to run a country.

Of the ten countries with the fastest economic growth in 2016, nine of them score low on democracy.

Anyone who claims that democracy is a necessity for economic growth and health improvements will risk getting contradicted by reality.

There is no single indicator through which we can measure the progress of a nation. Reality is just more complicated than that.

Factfulness is recognizing that a single perspective can limit your imagination, and remembering that it is better to look at problems from many angles.

Get a toolbox, not a hammer.

Have people who disagree with you test your ideas and find their weaknesses.

Don’t claim expertise beyond your field: be humble about what you don’t know.

If your favorite idea is a hammer, look for colleagues with screwdrivers, wrenches, and tape measures. Be open to ideas from other fields.

The world cannot be understood without numbers, and it cannot be understood with numbers alone.

Beware of simple ideas and simple solutions. History is full of visionaries who used simple utopian visions to justify terrible actions. Welcome complexity. Combine ideas. Compromise. Solve problems on a case-by-case basis.

CHAPTER NINE THE BLAME INSTINCT

The blame instinct is the instinct to find a clear, simple reason for why something bad has happened.

The blame instinct makes us exaggerate the importance of individuals or of particular groups.

This undermines our ability to solve the problem, or prevent it from happening again.

The blame instinct drives us to attribute more power and influence to individuals than they deserve, for bad or good. Political leaders and CEOs in particular often claim they are more powerful than they are. Eg. Mao’s policy. The pope.

We should look at the systems instead of looking for someone to blame when things go wrong.

The unsung heroes of global development: institutions and technology.

Resist the urge to blame the media for lying to you.

Resist blaming experts for focusing too much on their own interests

And it’s almost always more complicated than that. It’s almost always about multiple interacting causes — a system.

Factfulness is recognizing when a scapegoat is being used.

Resist finding a scapegoat.

Look for causes, not villains.

Look for systems, not heroes.

CHAPTER TEN THE URGENCY INSTINCT

When we are afraid and under time pressure and thinking of worst-case scenarios, we tend to make really stupid decisions.

But now that we have eliminated most immediate dangers and are left with more complex and often more abstract problems, the urgency instinct can also lead us astray when it comes to our understanding the world around us.

Climate change is too important for that. It needs systematic analysis, thought-through decisions, incremental actions, and careful evaluation.

Demographic forecasts are amazingly accurate decades into the future because the systems involved — essentially, births and deaths — are quite simple.

But the future is always uncertain to some degree.

But those who care about climate change should stop scaring people with unlikely scenarios.

Let’s instead use that energy to solve the problem by taking action: action driven not by fear and urgency but by data and coolheaded analysis.

When you are called to action, sometimes the most useful action you can take is to improve the data.

Most concerning is the attempt to attract people to the cause by inventing the term “climate refugees.” My best understanding is that the link between climate change and migration is very, very weak.

Crying wolf too many times puts at risk the credibility and reputation of serious climate scientists and the entire movement.

When a problem seems urgent the first thing to do is not to cry wolf, but to organize the data.

Data was absolutely key. And because it will be key in the future too, when there is another outbreak somewhere, it is crucial to protect its credibility and the credibility of those who produce it.

The five that concern me most are the risks of global pandemic, financial collapse, world war, climate change, and extreme poverty.

Factfulness is recognizing when a decision feels urgent and remembering that it rarely

To control the urgency instinct, take small steps.

Take a breath.

It’s rarely now or never and it’s rarely either/or.

Insist on the data. If something is urgent and important, it should be measured.

Beware of fortune-tellers.

Be wary of drastic action. Ask what the side effects will be. Ask how the idea has been tested.

CHAPTER ELEVEN FACTFULNESS IN PRACTICE

We should be teaching our children the basic up-to-date, fact-based framework — life on the four levels and in the four regions.

Most important of all, we should be teaching our children humility and curiosity.

Understand that the world market of the future will be growing primarily in Asia and Africa, not at home.

Factfulness Rules of Thumb

The Big Idea: Super-efficient irrigation techniques (ollas, clay pipes, terraces, check dams, swales) have been used for thousands of years.

Drip irrigation has helped increase water-use efficiency in gardens and farms, but drip systems are for the well-off.

The key to minimizing water use is to get water to the plant just as it is needed, with little or no loss to evaporation and runoff.

Irrigation systems that automatically self-regulate, such as buried clay pots, porous capsules, porous clay pipes, and capillary wicks, are particularly efficient because the water flow rate varies with plant water demand.

Deep pipes can be best for trees and shrubs, buried clay pots may be best for spreading crops such as melons, and porous hoses may be best for row crops such as carrots.

Buried clay pot (also called pitcher or olla) irrigation is one of the most efficient systems known, thought to have originated in China thousands of years ago.

The olla should be buried up to the neck. A small lid or a rock can be placed over the opening.

Roots of older plants may grow thick around the pot, but in desert studies, this did not hurt long-term survival.

Clay pots must be porous, not glazed, and free of wax, paint, or other impervious coatings.

Snails and slugs are easy to manage with clay pot irrigation. They tend to collect at the pot / soil seam or crawl into the pot as it dries out and can easily be removed and fed to the ducks.

Buried clay pots are usually filled individually, but if you will be away often or don’t want to bother filling them by hand, they can be connected to a reservoir or water system.

Porous capsule irrigation is a modern adaptation of buried clay pot irrigation.

A plastic sports bottle makes a handy reservoir for a porous capsule.

Standard red clay garden terra-cotta pots and pot bases make good porous capsules when glued together.

Deep pipe irrigation uses a vertical pipe to move water into deeper soil where it is safe from evaporation.

I prefer 2-inch diameter PVC pipe or conduit because it’s easy to fill from a water jug.

Deep pipes work well for starting orchards and for planting cottonwood poles in riparian areas where very deep watering is needed.

Pipes can often be removed 1 or 2 years after the trees or shrubs are well established.

Converting an established shrub or tree from surface to deep pipe irrigation should be done gradually to enable a shift in root development.

Porous hose (ie soaker hose) lets water seep out through pores in a buried hose.

Porous hoses are typically made of recycled rubber, with the water release rate depending on pore size and water pressure.

For trees and shrubs, make a loop of porous hose around the plant.

Porous hose can be looped around trees to improve water distribution and root growth.

Give priority to the native plants from your region.

Choose varieties that are dryland adapted.

Replace your lawn.

Plant in blocks instead of rows.

Keep your soil healthy and uncompacted.

Check your soil’s drainage.

Use mulch.

Consider irrigating with greywater.

Ten inches of rain on a 1,000-square-foot roof will provide about 6,000 gallons of water.

The lowest-cost tank is probably homemade with ferrocement.

One of the best learning experiences is watching and experimenting with various rainwater harvesting systems during rainstorms.

Cross-slope collection ditches or swales may be interspersed to collect excess water on the slope during severe storms.

Vertical mulching consists of placing straw, sticks, or brush upright in the soil to help move water deeper into the ground.

Check dams have been used for millennia to protect fields and help capture rainwater.

They also allow the sediment to drain, and are more likely to grow vegetation that can further stabilize the gully.

Terracing is one of the most common responses to erosion and runoff retention.

Many terraces in China have been used continuously for thousands of years.

Raised beds, developed for wet areas, are more widely known and promoted, but waffle-like sunken beds work better in dry lands.

The Big Idea: Instead of studying hard sell techniques, a better approach is help the buyer discover for himself why he wants what you’re selling.

Get your audience to pay full attention to you and take you seriously, as they would a partner or colleague. Do this by achieving Status Alignment, the first step to making a deal.

No buyer of any kind is going to listen to you until they feel they’re in the right place at the right time with the right person. That’s why the Status Tip-Off is so powerful. When your buyer sees that you understand who they are, can speak their language, and are part of their in-group, they’ll immediately become receptive to what you have to say.

Once you’ve established your status and expertise, it’s time to explain your big idea to the buyer. Specifically, answer the three questions in the buyer’s mind: Why do I care? What’s in it for me? and Why you? The faster you answer these, and the less cognitive strain you place on the buyer, the better your chances are of closing the deal.

Flipping the script isn’t about changing yourself to give the buyer what they want; it’s about sticking to your guns. Stay consistent to your personality, your character, and, most importantly, your values. This is what the most compelling people in the world have that others don’t: character and values.

The Big Idea: What you want in a business is an economic castle with a very wide moat and an honest, talented knight to handle marauders. Be fearful when others are greedy and greedy when others are fearful. Think different from the crowd. Think long-term when others are thinking short-term. When the tide goes out, you will see who has been swimming naked.

Introduction

Pouring over Berkshire’s reports, reading Buffett’s annual letter, and listening to Buffett and Munger at the annual meeting have all been central to our growth as value investors.

He could use this captive permanent capital to invest long-term by buying businesses, in part or in whole.

He loves the insurance business. With its float characteristics, it creates a powerful platform for compounding wealth.

In 1972, Berkshire bought See’s Candy.

He loves the power of brands and the virtues of companies that don’t require a lot of capital to grow.

Those two pieces — the insurance company as a platform and high-quality brands as cash generators — built the base for the wealth-compounding machine that is Berkshire Hathaway.

Buffett bought GEICO.

With billions in cash and fixed income securities, Berkshire is now a financial Fort Knox.

Berkshire continues to represent solid value, lower-than-average risk, and unparalleled quality. It is a superb company with better relative value than almost anything else in the U.S. stock market.

Berkshire has consistently outperformed the S&P 500 during negative years.

Buffett wanted to make sure that Nebraska got their sales tax. He was adamant about making sure that Berkshire paid — not more taxes than it had to, but the taxes that it was responsible for.

These newsletters form a conversation with Warren Buffett and Charlie Munger spanning three decades.

great value investors, like Buffett and Munger, sleep like a baby — provided they follow simple timeless principles.

1986

Numerous occasions arise where a business’ market price is distinctly out of line with its true business value.

Graham emphasizes a large margin of safety.

As long as politicians lack self-restraint, they will print a lot of money at some point.

Long–term bonds and other investments vulnerable to inflation should be avoided.

Buffett said he pays no attention to economic outlooks. His decisions are based simply on intrinsic business values.

There are thousands of wonderful small companies we can consider.

1987

Outbreaks of those two super-contagious diseases, fear and greed, will forever occur in the investment community.

Be fearful when others are greedy and to be greedy only when others are fearful.

“Anything that can’t go on forever will end.”

Significant inflation is inevitable due to our government’s quick-fix attitude.

“The availability of a printing press as a short-term band aid is very tempting. Inflation is a narcotic.”

Know Your Limitations / Be Humble

He’d rather be with a guy with an IQ of 130 who thinks it is 128 than a guy with an IQ of 190 who thinks it is 240.

Keynes said, “I would rather be vaguely right than precisely wrong.”

On the Ideal Business Buffett: “Something that costs a penny, sells for a dollar and is habit forming.”

1988

“Printing money is too easy. I’d do it myself if I could.”

“Everyone talks about the big money made in real estate, but they forget to talk about the big money lost in real estate.”

Foreign Currencies Munger : “ It’s hard enough to understand the culture you’ve been raised in, much less someone else’s.”

What can we do then to mitigate the effects of inflation?

We’d buy great businesses with excellent management at a fair to bargain price and leave them alone.

Well-run businesses that employ relatively little capital, that throw off lots of cash and that have pricing flexibility will cope well with inflation.

Encyclopedias will be little changed 20 years from now.

“The fact that you are being obsoleted does not mean you should go into the successor business.”

Buffett and Munger steadfastly refused to get into a long discussion of macroeconomics.

Brilliant investors focus on finding good businesses at bargain prices within our resilient economy.

Buffett sees the trade deficit as a far more serious problem than the federal budget deficit.

Heartily recommended biographies as a way to “make friends among the eminent dead.”

1989

In sum, the trade deficit amounts to the gradual giving away of the farm. As these claim checks are cashed, America gives up more and more of its productive assets.

In sum, the LBO junk bond game will go to an extreme and will stop only when it cannot be done anymore. At that time, “there will be blood in the streets.”

Intrinsic Business Value is present value of the net cash flows from here to eternity.

Buffett noted that if he and Munger get a value of X to 3X for an asset, then they attempt to buy it at 1 / 2X.

Munger flies coach.

An established brand name product is so valuable.

Coca-Cola and Pepsi have over 70 % of the soft drink market, and their market share grows each year.

The history of Wall Street has forever been one of boom and bust.

“If investors only had to study the past, the richest people would be librarians.”

1990

“It is far better to buy a wonderful company at a fair price than a fair company at a wonderful price.”

Two basic themes in value investing: 1) buy assets and 2) buy earnings power.

What he wants are “idiot-proof” businesses.

“Business schools are good at keeping their eyes half shut.”

1991

His appraisal of Coca-Cola is unequivocal: “the most valuable franchise in the world.”

Buffett has classified Berkshire’s holdings in Capital Cities / ABC, Coca-Cola, GEICO and the Washington Post as “permanent.”

Good economic characteristics, able and trustworthy management.

Financial disasters come about because stupid decisions in financial companies are not accompanied by immediate pain.

The secular trend for media is not good.

Certain areas of the media industry are quickly turning from marvelous businesses into mediocre ones.

“Do what you enjoy the most. Work for people you admire. You can’t miss if you do that.”

The documented record of how people have behaved over many years has far more predictive power than a personal interview.

They don’t hire fresh MBA graduates. There is no record of on-the-job performance.

1992

Guinness receives the vast majority of its profits from overseas.

Liquor can be a status symbol and that Guinness’ products enjoy the rare and remarkable quality that the higher the price, the higher the perceived value.

He pays so little attention to macroeconomic factors.

Relate compensation directly to the performance of the business.

Large sums being paid for mediocre performance.

Professors are so enamored by modern portfolio theory.

The distinction between the growth and value styles of investing is nonsense.

Studying airlines teaches you about competition in a high fixed-cost business with a fungible commodity.

Book value simply records what was put into the business. The key to calculating value is determining what will come out of the business.

A corporation’s return on equity approximates its equity coupon.

Post-retirement medical benefits amount to a huge liability for corporate America that has been accruing for 20 years but is only now beginning to be reported on balance sheets.

There is a bias toward inflating the numbers in U.S. accounting.

1993

Buffett continues to like world markets.

Guinness itself already earns money in many different currencies.

Berkshire seeks to keep things simple, “so the chairman can sit and read annual reports all day.”

Long-term government bond rate (plus a point or two if interest rates are low) is the appropriate discount rate for most assets.

They would have no edge if they tried to evaluate every horse. They have an edge only if they pick their spots.

Generics have been doing well, but not all brands are alike.

Gillette has a much larger moat around its business castle.

Coke has a worldwide infrastructure that is very impressive.

“The failure rate of all great civilizations is 100%.”

When asked for great investment books to read, Buffett cited The Intelligent Investor.

The real key to investment success is to have the right mindset.

Stay within your circle of competence.

Few humans have an edge if they try to follow 40 companies or more (such as yours truly). Eight or 10 in a lifetime, or even one, will get you your return.

1994

“You don’t find out who’s been swimming naked until the tide goes out.”

Parsimonious Munger reputedly flies coach. The back of the plane invariably arrives at the same time as the front

Two criteria for evaluating the performance of management: 1 ) How well do they run the business? and 2) How well do they treat the owners?

Identify and keep good managers. Keep it fun and interesting, compensate them fairly based on performance and to leave them alone.

Munger added that they are agnostic on macroeconomic factors. Instead, they spend all their time on individual businesses.

Buffett’s preference is to buy the entire company.

Buffett and Munger took their annual shot at debunking modern portfolio theory.

He would prefer a steeply progressive tax on consumption rather than on income.

It is judgment that has utility in measuring price and value. What is needed is not quick information, but good information.

You cannot let the market think for you.

Beware projections. “Don’t ask the barber if you need a haircut.”

1995

‘Listen to your customers’ as a business principle does not require a 300-page book.

Munger claimed projections do more harm than good.

“Something with a lousy past record and a bright future, that’s an opportunity we’re going to miss.

Buffett noted that newspapers still have exceptionally good economics.

The ideal business has a wide and long-lasting moat around a terrific castle with an honest lord.

The moat represents a barrier to competition and could be low production costs, a trademark, or an advantage of scale or technology.

Even with U.S. national debt at 60 % of GDP (versus 125 % of GDP at the end of World War II), Buffett does not think the national debt is a big worry.

1996

Buffett explained the purpose of the “B” issuance was to head off the creation of unit trusts by brokerage firms.

Buffett spoke highly of Gates’ managerial talent and business focus. But, ever principled, Buffett said technology is just not something they want to bet on.

GEICO is an outstanding company with a low-cost distribution method and has widened its competitive moat by its focus on lowering costs.

Corporate stock buybacks add to shareholder value only if the purchases are made at prices below intrinsic business value.

One of Buffett’s tricks is that he keeps learning.

Buffett claimed that in 40 years, he has never gotten an idea from a Wall Street report.

Diversification makes no sense for someone who knows what they are doing.

Diversification is a protection against ignorance,

“Much of what is taught in corporate finance classes is twaddle.”

Soft drinks, candy, shaving, chewing gum — there’s not a whole lot of technology going into the art of the chew.

They love focused management.

Businesses should become more efficient, not less so.

He could not name one business ruined by downsizing, he could think of many ruined by bloat.

Buffett has long chastised the way stock options are handed out in boardrooms.

Munger said he preferred the old-fashioned way – have executives buy stock in the market.

1997

Buffett referred to Coca-Cola and Gillette as “The Inevitables” due to their massive market dominance.

Buffett claimed there will never be another major soft drink company. Coke’s infrastructure is incredible.

The restaurant business is much tougher than the razor business. With food, people will switch with competitive pricing. Meanwhile, Gillette sees few customers changing their shaving habits to save a few dollars.

At 15% a year, stock returns are growing far faster than the economy itself. Sooner or later, something has to happen.

A company with a ton of debt could be a candidate for foreclosure.

With commodity businesses, unless you’re the low-cost producer, these are poor businesses to own.

Berkshire seeks low-risk businesses with sustainable competitive advantages and strong capital structures.

Volatility is a huge plus to real investors.

Berkshire has seldom invested in technology,

Aristotle’s observation that systems work better when perceived as fair.

Buffett said he looks for a manager who bats .400 and loves it.

Stick to those who take their promises seriously.

Go with businesses that are understandable with a sustainable edge.

Munger remarked that the accounting of options is weak, corrupt and contemptible.

Buffett said the real sin is mediocre management. That is what costs the shareholders money. It is almost impossible to overpay for good management.

Find people with brains, energy and integrity, and you can own the world.

Munger noted that Buffett is the most rational person he has ever known.

Buffett’s ability to learn has been essential to the success of Berkshire.

Buy only understandable, predictable businesses.

See’s Candy taught them the virtues of a franchise-type business.

It is essential to learn from both the mistakes of others as well as your own.

Patton: “It’s an honor to die for your country. Make sure the other guys get the honor.”

Yogi Berra: “You can observe a lot just by looking.”

1998

1999

His focus has always been to find great businesses – with great management and great economics at a reasonable price.

With 4% – 5% GDP growth and 1% inflation, it is unlikely that corporate profits will grow faster than 5% – 6%. Otherwise, profits will eventually be greater than the GDP!

Buffett reiterated the importance of staying within one’s circle of competence.

Buffett believes GEICO’s direct model should grow more and more powerful.

Buffett sees that the Internet will have a huge impact on retailing.

Buffett believes Berkshire’s furniture stores, for one, will be little affected by the Internet.

Brand names will be important. Buffett doubts that people will go to brand “X” over the Internet.

It is tricky attempting to predict what changes in technology will do.

The greater the moat, the greater the certainty and the amount of future cash flows.

Peter Lynch has said, “Find a business any idiot could run because eventually one will.”

Buffett added that there is a big difference between identifying a growth industry and minting money.

Buffett contended that the average college student has the same standard of living as he does. Same food. No important difference in clothes, cars, TVs.

After you have enough for daily life, all that matters is your health and those you love. Likewise in work, what really matters is that you enjoy it and the people with which you work.

2000

“If share of mind exists, the market will follow.”

American Express, which has maintained a very special position in people’s minds about financial integrity and worldwide acceptance.

“You are mixing a good concept, such as the Internet, with irrational excess. But if you mix raisins with turds, they are still turds.”

The single biggest outcome of the Internet has been little understood: buyers are the winners.

If someone else is getting rich, so what? Someone else will always be doing better.

Buffett suggests that expectations of a 6% annual return in stocks over the next 17 years would be rational.

We should all employ an interdisciplinary approach to solving human problems.

By learning the primary models in each major discipline (such as compound interest and probability in math and break-points and back-up systems in engineering) and applying all of them, he asserts that people will make better decisions.

2001

Buffett concluded that stocks are a perfectly decent way to make 6% or 7% a year over the next 15 to 20 years. But anybody that expects to make 15% per year is living in a dream world.

Back in the 1970s, when the prospects for stocks were better, pension funds were using assumptions in the 6% range. Now, when prospects are way poorer, most pension funds have built-in assumptions of 9% or better.

Buffett said it will be interesting to watch how quickly assumptions change as pension shortfalls mount in the years to come.

Buffett explained that there will always be a battle between brands and retailers. The retailer would like his name to be a brand. And to the extent that people trust Costco or Wal-Mart as much as they trust the brands, then the value of the brand moves over to the retailer.

He went on to say that the muscle power of Sam’s Club and Costco has gotten very extreme.

Munger asserted, “It’s stupid the way we extrapolate the past. Not just stupid, massively stupid.”

It’s a mistake for any company to predict 15% growth.

Buffett advised younger attendees to start saving early.

Buffett asserted that the very best investment you can make is in yourself.

Buffett and Munger have repeated year after year that they seek to buy businesses with enduring competitive advantages.

A superior cost structure is often fundamental to a business’ sustainable advantage.

Understand a company’s costs and why it’s got a sustainable edge against its competitors.

Since airline travel is pretty much a commodity business, costs are the key factors.

Buffett anticipated that Berkshire might buy 40 companies, roughly two a year, over the next 20 years.

2002

Buffett noted there is nothing wrong with earning 6% to 7% on your money.

We each receive one body and one mind for a lifetime. You cannot repair them at age 60. You must maintain them.

Crooks – normally, they tell you things too good to be true. They have a smell about them.

Enormously successful companies as Wal-Mart, GE and Microsoft never mention EBIDTA.

Depreciation not only reflects a real cost, but the worst kind of cost.

Berkshire vastly prefers businesses where you get the cash up front (like insurance).

Taxes are a real cost.

Buffett and Munger shared their disgust with the flagrant abuse of stock options in corporate America.

Enron is one of the most disgusting examples of a business culture gone wrong.

Dollar-cost-averaging into a broad-based index is a reasonable approach.

The Nikkei Index returns over the past 13 years have been negative.

It’s crazy for Americans to assume that what happened to Argentina and Japan won’t happen to us.

Buffett has frequently used his “waiting for the fat pitch” baseball analogy to describe Berkshire’s asset allocation approach.

At least two-thirds of acquisitions are duds.

Temperament is very important, especially a willingness to go away from the crowd.

Know why things are happening.

2003

Buffett warned investors that management that refuses to expense options or has fanciful pension assumptions will likely take the low road on other matters as well. He cautioned, “There’s seldom one cockroach in the kitchen.”

“Everywhere you see ‘EBITDA’ in some analyst’s report, simply insert the words ‘bullshit earnings.’”

Inflation is the enemy of the investor.

Returns of 6% to 7% for equity investors seem a reasonable expectation and not bad in a low-inflation world.

The fail rate of all great civilizations is 100%.

One of the keys to a successful society is the perception of fairness.

One of the most remarkable qualities of his friend, Warren, is that he continues to get better with age and continues to keep learning.

Wall Street Journal and Fortune as favorite sources and included the usual corporate filings.

One thing Buffett said he never reads are analysts’ reports.

Success resided in waiting for the fat pitch.

Making money is no replacement for friendship and happiness.

They knew people with buildings named after them but had no one who loved them. That’s no way to live.

2004

For inflation strategies, Buffett suggested, as a first line of defense, that one increase his / her earning power.

As a second strategy, Buffett recommended owning businesses that can price through inflation and have low capital expenditures to maintain the business.

The worst sorts of businesses to own in an inflationary environment are ones that require lots of capital to stay in the game and provide no real return.

It is virtually ironclad that most people will get only a small return after inflation and taxes.

Avoid having “a lot of silly needs in life.”

Managers can make a lot of money at Berkshire, but the bonuses are always related to performance.

For a good compensation agreement, he advised, you must understand the keys to the business and keep it simple.

A 50-year retrospective shows only a very few companies were able to grow at even 10% or better over that period.

While intelligence is helpful, Buffett and Munger asserted that having the proper temperament was far more critical.

One must read a lot to be wise.

Most get confused by the mass of information.

Successful investing requires not extraordinary intellect but extraordinary discipline.

“What we learn from history is that people do not learn from history.”

God made the world so only math can understand it.

Buffett asserted that his underlying premise is that business will do well in America.

With low probability events, he asserted that people underestimate them if they haven’t occurred for a while and overestimate them if they occurred recently.

Conduct yourself so that if there is a financial crunch, you’ll get through.

They don’t believe in a lot of leverage at Berkshire. Throughout history, it is leverage that wipes people out.

Buffett summed up with regard to financial calamities: (1) don’t let it wipe you out, and (2) be prepared to take advantage. Berkshire is so positioned.

The key has been having incentives in place to get the right employee behavior. And for that, you must think the business through.

Buffett noted that most people underestimate how important good habits are.

Munger added that it is critical to “avoid dumb stuff” like going to the race track, risking AIDS, experimenting with cocaine or getting into debt.

2005

Poor Charlie’s Almanack

Buffett noted that he loves companies with untapped pricing power.

The U.S. is trading away $ 2 billion per day of her assets as we consume roughly 6% more than we produce. In time, our children will be paying “tribute” to foreign investors for our current over-consumption.

Buffett observed that if you take a centuries-long view, you will see that extraordinary things have happened.

Buffett added, “It’s Armageddon around here every day.”

Buffett shared that his number one concern was nuclear terrorism.

He also mentioned a website, LastBestChance.org.

After the NCB problem, Buffett sees education as the nation’s largest problem.

He believes that a good school system is like virginity: it can be preserved but not restored.

Buffett observed that mortgage terms have gotten easier and easier as housing prices have gotten higher and higher.

CEOs with big egos making precise predictions are kidding investors, themselves or both.

Too many compensation systems incentivize the wrong things.

Many corporate managers are told to submit budgets and quarterly estimates. This leads to a short-term focus.

At Berkshire, managers do not submit budgets.

General Motors could be said to be owned by its retirees, with $90 billion in retirement benefit obligations compared to just $14 billion of equity for shareholders.

Buffett noted the best way to find great managers is to look at the record.

Munger noted that Berkshire does no asset allocation. They merely go where the opportunities are regardless of categories,

He stated his belief that a rich country should take care of the young and the old, so Social Security should not be taken below its current level.

He figured a logical way to handle future spending needs would be a consumption tax.

Munger declared that Social Security is one of the best things government has ever done.

Buffett thought to earn 6% to 7% in stocks over the long run would be a reasonable expectation.

Buffett stated that he is an enormous bull on the U.S. economy long term.

2006

Buffett was especially taken by ISCAR CEO Eiton Wertheimer and his family-style culture, which was reflected in the fact that ISCAR was not put up for auction.

Buffett has been very patient sitting on the Berkshire cash horde through a period of very low short-term interest rates.

So it is envy, not greed, that is the dominant sin among investment bankers.

Buffett opined that envy is the least fun of the seven deadly sins because it leaves you feeling awful.

Munger emphasized that Berkshire does not train executives, it finds them.

Buffett asserted the real question for boards of directors to consider is, “To what extent do the managers think like owners?”

The key is knowing the edge of one’s circle of competence.

Buffett noted that, as a general rule, he ignores what is hot.

“How can you gain a significant competitive advantage?” With commodities, if you get too many producers, you’ll have poor returns.

Buffett informed the crowd that he sold his much-heralded silver position some time ago for a modest profit.

Costing around $45 per square foot, manufactured homes offer good value.

Munger sees the same sins that collapsed the manufactured housing industry five years ago resurfacing in the stick-built industry.

Buffett noted that loose lending has run amuck.

So media economics will continue to deteriorate as competition increases. For newspapers, TV and cable, the future will be less attractive than the past.

He called it a very high probability that the U.S. currency will weaken over the years given our current policies.

Buffett predicted currency markets will be a catalyst for some future decline.

The CPI understates inflation.

Buffett noted that often the best opportunities come in the midst of some convulsion. The key is to buy when others are paralyzed.

The key is to follow logic rather than emotion. Focus on what is important and knowable rather than on public opinion.

“Any calls you get on Sunday, you’re going to make money.” Those rare calls are the best since they are inevitably from seriously distressed sellers.

Munger noted that the chance of going 60 years with no nuclear events was close to zero.

Berkshire has the lowest turnover of any major company, and that is attributable to the owner attitude of Berkshire’s shareholders.

2007

Buffett noted that he and Charlie have seen guys go broke or close to it because 99 of 100 of their decisions were good, but the 100th did them in.

“History doesn’t repeat itself, but it rhymes. We’ll have something that rhymes.”

Buffett believes the dollar will likely decline against most major currencies over time unless current policies change in a major way.

He concluded that it is easy to get anchored in your own currency.

Buffett concluded that it will be at least a couple of years before real estate recovers.

It’s an enormously difficult thing to run a big company, so the greater sin is having the wrong person.

Buffett’s view is that the most important job of the board is to pick the right CEO.

The second most important job is to prevent the CEO from overreaching, which often happens in acquisitions.

Buffett noted that earnings at The Buffalo News are down 40% from the peak.

Similarly, the shift to the digital world has decimated World Book Encyclopedia, where unit sales have dropped from 300,000 to 22,000.

Buffett asserted that to a large extent, gambling is a tax on ignorance.

Buffett favors great businesses, which he defines as those having a high return on capital for a long period of time, where he thinks management will treat shareholders right.

He added that he has no system for estimating the correct value of all businesses.

Buffett has taught in past years that it is important to know the one or two key factors in each business you own.

Finally, Buffett stressed the importance of staying within one’s circle of competence.

Munger has often extolled Buffett’s relentless thirst for learning, calling him a “learning machine.”

Buffett agreed that he is big on reading everything in sight and recommended good investors should read everything they can.

Fill your mind with competing ideas, and see what makes sense to you.

In an interesting point, Buffett again noted that you need something in your programming so that you don’t lose a lot of money.

Buffett begs to differ, asserting volatility does not measure risk. Beta is nice and mathematical, but it’s wrong.

Buffett believes that real risk comes from the nature of certain kinds of businesses, by the simple economics of the business and from not knowing what you’re doing.

We have often recommended to our friends and clients George Clason’s classic, The Richest Man in Babylon,

So he decided he would sell himself the best hour of the day to improving his own mind, and the world could buy the rest of his time.

2008

Buffett suggested reading his old standby, The Intelligent Investor.

Just as the priesthood of Biblical scholars would not have much to do if the masses simply followed the 10 Commandments, so do business school professors need something to teach and impress the students.

Buffett asks whether the manager loves the money or loves the business. If they love the business, they’ll be a good fit for Berkshire.

He suggests the “newspaper” standard: behave as if your actions will be on the front page of the local newspaper. Berkshire has no budgets or earning goals, which eliminates some of the perverse pressures that infect most other large companies.

Buffett warned years ago that the U.S. dollar was at risk with our ever-expanding trade deficit.

As a result, Buffett is happy to earn profits in currencies other than the U.S. dollar. That can happen through stock ownership (Coca-Cola earns 80 % of its profits overseas) or through the direct purchase of foreign companies.

Buffett noted how China is now unleashing its potential in a more open society. The talent was always there. It was just suppressed for so long.

Munger rued that elite schools teach that the secret of investment management is diversification. They have it backasswards he asserted. Non-diversification is the key.

The danger, according to Buffett, isn’t that we will run out of oil, as is sometimes heralded by the press, but that daily production will level out and then slowly decline over time.

Munger noted that it is stupid to use our limited supply of hydrocarbons as fast as we are.

Munger believed that we need to use the sun – there is no other alternative.

Buffett noted that this simplicity is a big advantage. Mars came to Berkshire because they knew no lawyers were needed. The folks at Mars knew that at Berkshire, a deal’s a deal, and the check will clear.

Buffett observed that big food companies are good businesses. They earn good returns on tangible assets. Good brands like See’s, Coke, Mars, Wrigley’s are tough to compete with.

Buffett noted that the size of a bank means little to him. What really counts is the culture. He wants a bank CEO who has risk controls in his DNA.

Buffett noted that one of the greatest risks to civilization continues to be nuclear proliferation.

Munger believes CEOs taking compensation have a moral duty not to take the last dollar. Like Supreme Court justices, they should choose to be underpaid.

Seriously, he noted the importance of a good mental attitude, to love what you do and to do it with other people who love what they do.

He also noted that getting the right spouse is essential.

Recommended that many could benefit by forcing themselves to learn public speaking at an early age.

Buffett suggested the best investment one can make is in oneself.

Buffett admitted that the focus has been on the mind at Berkshire. He and Charlie didn’t bother to work too hard on the body.

He strongly recommended Robert Cialdini’s book, Influence, for the task. He also recommended Cialdini’s newest book, Yes,

Buffett reflected that he devoured books from an early age. He spends much of his day reading books, annual reports and newspapers.

2009

Buffett and Munger were both complimentary of the government’s actions in the midst of crisis and are optimistic for the recovery of the banking system.

Wells Fargo has a fabulous business model. With Wachovia, it picked up the fourth largest deposit base in America.

Munger noted that a lot of spreadsheets and fancy math can lead to false precision and worse decisions.

In fact, he suggested, if you have a high IQ, keep your 120 and sell the rest. Higher math can lead you astray.

In valuing businesses, it is important to understand the language of accounting, to stay within your circle of competence, and to focus on what is meaningful and sustainable.

He went on to say that there is one big no brainer that would hugely improve U.S. industry and commerce, and that is to build a nationwide electricity grid.

Buffett noted that the Berkshire culture and business model are very difficult to copy.

They run the business without teams of lawyers and bankers. Management is decentralized and incentives are rational. The culture is constantly reinforced as the managers see that it works.

Our reputation is that we buy to keep, and people can trust us on that.

Buffett guaranteed that the dollar will buy less over time,

All major nations are electing to run major deficits in the face of the economic crisis.

The best protection against inflation, according to Buffett, is your own earning power.

The next best thing is to own wonderful businesses, especially those that have low capital requirements.

As for retail, Buffett sees a big change in consumer behavior going for the low-priced products, and he suspects it will last quite a long time.

Munger was very excited about Berkshire’s attempt to acquire 10% of BYD, a Chinese manufacturer.

Now, the company aims to take on the auto world from a standing start by building electric cars.

Lithium batteries are needed in every utility function.

For all its flaws, the capitalist system works, unleashing human potential.

He noted that mankind is getting close to solving the technical problem of our time – solar power. Cheap, clean, storable power will change the world.

2010

He emphasized that there is no possibility of U.S. default – because it prints its own currency and can simply print more money.

Munger added that unfunded promises are miles bigger than the reported problem. It can work out as long as the economy grows. If growth stops, you have a very difficult problem.

We will have higher inflation in our future.

Buffett noted that the culture at Berkshire now is strongly self-reinforcing.

He added that it’s really tough to change an existing culture.

Buffett emphasized how important it is to form good financial habits early in life.

McDonald’s has been a great educator for the American workforce. It teaches folks to show up on time, do their work efficiently.

BYD will work out well as it solves significant world problems with its batteries and electric cars.

Stocks would be better than bonds or cash over the long run.

Munger was less sanguine, saying that equities were the best of a bad lot of opportunities and that he sees a long period of dull returns ahead.

Today, oil is not so essential.

Munger asserted that solar power is coming because it is so obviously needed.

Buffett repeated his old mantra that successful investing requires the right temperament – to be greedy when others are fearful.

Buffett suggested that most people would invest better with no daily stock quotations. Buy a good business, and hold it for a long, long time.

Buffett shared that there’s nothing like following your passion. That’s the common factor with all of Berkshire’s excellent managers – they love what they do.

Spend less than what you make. Know and stay within your circle of competence.

Keep learning over time. Don’t lose. Insist on a margin of safety.

Munger reminisced that the only business course he ever took was accounting.

The main problems of civilization are technical and solvable, all with energy, with huge benefits for civilization.

Maintain low expectations – that is the key to happiness.

Do what works and keep doing it. That’s the fundamental algorithm of life – REPEAT WHAT WORKS.

2011

By separating the chairman and the CEO positions, Berkshire can more easily correct mistakes with CEOs that don’t work out. Fire one, hire another if need be.

Since 1776, America has been the most extraordinary economic story in the world.

Buffett predicted that in the next 100 years, we will have 15 to 20 lousy years and that we’ll be so far ahead.

“Europe had the Black Death where one – third of the population died. The world will go on.”

Buffett declared the best inflation hedge is a company with a wonderful product that requires little capital to grow.

Category 1 – Investments denominated in a currency.

Any currency investment is a bet on how government will behave.

Category 2 – Investments that don’t produce anything but you hope to sell at a higher price.

Gold, for example.

Category 3 – Investments in assets that produce something.

Munger added that gold is a peculiar investment in that it only works if everything goes to hell.

Buffett concluded that he will bet on good businesses to outperform gold.

Buffett shared his usual advice that the average investor would do fine to simply buy shares of an index fund over time.

The next 50 years will not be as good as the last 50 years for skilled investors.

He added that lowering expectations was how he got married – “My wife lowered her expectations.”

Munger added that one advantage of buying into cyclical industries is that many people don’t like them because the earnings are so unpredictable.

Munger felt it was a huge mistake not to learn more from the subprime mortgage debacle.

Finance attracts the same sort of people who are attracted to snake charming.

Those institutions that put society at risk and fail should leave the CEO and spouse dead broke.

Costco (the $ 80 billion membership warehouse club retailer) is the best in the world in its industry.

It’s a meritocracy that takes it as its extreme ethical duty to pass along savings to its customers,

Costco has the right ethics, diligence and management to continue its winning ways

Basically, at Berkshire, cash is always in Treasuries.

2012

St. Augustine, “Everyone wants fiscal virtue but not quite yet.”

Buffett asserted that American banks are in far better position than European banks.

Munger noted that we have a full federal union, so we can print money. He’s comfortable with the U.S. system.

Greenspan was wrong with his laissez-faire policies. It is the duty of government to step on bad behavior.

Buffett noted that surprises like this are why Berkshire’s overriding principle is to reserve conservatively.

Buffett insists that Berkshire keep at least $20 billion in cash.

Buffett’s key to motivating Berkshire’s managers is giving them room to paint their own paintings.

He likes painting his own canvas and getting applause for doing well. So he seeks managers who are wired in the same way, giving them the paintbrushes and compensating them well for good performance.

Berkshire managers don’t have to talk to shareholders, lawyers, reporters, etc., so they can focus on their businesses.

Regarding compensation consultants, he suggested prostitution would be a step up for them.

Buffett asserted that The Intelligent Investor chapters 8 (Mr. Market) and 20 (Margin of Safety) give you all you need to know. Build into your system that stocks get mispriced.

In the next 20 years, Berkshire will be significantly overvalued and undervalued at different points.

He asserted that we would have been better off to keep oil and gas, the hydrocarbons that are the single most precious resource of the U.S., in the ground over the last 50 years.

“Energy independence is stupid. We want to conserve it and use the other fellow’s resources.”

Buffett and Munger took their annual shot at modern portfolio theory and the business schools that teach it.

Keep plenty in reserves, and go low on debt.

Railroads are an extremely efficient and environmentally friendly way to move goods.

It takes the railroad one gallon of diesel fuel to move one ton 500 miles. Trucks cost three times more. Railroads move 42% of all intercity traffic now, offering very powerful economics compared to the cost, congestion and emissions of moving by roads.

While the economics are not as good as they once were, newspapers still have a role to play.

Buffett suggested that investors stay away from businesses they don’t understand well.

You want to be able to have a decent idea of what the business will look like in 5 – 10 years, then wait for a crazy price.

Avoid new issues.

Use filters so that you don’t waste time on unproductive ideas. Avoid big losses.

Buffett noted their constant study of others’ disasters has helped them enormously.

Buffett took note of how Richard Branson’s Virgin Cola came and went, joking that a brand is a promise, but he’s not sure what the promise was with Branson’s product.

Buffett also declared that no one will ever build another railroad.

Munger noted that all it takes is one competitor to ruin a business.

With $48,000 in per capita GDP, America is a rich nation. However, far too much compensation has gone to the top executives over the last 20 years. The tax code has encouraged this trend.

Meanwhile, medical costs equal 17% of GDP, a seven-point disadvantage to the rest of the world. Medical costs are the tapeworm of American industry.

Munger opined that it is time for a value-added tax.

2013

Well-run companies with winning business models are taking market share from the less well-run. Those companies with scale can more easily deal with the increasing regulation and complexity of modern society. We love the little guy, but the way to bet has been on the big. GEICO is getting big fast.

Low-cost providers usually win in commodity-type businesses.

“Well, obviously, we’re not going to copy the oddball things every competitor does when we’ve got an operation that’s working so well.”

Berkshire’s advantage is that they don’t have such pressures – “we just don’t give a damn.” Munger added that the Bible says things like, “You can’t covet your neighbor’s ass,” for a reason. Borrowing from past comments, he finished with, “Even worse, envy is the one sin that’s no fun.”

“Anything Wall Street can sell they will. You can count on that.” Munger added, “They’ll throw in a lot of big words, too.”

Buffett stressed that he and Charlie don’t pay any attention to macro forecasts.

Buffett acknowledged that as Berkshire gets bigger, it gets harder to move the needle, and returns, although satisfactory, will not be as good as in the past.

Berkshire’s success will also depend on opportunities provided by turbulent markets.

Buffett added that if you buy a great business for what appears to be a high price, it’s seldom a mistake.

Buffett declared that he thinks the dollar will be the world’s reserve currency for some decades to come.

Munger continued, “Well, if you stop to think about it, every great civilization of the past has passed the baton.”

Munger indicated that he is worried about inflation and that the next century will be harder.

Buffett continued, “Interest rates power everything in the economic universe.”

“Berkshire is the 800 number when there is a panic in the markets.”

Buffett pointed out that when the investment tide goes out, you will see who has been swimming naked.

Stay sane when others are crazy.

Treat subsidiaries as they would want to be treated.

You shouldn’t make important decisions when you’re tired.

They don’t waste energy on the ordinary things that come up every day.

Buffett asserted that health care costs are the biggest threat to American competitiveness.

He thinks the key to life is that the old virtues still work, like plugging along and staying rational.

Bill Gross recently made comments that his generation of investors owed a lot of their success to the timing of their birth.

Buffett said he envies the baby being born today in the United States. That’s the luckiest individual ever.

Munger confidently predicted that there will be more solar generation in deserts than on rooftops.

Overall, he thinks that U.S. banks are much stronger than they’ve been in 25 years.

He added that our banking system is far stronger than Europe’s.

He noted we will always have bubbles because it is the nature of capitalism to go to excess. That’s what humans do.

The important thing will be to preserve the culture and that picking the right CEO will be the key to that.

The wrong sort of person would be rejected like “foreign tissue.”

Munger continued, suggesting that if 50 years ago, someone would have said that Buffett would manage a huge firm like Berkshire from Omaha, Nebraska, with a tiny office staff, people would have said it could never work. But it has.

2014

He clearly believes equities are the superior choice to bonds and cash at this time.

Buffett loves banks.

The Big Four get plenty of press: Wells Fargo, Coca-Cola, American Express and IBM.

Buffett has modeled a rational, intelligent and sometimes inspired approach to capital allocation.

Berkshire has been on a buying spree of capital-heavy businesses, highlighted by his “Powerhouse Five”: MidAmerican Energy, Burlington Northern Santa Fe, ISCAR, Lubrizol and Marmon Group.

Being able to think and invest very long term and not worry about current earnings or Wall Street analysts can be a major competitive advantage.

Buffett said he prefers to keep the balance sheet super strong.

Berkshire has famously not paid dividends.

2015

The lack of skill that many CEOs have at capital allocation is no small matter.

Intelligent capital allocation is the essence of sound wealth-building.

He quoted the Russian worker who said, “Everyone has a job, and it all works out. They pretend to pay us, and we pretend to work.”

“Efficiency is required over time in capitalism.”

Interestingly, Buffett does not see any scale advantages to owning auto dealers. Most dealerships work on local considerations.

A key one is whether they have a good idea of how the business is going to do over the next five or 10 years.

Buffett wants people to run the business the same way after selling to Berkshire as they ran it before selling to Berkshire.

Munger sees IBM as “a very admirable enterprise bought at a reasonable price.”

Buffett asserted that Berkshire’s culture runs deep.

Culture comes from the top according to Buffett. The leader must be consistent, communicate well, and reward proper behavior and punish misbehavior.

Buffett countered that Coca-Cola has a very wide moat.

He predicted that 20 years from now more Coke will be consumed than today.

Buffett reiterated that a strong brand is really powerful, though you do have to build them and promote them.

Buffett noted that he would have never predicted five years of zero interest rates.

Fortunately for shareholders, macro predictions are not essential to the Berkshire process.

Renewable energy costs are becoming more competitive.

Buffett noted that all of his and his families’ net worth is in BRK.

One ratio that Buffett is known to track is the total market cap to GDP.

Another number that Buffett has mentioned is the ratio of corporate profits to GDP.

2016

Berkshire has done it with no corporate budgets, no quarterly earnings projections — focusing instead on adding sustainable and growing earnings power.

This is a departure from the early years at Berkshire when they owned cheap stocks and easy-to-operate companies. Now, they’ve learned to find great managers, which creates an opening to own more complex businesses.

He noted that he learned early in life that his favorite employer was himself.

Amazon’s created a big advantage with its intense focus on developing millions of satisfied customers.

Adaptation to the Internet by the American public has been amazing.

Buffett likes peanut brittle and flavored drinks. People should be free to choose to do what they like.

Munger went even further by suggesting that if you disagree with someone, you should understand their side better than they do before you open your mouth.

Berkshire will continue to have a large appetite for renewable energy development.

The great danger is when there are discontinuities that cause the system to stop such as World War I, September 11, 2001.

Buffett noted that a major cyber, nuclear, or biological attack is a near certainty that will happen at some point.

Buffett reminded folks that to buy a stock is to buy part ownership of a business.

Munger added, while it’s difficult, to look for people you can trust in dealing with investments.

Buffett assured that American business will be fine over time. Don’t be envious. Follow your own course.

Buffett noted that monopoly and bureaucracy were widespread in higher education in America.

For too many schools, the purpose of the endowment is to make a bigger endowment.

In sum, you can skip the fees and get the performance of American industry by owning an S&P 500 Index fund.

Buffett noted that Berkshire selects board members with (1) business savvy, (2) shareholder orientation, and (3) special interest in Berkshire.

All Berkshire board members have bought stock in the open market. There are no stock options.

Buybacks above intrinsic value destroy value.

Cyber, nuclear, biochemical, and chemical attacks – it’s just a matter of time because a percentage of the population comprises psychotics, megalomaniacs, and religious fanatics.

He loves to know all the details of a business.

He noted that Warren’s gift is that he thinks ahead of the crowd. He thinks in such a clear way.

Buffett quoted Yogi Berra:“ You can see a lot just by observing. ”

Munger concurred, noting that the essence of it all is the quality of the business and the human quality of the management. Neither can be assured by “due diligence.”

Buffett suggested that all kinds of companies have people not doing much.

He concluded that a lean staff is always better.

Munger noted the importance of proper incentives. You get what you reward for.

GEICO uses just two variables that apply to its 20,000 employees’ laddered bonus program: (1) growth in policies in force and (2) profitability of seasoned business.

2017

Focus on intrinsic value growth, not reported earnings.

Each business will have a couple of unique factors that are essential in evaluating its progress. Often, those unique factors are not immediately reflected in the reported earnings.

Another lesson is how Berkshire’s laser focus on long-term intrinsic value growth and comfort with lumpy earnings puts it at a major advantage compared to its publicly traded peers.

Under pressure from analysts, shareholders, and other constituencies, public companies are often driven to forgo the long-term, rational decision in favor of short-term gratification.

Buffett noted that driverless cars were a threat to both GEICO and the railroads.

These five companies (Alphabet, Amazon, Apple, Facebook, Microsoft) require no equity capital to run them.

It’s a very different world.

Munger observed that what Amazon has done was very difficult and not at all obvious. Missing Google was worse.

Munger concluded that Jeff Bezos is a different species.

He praised Bogle for his lifelong championing of the idea of index funds.

Munger joked that a hedge fund manager was asked, “Why do you charge 2 and 20?” The manager replied, “Because I couldn’t get 3 and 30.”

Berkshire leans heavily on principles of behavior rather than loads of rules. He claimed that a culture that self-selects is better than a 1,000-page manual.

“Lose money for the firm and I will be understanding. Lose one shred of reputation for the firm and I will be ruthless.”

Although every situation is unique, in general, he loves a competitive advantage that can last for decades, talented and eager managers who fit the Berkshire culture, and of course, a good price.

He noted that life properly lived is learning, learning, learning all the time.

He summed up that what you want is an economic castle with a very wide moat and an honest, talented knight to handle marauders.

Buffett affirmed that Berkshire is built to last.

Berkshire’s culture is significantly more shareholder – oriented than that of the companies in the S&P 500.

Munger noted that, if things went to hell in a handbasket, Berkshire would do much better. While he doesn’t wish adversity on anyone, Berkshire benefits from times of chaos.

Farming, steel, retail — all these areas have always been getting more productive. America is a story of constantly finding better ways to do things.

While it wasn’t fun, it was pro-social for textile production to move where it could be more efficiently done.

With artificial intelligence, Buffett observed that more change will be coming. Almost certainly it will cause less employment in certain areas while being good for society overall.

He wrapped up the topic by opining that change will continue, but it won’t happen that quickly — so people don’t need to worry so much.

Buffett predicted that in the next 10 years, Berkshire will have significantly more money invested in utility systems

Buffett labeled medical costs the tapeworm of American economic competitiveness. The rest of the world spends 5% – 10% of GDP on healthcare, mostly with socialized medicine.

However, vested interests are hard to change. We are in love with our lifesaving technologies. The system is crazy, and the costs are wild.

The Big Idea: use a backhoe to topple and then use forks on the backhoe to move into brush piles.

• I know what you’re up to… you’re on a mission to reveal your land. You want to show it off by uncovering its natural attributes.
• I don’t favor clear cutting – the practice of cutting all sizable plants from a tract of land.
• I could hire, in my upstate New York hometown, a skilled chainsaw man for $15-$20 an hour. That’s only for his saw and labor. Using it, he can drop whatever’s in his way.
• I found a skilled and honest young logger who owns a small log skidder who could saw anything, then use his skidder to cinch debris and pull it to anywhere on my land. He charged $45 an hour.
• I haven’t used any tree surgeons in my land-clearing project. A tree surgeon is a good choice to get rid of one problem tree in the middle of your beautiful lawn.
• My first mission was to begin to grasp the size and scope of my project. I traveled light with safety glasses, gloves, and a machete.
• There’s a breed of brush mowers out that I bet could cut down sunflower stalks and sumac shoots pretty well.
• Skidders: I’ll get skidders out of the way first, cause it didn’t take long to conclude a skidder wasn’t right for me. A skidder is a great tool. It bends in the middle for tight navigation. All its tires are equal size, so it’s very stable and can crawl over and around anything. They often have a small dozer blade in front for pushing and piling. The wire ropes and winch allows you to cinch onto quite a load of logs or debris piles and drag them a long distance in good time. However: A skidder can’t dig or grade. It doesn’t have the strength of hydraulic pistons. The operator has to get out of the machine to grab onto debris. If I can only have one machine, then a skidder isn’t the one that’s best for me.
• Bulldozers: I was more serious about bulldozers. They’re very powerful. Dozers don’t get flat tires. They can grade, actually change the shape of the terrain, and not just scrape it. You can work stumps and boulders out. However: I gathered from talking to lots of people that bulldozers generate a lot of vibration and can gradually shake themselves into maintenance problems. Bulldozers are only doing work when they are in motion. Consequently, the machine is always working, unlike and excavator or backhoe, that set up and use other mechanics to do some of the work. Replacing undercarriages is expensive. I wasn’t going to be buying a new machine, no matter what type it was, and was therefore concerned about undercarriage wear. Bulldozers are not fast. I wanted to be able to remove debris at least 1000 feet or more to a stump dump. That’s a lot of additional running for a tracked machine. So again, if I can only have one machine, then a bulldozer isn’t the one that’s best for me.
• Excavators: I thought a long time about excavators. I actually think I was close to going that route. They are very popular now, almost the hip thing to have. They come in all sizes. They are stable and have a light footprint on the ground (low ground pressure per square inch) because of the tracks. You don’t have to change seat positions to switch from moving the machine to digging. The reach is 360 degrees for fewer machine moves. Visibility is excellent and they don’t have stabilizers to deploy every time you move. The machines generally weigh less than comparable backhoes and are easier to transport. However: I still wasn’t going to be buying a new machine, so since they are tracked machines like bulldozers, I was still worried about undercarriage and track condition. Excavators are slow. I’d grow old waiting while dragging debris to the dumping area and waste the undercarriage if I did. When an excavator is fitted with a dozer blade, it’s small and not designed to deal with large brush piles. The blade is worthless. There’s no loader capability. I didn’t realize at the time how important it would be to have a front-end loader. As much as I like the features of an excavator, if I can only have one machine, then it’s not the one.
• Backhoes: I backed my way into a backhoe. When I was a kid, I wanted a backhoe. Well into adulthood I said to people, “If you ever see me with a backhoe, you’ll know I’ve made it!” However, in the last few years, backhoes have started to feel like has-beens to me, overtaken by the new and fashionable excavator breed. All the extra turning of the seat and the raising and lowering of arms and buckets for stability now seemed unnecessary and clunky. It took awhile to see them again for what they are – an extremely versatile, all round, go fast, dig deep, lift high, load heavy, kind of machine that deserves a lot of respect. This was confirmed when I started asking excavator contractors I know, “What machine would you choose if you could only have one?” I think you know the answer. However: Backhoes can get stuck, get flat tires, you have to swivel the seat around all the time, you have to raise and lower the flaps, you have to move the machine a lot.
• Regarding the type of machine I was looking for, I decided it was a backhoe.
• Of all the miscellaneous tools and equipment I had gathered and was using, there were three absolutely indispensable tools I needed to pull off a big land clearing project. They are a backhoe, a pair of forks, and a front-end loader rake.
• All the steps and techniques I used to transform a thickly overgrown and treed area into a cleared one, fell into six defined categories: Toppling, Plucking, Piling, Lifting, Moving, and Dumping.
• I’d like to say how much fun I’ve had and satisfaction I’ve felt from the work associated with this project.

The Big Idea: always try to make things easier for customers.

INTRODUCTION

Eliminating or reducing friction can have long-lasting and even disruptive effects.

Stamp out ridiculous rules, pointless procedures, and meaningless meetings.

Become a relentless advocate for the customer and minimize customer effort.

PROLOGUE: Engine of Disruption

The roads the Romans built were amazing feats of engineering and construction technology.

The level of logistical superiority demonstrated by the Romans gave them an enormous advantage in conquering and holding territory.

Sometimes, making things easy requires hard work.

CHAPTER 1 The Friction Evangelist

When you reduce friction, make something easy, people do more of it. — Jeff Bezos.

This focus on reducing friction is a key reason for Amazon’s emergence as the world’s biggest, fastest-growing retailer.

1-Click works because Amazon has implemented a host of friction reducing tactics, many of which have to do with security.

A key element of Amazon’s success is observing customer behavior and making changes to reduce effort and annoyance.

Amazon introduced “frustration-free packaging.”

The monetary value of abandoned shopping carts is not only more than double the amount of commerce sales, it’s bigger than the US budget deficit.

How does one get easier than a single click?

Amazon has offered subscriptions for products you buy on a regular basis.

Alexa eliminates most device friction by responding to and acting on voice commands.

Alibaba is reducing friction by combining every way the customer might want to both shop and obtain or consume their product in a single store / app concept.

CHAPTER 2 Retail Disruption — Nineteenth and Twentieth Centuries

Montgomery Ward showed that making shopping easy could create explosive growth.

By the turn of the century, Sears’s revenue edged ahead of Montgomery Wards.

The remarkable efficiency achieved by Sears was attained without computers, robots, or, in the earlier years, even telephones.

In 1962, Sam Walton opened his first store in rural Arkansas.

Taking a page from the mail order giants that preceded it, Walmart built an impregnable base of rural stores first. Then, it used the high-volume cost advantage gained from these stores to begin moving closer to big cities.

Walmart itself is subject to disruption by e-commerce giants Amazon and Alibaba.

CHAPTER 3 Transportation Disruption

The development and proliferation of railroads was the first major reduction in transport friction of the century.

Then the automobile changed everything.

In 2010, after a short test in New York, UberCab launched its service in San Francisco.

Uber and its ride-sharing peers opened our eyes. Suddenly, when most of the taxi friction was removed, we could see it for what it was.

One of the best parts about driving for Uber and Lyft is how frictionless onboarding can be.

Uber and its ride-sharing peers wisely focused on customer experience first.

Uber and Lyft have tried to take friction out of every part of the driver experience, including easy onboarding of new drivers and nearly instant payment.

CarMax, meanwhile, continues to emphasize their low-friction experience. The headline describing their shopping experience reads “We Make It Easy.”

With much of their manufacturing infrastructure destroyed, Japan had no choice but to rebuild from scratch. This enabled them to leapfrog established rivals by using newer technology as they built more modern facilities.

Kaizen = continuous improvement.

Muda is the Japanese term for waste that encompasses wasted materials, effort, and time.

A key element in the Japanese approach to lean manufacturing is to make the work as easy as possible.

Waste, they were told, would lead to higher car prices and lower sales.

Just about every organization has its share of muda that, if eliminated, will make the work easier and let people get more done.

CHAPTER 4 Digital Disruption

Google’s dominance in search is unchallenged.

They are very good at producing the result.

They make it very, very easy to get that result.

Even in those early days, Google’s home page was nothing more than a search box surrounded by white space.

The combination of simplicity and accuracy drove Google’s dramatic growth.

Google’s relentless pursuit of minimum user effort to get the desired information has enabled it to retain its dominant position.

Can you anticipate your user’s or customer’s needs and offer time-saving choices?

Both Instagram and WhatsApp grew to a size where the network effect kicked in.

In Hooked: How to Build Habit-Forming Products, Nir Eyal explained how products became habits by using the Hooked model, a circular series of four steps: 1. Trigger 2. Action 3. Reward 4. Investment.

The model works in a circular loop, with the user’s brain continuing to seek the rewards offered by the app. The more cycles the user goes through, the more using the app becomes a habit.

Unless users are highly motivated, even a little friction in the onboarding process can stop them in their tracks.

Dan Ariely says “free” is very appealing to our brains.

The freemium strategy has paid off for Evernote.

For some users, a credit card requirement is simply friction.

Across all social media platforms, Hootsuite emerged as the tool of choice for power users like social media managers.

Hootsuite avoids initial credit card friction and eliminates any risk for users in evaluating the product. Hootsuite’s early goal was to convert 5 percent of their users into paying customers.

One simplifying strategy used is to begin with smart defaults.

One firm sends out many handwritten notes to customers, often eliciting a surprised and pleased reaction from customers used to impersonal e-mails.

Dr. Robert Cialdini, author of Influence and Pre-Suasion, found that complimenting someone was one way to invoke liking, one of his seven (originally six) principles of influence.

In a software space where technology can often be intimidating, this kind of reassurance can keep users engaged.

Amazon appeals to our hunter-gatherer instinct to collect more stuff with minimum effort. Easy stuff is the best stuff, because it consumes less energy and gives you time to do other important things.

While competitors focus on delivering “more for less, much of the success of Apple, Amazon, and the others is based on “removing obstacles and time killers from our daily lives.”

CHAPTER 5 The Science of Friction

Decreasing friction increases action.

Henry Ford’s early cost advantage in the auto industry could be explained not just by its innovative assembly methods but also because the company made its own parts and even steel.

Daniel Kahneman and Richard Thaler showed people were more irrational.

Endowment effect predicts that you will value an item that you own more than the same item owned by someone else.

While scale and integration can indeed increase efficiency and reduce costs, it can also add complexity to an enterprise.

There are many frictions in the labor market.

As in other areas, the Internet has helped reduce friction in the employment market.

Beyond employment ads, Craigslist killed most newspaper revenue from other categories of classified ads as well.

Daniel Kahneman in 2002 and Richard Thaler in 2017.

Behavioral economists have shown that people don’t always behave in the rational, logical way that traditional economists and their models predict.

Friction is the mortal enemy of motivation.

High motivation can overcome friction.

Or, if you are selling a product, you can make your price lower than competitors’. But these alternatives are rarely better than making the action easier to accomplish.

The Law of Least Effort, sometimes called the Principle of Least Effort, says that given a choice, people will choose the option that requires the smallest amount of work.

The minimum friction option is usually to ask for one piece of information only — an e-mail address.

Adding friction in the form of a couple of qualifying questions will reduce the number of leads. But, the leads collected would be of higher quality and the action taken by the company could be more targeted and effective.

CHAPTER 6 Decision Friction

Thinking is to humans as swimming is to cats; they can do it but they’d prefer not to.

Too many choices can create friction.

Amazon uses a variety of techniques to combat paralysis of choice. First and foremost, its review system provides a powerful way for consumers to distinguish between apparently similar items.

Amazon guides customers by flagging products as “Amazon’s Choice” or “Bestseller.”

If you are going to offer customers many choices or options, reduce decision friction by guiding them to the best choices.

In the countries with extremely high donation rates, enrolling as an organ donor is friction-free.

The easiest way to avoid decision fatigue is to eliminate the decision completely.

Assuming a decision is necessary, whenever possible make your desired choice the default.

Making decisions requires mental effort and consumes scarce resources.

Any decision point, large or small, is friction. If you are hoping for the other person to take some action, eliminate any decisions that aren’t absolutely necessary. Where choices must be made, present a default if one option is the most commonly chosen.

CHAPTER 7 Customer Experience and Friction

Many marketing experts emphasize the importance of customer delight.

But, there are three problems with that advice: your story isn’t going to break the Internet, it doesn’t scale, delight doesn’t drive loyalty.

Reducing Friction tops delight.

It turns out that customer effort has a huge effect on what people say.

Is there anything more infuriating than being transferred from person to person in an organization and having to repeat your personal information or describe the problem each time ?

Delighting your customers occasionally is fine, but it shouldn’t be your primary strategy if you want to build loyalty. Instead, increase sales and loyalty by reducing customer effort. Resolve issues in a single contact, preferably with one person.

People often say they want more choice, but more choices make deciding difficult and increase post-purchase anxiety. The better approach is “prescriptive” selling. The salesperson reduces customer effort, a.k.a. friction, by guiding the customer through a specific solution that has been shown to work in similar situations.

Don’t overwhelm the customer with information.

Disney management realized that waiting in lines wasn’t a great customer experience, so they tried to mitigate the damage.

The key to a better Disney World experience wasn’t more “what.” Rather, Disney World needed to work on the “how” of the park experience. “If we changed how guests experienced the ’what,’ they could consume many more experiences, leave with higher guest satisfaction, higher intent to return, and ultimately have a higher perceived value for their overall vacation.”

The objective, Padgett says, was to eliminate friction at every touch point.

To achieve its goal of simplifying and enhancing guest experience, the MagicBand had to work everywhere in the park.

And, by shipping the bands to guests well in advance of their vacation, Disney adds still more value to the vacation. First, there’s the “unboxing” process that builds excitement.

Disney also worked to take the friction out of things like luggage transfers, hotel check-in, park entry, standing in long lines, and so on, can’t help but have a positive effect on post-trip happiness.

As pointed out by John Maeda in The Laws of Simplicity, there are two conditions: quantitatively fast (wait time is shorter) and qualitatively fast (wait time is more tolerable).

Finally, like Amazon’s 1-Click buy button, the MagicBand technology makes spending faster and easier.

By rethinking every element of every guest interaction, Disney reduced points of friction that were thought to be unimportant, inevitable, or someone else’s problem.

Removing friction will keep your customers loyal and your competitors off balance.

Many of the top reasons people cite for cruising involve friction reduction.

For those travelers who prefer to simplify both the planning and logistics of a vacation, cruises are an ideal choice.

According to Carnegie Mellon’s George Loewenstein , “sushi-style” pricing is the worst — when each small element of consumption is priced separately, it’s a more painful experience.

To greatly reduce not only transaction effort but to serve passengers better and anticipate their needs, Carnival is going all-in on technology.

Padgett and his team are introducing the OceanMedallion, a wearable (or pocketable) device.

Cruise ship guests do not crave great technology, he says; they desire great experiences.

“Guests don’t care about technology. Guests care about experiences.”

Can you use past behavior or what the visitor told you about themselves to deliver a lower friction and / or more personalized experience?

Despite Maeda’s complex set of interests, he is also an advocate of simplicity. His TED Talk on the topic has garnered more than a million views, and his book, The Laws of Simplicity, has become a classic.

Apple’s iPod — Minimum Friction, Maximum Simplicity.

The Shuffle’s simple interface, small form factor, and time-saving effect turned it into yet another hit for Apple.

Today, music streaming services like Spotify and Pandora let you access a vast selection of music without having to buy it or manage your collection.

Now, without lifting a finger, you can tell Alexa (or Siri or Google Assistant) what to play and it will happen.

CHAPTER 8 Technology Friction

Complexity is your enemy. Any fool can make something complicated. It is hard to keep things simple.

A frictionless experience may be optimal from the user’s viewpoint but might not provide the best level of safety.

Whenever you change your website or launch a redesign, do a quick user test to see how people really behave.

One key factor for Whatsapp was how free of friction their process for onboarding new users was.

Sam Hulick, author of The Elements of User Onboarding,

Can you onboard a user or subscriber in two minutes?

CHAPTER 9 Friction Within Your Business

Internal friction — red tape, wasted effort, pointless meetings, and so much else — all combine to raise costs, reduce productivity, and slow progress to a crawl.

Issues like regulatory compliance, privacy protection, and data security have resulted in a proliferation of processes.

It’s clear that bureaucratic processes and out-of-control collaboration are behind the slow pace at many companies.

This resource is often squandered in attending pointless meetings, handling irrelevant e-mail, and following bureaucratic procedures.

Parkinson’s law states simply that “work expands so as to fill the time available for its completion.”

Parkinson argued the opposite: as more people are added, the work expands to fill their time.

1. An official wants to multiply subordinates, not rivals.
2. Officials make work for each other.

The Law of Triviality states that the time spent on any item of the agenda will be in inverse proportion to the sum of money involved.

In “In Search of Excellence,” Peters’s frustration with most corporations is palpable.

The importance of culture as a driver of growth and success is painfully obvious to Peters.

Have a passion for excellence, hate bureaucracy and all the nonsense that comes with it.

Jack Welch rejected the conventional wisdom of layered, hierarchical management. Welch wanted a more nimble, agile organization where accountability was clear. He wanted information to flow freely.

Small companies move faster. They know the penalties. Small companies waste less. They spend less time in endless reviews and approvals and politics and paper drills.

In your organization, there are probably rules, defined procedures, and customary ways of doing things. If these are hindering the performance of your people, or making them feel untrusted, don’t be afraid to deviate from them if it will make things better.

Rules and procedures are often put in place because of lack of trust. Sometimes, these are necessary — you probably don’t want your bank to open its vault and operate on the honor system. But often, the savings from these onerous processes are far smaller than the cost of wasted time and effort they engender. Look for places where a small increase in trust will result in a big decrease in friction.

It’s not uncommon for executives to spend half their time in meetings.

High-performing organizations use meetings sparingly.

Ease of scheduling is a mixed blessing — one person organizing a meeting can, with a few clicks, commit a larger much larger number of people to wasting an hour of their time.

Productivity experts recommend that individuals schedule blocks of “focus” time to prevent others from committing that time to meetings.

When scheduling meetings is easy, people schedule more meetings.

Some businesses are ensuring at least one day of uninterrupted deep work.

If meetings are the biggest waste of time in many organizations, e – mail is a close second.

This ease of creating and distributing e-mail resulted in an explosion in the total amount of communication.

E-mail is an indispensable tool in today’s organizations, but it has also become a burden on individual productivity.

Managers should model good e-mail etiquette.

Internal Revenue Service guidelines generally don’t require receipts for business travel expenses like meals unless they exceed $75. But, my new employer said every expense needed a receipt.

All too often, this is how organizations deal with time-consuming activities. Instead of questioning whether the activity could be eliminated completely, they look for ways to save time in performing the activity.

If your people are spending time on processes that aren’t absolutely necessary, don’t try to automate the processes, just eliminate them.

In her book Why Simple Wins, author and consultant Lisa Bodell does a deep dive into organizational complexity and why simplicity is better. She offers many techniques to reduce complexity, and one of my favorites is an exercise she calls “Kill a Stupid Rule.”

CHAPTER 10 A World of Friction

Regions and entire nations can trace success or failure to elements of friction.

Around the globe millions of individuals are confounded daily by bureaucratic rules and regulations that make no sense. Laws remain on the books for decades, even as new and conflicting laws are layered on top of them.

When you are confronted with a sea of red tape, sometimes the only way you can reduce friction is by getting help from a person or company who knows the system and the people who run it.

When friction is institutionalized within a nation, the effects can be devastating and long-lasting.

The more laws and restrictions there are, the poorer people become. The more rules and regulations, the more thieves and robbers.

There are many reasons for India’s slower pace of economic growth compared to China, but bureaucratic stifling of business activity is one.

CHAPTER 11 Bureaucrats and Red Tape Warriors

The worst attributes of bureaucracy should much more often be treated like the cancers they so much resemble.

Yinchuan is a textbook example of how eliminating pointless paperwork, collapsing layers of approvals, and streamlining processes can save money and, at the same time, unleash creativity and increase desirable outcomes.

In 1925, US laws fit into a single, albeit far from skinny, book. Today, it seems, nobody really knows how many laws there are nor how much space they take up. The tax code alone has been said to run 70,000 pages.

Businesses in New York City don’t love the bureaucrats they have to deal with.

Zuurmond and de Jong published a case study comparing the time to open a restaurant in the two countries. In Belgium, obtaining the necessary approvals took just three days. In Holland, it was an amazing two years.

The World Bank considers the ease of starting a business to be a key indicator of the health of a nation’s economy.

CHAPTER 12 Taxes and Beyond

Any tax is a discouragement.

Fees and taxes are a perfect friction tool.

The other way legislators employ tax policy as a tool to change behavior is to reduce taxes on activities they want to encourage.

Distrust inevitably leads to more friction. If you don’t trust somebody, you will create more detailed contracts.

A higher trust environment changed the entire ecosystem in Silicon Valley.

While there’s nothing inherently wrong with a vertically integrated business, historically they have proven to be less flexible and slower to adapt to changes.

CHAPTER 13 Habits and Productivity

Don’t focus your motivation on doing Behavior X. Instead, focus on making Behavior X easier to do.

Fogg’s Behavior Model has been the basis for any number of high-growth programs and services.

The model says you need three things to get someone to do something: motivation, ability, and a prompt.

When he teaches his Behavior Model, Fogg emphasizes a key point: it is almost always easier (and less expensive) to increase ability than motivation.

Fogg’s years of behavior design research show that you can change behavior or cause an action by increasing motivation and/or reducing friction. In business and other contexts, it’s usually easier and less expensive to start by reducing friction.

One of the practical outcomes from Fogg’s extensive study of behavior change is his “Tiny Habits” method.

Habit stacking suggests combining multiple habits in a chain builds a stronger overall habit and is a great way to introduce a new habit on top of existing habits.

Markman has written more than 125 scholarly articles and is the author of multiple books, including Smart Thinking and Smart Change.

Markman calls this the “Netflix effect.”

They were making future decisions based on “should” but in-the-moment decisions based on “want.”

Make it easy for people to take desired actions.

Adding difficulty reduces undesirable behaviors.

He’s also the author of the excellent book Atomic Habits.

James Clear identifies Four Laws of Behavior Change. To create a habit, he says, one must: Cue — The 1st Law: Make it obvious. Craving — The 2nd Law: Make it attractive. Response — The 3rd Law: Make it easy. Reward — The 4th Law: Make it satisfying.

To reduce a behavior, he alters the list: Cue — The 1st Law: Make it invisible. Craving — The 2nd Law: Make it unattractive. Response — The 3rd Law: Make it difficult. Reward — The 4th Law: Make it unsatisfying.

CHAPTER 14 Friction Design

The effect of distance on food consumption is so well documented that it has its own name — “the proximity effect.”

Google consistently ranks as one of the best places to work, and part of its appeal to employees is the constant availability of free food and drinks.

Digital designers are usually far more interested in reducing friction than increasing it.

Friction is well known to conversion experts like Massey. Testing almost always shows that reducing friction increases the conversion rate.

As illogical as it seems, the version with the difficult form produced the most phone leads of any variation. Massey has since employed this with other clients who find telephone leads more valuable.

Friction contrast – if you employ a freemium model and the free product is so good that nobody would need to upgrade to a paid version, adding friction is one way to help convert users from free to paid.

CHAPTER 15 Nonprofit Friction

The high-friction aspect of the University of Chicago’s application may have caused it to have far fewer applicants, but it offered benefits, too.

Know your customer and their pain points to take the friction out of your own processes.

CHAPTER 16 Friction Everywhere

Tom Tullis encountered one of these installations and was inspired to deliver a presentation titled “You shouldn’t have to read a user manual to ride an elevator!”

To avoid confusing people and slowing them down, don’t tinker with the way they are accustomed to doing things.

I never thought about writing as a source of friction until I read Josh Bernoff’s excellent book Writing Without Bullshit.

Bernoff’s cardinal rule is that writers should treat the reader’s time as more valuable than their own.

Press releases are great examples of high-friction writing.

Write short.

Put the important stuff first.

Don’t use the passive voice.

Don’t use jargon.

Don’t use weasel words.

Bernoff’s book Writing Without Bullshit has many more ways to eliminate communication friction.

Make your copy so easy to read and so compelling that the reader can’t stop. This means using fewer words and simple phrasing.

Zak is the world’s leading expert on oxytocin, a hormone and neurotransmitter colloquially known as the “hug drug.”

People in the high-performing firms trusted each other more.

In his book Trust Factor, Zak identifies eight practices that high-performing companies engage in to create trust.

Nothing says “we don’t trust you” like rules and procedures that assume people aren’t honest.

Amazon often reduces friction by refunding customers as soon as they drop off a product return at UPS or an Amazon Locker.

When things are hard for our brains to process — fine print, fancy fonts, hard-to-say names — they seem more difficult or more dangerous. People will be less likely to follow instructions or make decisions.

CONCLUSION Go Forth and Find Friction

Everyone may know about friction, but in too many cases they aren’t doing anything about it.

Bill Gates included a chapter in his 1995 book The Road Ahead, titled “Friction-Free Capitalism.”

Eventually, low-friction solutions will win. But, in the meantime, we can expect incumbent players to resist progress rather than adapting their business model to minimize customer friction.

When you see friction, fight it. If you can fix it yourself, do it. If someone else can, ask that person to do it. Don’t organize large meetings, send out mass e-mails, or be a jerk.

Nobody likes wasted time and effort. Nobody enjoys pointless meetings. Everybody hates burdensome red tape. The more you point out friction to the people around you, the more they will see themselves.

The Big Idea: Tumultuous times in the 2020’s will clear the way for calmer times beginning in the 2030s.

The kind of mutual rage and division we see in America today is trivial compared with other times in U.S. history.

The American president has little power compared with European prime ministers.

At the moment, a series of deep structural changes are taking place in the United States.

The economic system is undergoing a fundamental shift driven partly by an excess of money and limited opportunity for investment.

Results in a massive decline in productivity growth.

The glue that was holding American society together has weakened and will continue to decline throughout the 2020s.

This is not the first time this has happened.

There are two major cycles in American history.

One is the “institutional cycle,” which has transpired approximately every eighty years.

The second major cycle is the “socioeconomic,” which has occurred approximately every fifty years.

The 2020s will be one of the more difficult periods in American history.

Each of these American socioeconomic cycles ended in a period of confidence and prosperity.

I am predicting an intensely difficult period of time between now and when the next phase of American history begins in the early 2030s — and the period of confidence and prosperity that will follow it.

The white industrial class believed that both the technocracy and the federal government had turned against them, their economic problems, and their cultural values and ideology.

Donald Trump promised to make America great again. This made no sense to the rest of the party or to the technocracy, both of whom believed that America not only had retained its greatness but was enhancing it.

Trump does not represent the transition to the new era. He is instead the first tremor who appeared decisive to his supporters and frightening to his opponents.

The most important fact to bear in mind is that the United States was an invented nation; it didn’t evolve naturally from a finite group of people over thousands of years in one indigenous region, as did, for example, China or Russia.

The regime, the people, and the land combine to give the nation agility most other nations lack.

America actually refuels itself from the crises, re-forming itself with a remarkable agility.

In the fourth institutional cycle as I see it the technocratic approach will be dramatically modified to permit the intent of government to be rationally administered by each level, similar to a military commander’s intent.

Universities will have to cut extravagant costs.

The core problem of the next sociopolitical cycle will be demographic.

Therefore, the need is for a massive revolution in biological research applied to medical care.

Second, a health-care system must be created that does not follow the current federal model of ultra-centralization and ultra-complexity.

Therefore, the traditional family will be redefined. The hunger for companionship is still there and asserting itself constantly.

In this, there will inevitably be a return to the past. Or more precisely, moving the computer into its limited place re-creates the past.

The tax on higher incomes will surge at the beginning of the sixth cycle. Just as tax cuts drove the microchip economy, so they will, in the 2050s, drive the transformation of medical care.

The children of what are called millennials will be the ones who revolt against the previous generations’ rootlessness. They will be the ones who find computers and the Internet old-fashioned and creating powerful family ties modern.

Imperial wars exhaust the homeland. A mature national strategy minimizes conflict.

The new technology that will exist will be one that extends healthy life expectancy.

The United States is becoming more mature by the nature of demographics.

The Big Idea: You don’t have to be racist to behave with subconscious racial bias.

Introduction

• This book is an examination of implicit bias.
• Implicit bias is not a new way of calling someone a racist.
• One of the strongest stereotypes in American society associates blacks with criminality.
• Knowing that a disproportionate amount of violent crime is committed by young black men can bias judgments about black people.

CHAPTER 1

• Other Race Effect is a universal phenomenon.
• Brains react more strongly to faces of their own race than to faces of people unlike them .
• The brain is not a hardwired machine. It’s a malleable organ.
• A region known as the fusiform face area, buried deep near the base of the brain, helps us distinguish the familiar from the unfamiliar, friend from foe.
• Race might influence FFA functioning.
• FFA was responding more vigorously to faces that were the same race as the study participant.
• The challenges of cross-racial identification are as well known to law enforcement officials as they are to scientists.

CHAPTER 2

• We reserve our precious cognitive resources for those who are “like us.”
• Racial categories are so significant that knowing a person is black or white, for example, can shape how we see that person’s facial features.
• Categorization can be a precursor to bias.
• At the same time, categorization is a fundamental tool that our brains are wired to use.
• Our beliefs and attitudes can become so strongly associated with the category that they are automatically triggered.
• The concept of stereotypes dates back to the time of Plato.
• Confirmation bias – people tend to seek out and attend to information that already confirms their beliefs.
• Confirmation bias is a mechanism that allows inaccurate beliefs to spread and persist.
• “There is economy in stereotyping.”
• Just like categorization, the process of stereotyping is universal. We all tend to access and apply stereotypes to help us make sense of other people.
• Stereotypes is culturally generated.
• Preschoolers are able to pick up on how adults view other people.
• Is clutching your purse when you see a black man a reflection of prejudice? Is presuming a Latino doesn’t speak English logical or ignorant?

CHAPTER 3

• Implicit bias can shade police interactions with the communities they protect and serve.
• Bias, even when we are not conscious of it, has consequences that we need to understand and mitigate. The stereotypic associations we carry in our heads can affect what we perceive, how we think, and the actions we take.
• The relentless loop of police-shooting videos leaves some people angry and introduces others to the challenges faced by police.
• Only a tiny fraction of officers involved in questionable shootings are prosecuted, and it’s rare to get a conviction.
• Ask whether the association between black people and crime is so powerful in the minds of Americans that it can influence what we see and what we ignore.
• Our attention can be driven by stereotypic associations that we are not even aware are operating on us.
• Black faces are much more likely to capture the attentional systems of those who have been induced to think about crime than of those who have not.
• Reams of studies demonstrating that blacks are perceived as threatening.
• Study participants consistently rated black men as taller, heavier, and stronger than white men.
• White participants rated black men as more capable of doing harm than white men of the same physical stature and size. Black participants exhibited no such bias.
• 42 percent of whites who shoved blacks were deemed to be simply “playing around” — but only 6 percent of blacks who shoved whites were categorized in that benign light.
• The stereotypic association between blacks and crime influences not only how we see black people but how we see guns.
• Participants were even faster to respond “shoot” to a black person holding a gun than they were to a white person holding a gun. They were also more likely to mistakenly “shoot” a black person with no gun.
• Officers who work in bigger cities, with larger black populations and higher crime rates, tend to exhibit the greatest racial bias in reaction time.
• When the police kill unarmed black suspects, those deaths are associated with a significant dip in the mental health of blacks across the entire state where those killings occurred.

CHAPTER 4

• Stop-data collections have been occurring in police departments around the country for years.
• Relying on racial disparities to gauge the quality of policing can be a double-edged sword. The same disparities that community leaders view as proof of racial profiling can be cited by police officers as proof of who is most likely to commit crimes.
• Officers — or anyone else — can be immersed in an environment that repetitively exposes them to the categorical pairing of blacks with crime and not have that affect how they think, feel, or behave.
• If officers act in accordance with four tenets — voice, fairness, respect, trustworthiness — residents will be more inclined to think of the police as legitimate authorities and therefore be more likely to comply with the law.
• The “invisible gorilla” study reminds us of how selective our social perception may be.
• “Growing up there, some of the most violent people I’ve seen were actually police officers, ” Armstrong told me.
• The sense of “protecting the community” was strong among even the most hard-nosed cops. But too often they couldn’t tell bad from good, so everyone was treated like a suspect.
• When he stopped white men, there was a completely different pattern, he said. Often, they would be defiant and challenge him: “What did you stop me for ?”

CHAPTER 5

• Stopping drivers for equipment-related issues — a broken light, an expired tag, a faulty turn signal, an unfastened safety belt — is a time-honored way to investigate who these drivers are, what they are doing, where they are going and why.
• Body cameras worn by police officers are giving us access to how these stops unfold in real time.
• Officers were professional overall. But when officers were speaking to black drivers, they were rated as less respectful, less polite, less friendly, less formal, and less impartial than when they spoke to white drivers.
• An officer’s language and the attitude it conveys could decrease a black driver’s inclination to cooperate. That increases the likelihood that the interaction might escalate.
• The inherent unfairness of the bail system has led to calls for reform.
• Being behind bars for months awaiting trial can unravel a life: the accused can be fired from a job, be subject to eviction, incur debt from being unable to pay bills, lose custody of children. Many defendants are so desperate to be free that they bargain for a short sentence or immediate release by pleading guilty.
• The plea-bargaining system is a clear example of how institutional practices can directly affect the mental connections we make.
• 94 percent of cases involving criminal charges never go to trial; they are settled when the defendant agrees to plead guilty.
• The United States has the highest incarceration rate of any industrialized nation in the world.
• In Oakland, for example, although blacks make up less than 28 percent of the population, 70 percent of those on probation and 61 percent of those arrested are black.
• A prison record can stifle earning potential, limit housing options, and derail educational aspirations.
• White applicants with criminal histories were much more likely to be interviewed by employers than blacks with similar records.
• Even the decline in the marriage rate among African Americans can be attributed in part to racial disparities in the era of mass incarceration.
• San Quentin is the oldest and most notorious penitentiary in the California prison system.
• Only about one-third of American prisons offer education or job-training programs.
• Blacks make up just 12 percent of the U.S. population, nearly 40 percent of the nation’s prison inmates are black.
• Nearly 60 percent of black male dropouts born in the late 1960s wound up in prison, compared with 11 percent of similarly situated whites.
• The “war on drugs” imposed harsh penalties on hapless crack addicts.
• “Three strikes” sentencing schemes.
• “More and more black people are getting trapped in the system, but nobody sees a problem with that, ” one student said.
• The United States is one of only four industrialized nations in the world — along with Japan, Singapore, and Taiwan — that still executes criminals.
• The trial jury decides who lives and who is slated to die.
• In the United States, racial disparities in death sentencing.
• Murderers of white victims are significantly more likely to be sentenced to death than murderers of black people.
• Looking “more black” more than doubled their chances of being sentenced to death.

CHAPTER 6

• As the slave trade to Europe and the Americas became a flourishing economic system, the subjugation and brutalization of millions of Africans was rationalized by science with theories that decreed the dark-skinned captives less than fully human.
• For decades, IQ testing helped to map and tally supposedly inherent differences between ethnic groups.
• The implicit association between blacks and apes was much stronger than the black-crime association.
• Marginalized groups in countries all over the world are often discredited through animal imagery.

CHAPTER 7

• Black and white Americans are still likely to wind up in separate neighborhoods.
• The federal government played a direct and deliberate role in creating segregated spaces: refusing to back mortgage loans in racially mixed neighborhoods, subsidizing private development of all-white suburbs, and restricting GI Bill housing benefits so that black military veterans could buy homes only in minority communities.
• Zoning regulations in many cities forbade blacks to move into white neighborhoods.
• Forcing black families to crowd into undesirable areas where amenities were few, the housing stock was often decrepit or cheaply built, and the streets were lined with factories spewing industrial pollution.
• African Americans are more likely than any other group to live in segregated neighborhoods.
• More than half of whites say they would not move to an area that is more than 30 percent black, because they believe that the housing stock would not be well maintained and crime would be high.
• Stereotypic images of black spaces, buttressed by historical and current-day racial inequalities, led our study participants to imagine black space as polluted.
• Across history and around the world, immigrants have borne the burden of that sort of place-based prejudice that presumes that the stench of squalid places clings to human beings.
• In Europe, immigration is being framed as a security risk as waves of people from Africa and the Middle East pour into once largely homogeneous nations.
• Immigrants aren’t the only group viewed through the lens of bias as diseased outsiders. Homeless people are even lower on the sociological totem pole.
• The “dirty Jew” rhetoric that powered persecution of Jews since the Middle Ages had begun to penetrate the newspapers, pamphlets, and everyday conversations.
• Part of the stigma of black skin has to do with cultural associations that mark white as a sign of purity.
• This is how bias operates. It conditions how we look at the world.
• What made the South so difficult for blacks was more than the constant reminders of second-class citizenship: the separate drinking fountains, schools, restaurants, restrooms, and areas for waiting, sitting, standing, and healing. It was the ever-present threat of violence, without protection or redress.
• Lynchings — unprosecuted murders by mobs of unidentified people — occurred all across the United States from the mid-nineteenth century to the mid-twentieth century but were concentrated in the South, particularly in Mississippi, Georgia, and Alabama.
• Space can also liberate. When people leave an oppressive physical space, they are often driven by the rudiments of life: they want better schools, more jobs, safer streets.
• As blacks migrated by the millions to the North in the 1930s and 1940s, they were viewed as an ugly invading force, and northern cities had to be reshaped and fortified.
• Surveillance cameras have gone mainstream, guarding our front doors.
• Residents can circulate photographs of “suspicious” strangers to neighbors and police with the touch of a button and without any evidence.
• Sarah Leary, one of the founders (with CEO Nirav Tolia) of Nextdoor, an online social networking.
• The platform exposed raw racial dynamics that generated hurt feelings, sparked hostilities, and fueled fierce online arguments.
• They developed a checklist of reminders that people have to click through before they can post under the banner of “suspicious person”.
• The posting process was changed to require users to home in on behavior, pushing them past the “If you see something, say something” mindset.
• Research shows that talking about racial issues with people of other races is particularly stressful for whites, who may feel they have to work harder to sidestep the minefields.
• Airbnb provides a platform for sharing our homes with distant travelers.
• Complaints began trickling in from minorities who felt they’d been discriminated against.
• The primary problem is not that “people on the platform say, ‘Look, I don’t want any African Americans,’ ”Laura said. “The biggest problem to me is the unconscious bias.”

CHAPTER 8

• Both black and Latino students do better academically when they attend integrated schools.
• Integrated schools in middle-class and affluent areas tend to be better resourced.
• People of all races who attended racially diverse schools are more likely to have friends of other races, choose to live and raise their children in integrated neighborhoods, and have higher levels of civic engagement than those who did not.
• Many schools still fall short.
• When we’re faced with a common enemy, research has shown, our biases can temporarily dissolve by the urge to band together and survive.
• Integrated schools promise to turn us into global citizens, appreciative of cultural differences, skilled at navigating diversity.
• Integrated spaces can also heighten the threat of becoming the target of bias.
• And despite the stumbles, progress is being made.
• But in the last twenty years, school segregation increased as legal rulings whittled away options.
• Americans still appear to believe in the value of integrated education.
• The number of intensely segregated schools — where less than 10 percent of students are white — has more than tripled in the past thirty years.
• Segregation is nearing epidemic levels in the central cities of the nation’s largest metropolitan areas.
• Black students are nearly four times as likely to be suspended from school as their white peers.
• Black students are significantly more likely to be disciplined for relatively minor infractions than any other group.
• Teachers commonly perceive black students to have more negative demeanors and a longer history of misbehavior than whites.
• Decreasing racial disparities in discipline will require both teachers and students to focus on the relationships they have with each other.
• During the empathy exercise, teachers learned about the kinds of experiences and worries that could lead to mistrust and misbehavior.
• Our brains, our culture, our instincts, all lead us to use color as a sorting tool. And yet the color-blind message is so esteemed in American society that even our children pick up the idea that noticing skin color is rude.
• When we’re afraid, unwilling, or ill equipped to talk about race, we leave young people to their own devices to make sense of the conflicts and disparities they see.
• Color blindness promoted exactly the opposite of what was intended: racial inequality.
• It takes more than interpersonal connection to break the bonds of institutional bias and promote the sort of equality that allows us all to thrive.
• 22 percent of young Americans who came of age in the twenty-first century said they never heard of the Holocaust.
• Survey of high school seniors and social studies teachers in 2017 found students struggling on even basic questions about the enslavement of blacks in the United States.

CHAPTER 9

• College students’ commitment to activism and civic engagement is higher than it’s been at any time in the last fifty years.
• The 2016 election of Donald Trump galvanized liberal students and emboldened right-wing fringe groups.
• The changing status of whites in America is tinder for the fire of white nationalism.
• By the middle of this century, white people are likely to be a minority in this country.
• Feeling outnumbered can signal a threat to the legacy of dominance and the white privilege that affords.
• The summer of hate began with white nationalists who came to Charlottesville to protest a plan to remove the statue of General Lee from a park in the city’s historic downtown core.
• “In their minds, to dishonor Robert E. Lee was to dishonor them, was to strike at the soul of their being.”
• “Jews will not replace us!”
• Twenty-one-year-old James Alex Fields Jr. — a self-professed neo-Nazi from a small town in Ohio — was convicted of murder by a Charlottesville jury that recommended prison, plus 419 years.
• The Unite the Right rally was the largest public gathering of white supremacists in a generation.
• Experts who study hate groups say their ranks are growing as social media makes connecting easier and the guardrails that reined in overt displays of racism have begun to come down.
• “If you’re a liberal white person in the South, then you can’t not grow up constantly wrestling with and thinking about issues of race.”
• Research shows that black parents talk to their children about race much earlier and more often than white parents.
• Some felt the university was a champion of constitutional rights, and the students’ emotional wounds were mere collateral damage.
• But you can condemn what people say without condemning their legal right to say it.
• The Unite the Right rally might have been the largest public gathering of white supremacists in a generation. But it didn’t come out of nowhere. And it could have been reined in before someone died.
• Many white counterprotesters felt so unsafe and unprotected by police at the march that they got a hint of what it’s like to experience the world as black people often do.
• Jefferson built UVA with black enslaved labor.

CHAPTER 10

• Today, the unemployment rate for black teens and young adults is about twice as high as it is for whites.
• Many factors contribute to these disparities, including the quality of the applicant’s social networks marshaled to secure employment as well as the level of education, skills, or experience certain jobs require.
• Racial bias is also a factor that influences the choices employers make.
• This particular practice of fitting in is so widespread that it even has a name: Whitening the Résumé.
• Students were employing what legendary social scientist Erving Goffman called an “assimilative technique.”
• Companies want to check the boxes but not change their culture.
• More than half of white Americans — 55 percent — believe there is discrimination against white people in the United States today.
• Even in the high-stakes world of entrepreneurial markets, minorities and women are held to higher standards than white men in competing for investment dollars.
• Scarcity of minorities at the helm of powerhouse corporate entities.
• Black people regularly encounter racial bias in all types of businesses and in all types of routine interactions. They attract outsized attention from sales and security personnel.
• Starbucks also did what no other company had done before: it held a nationwide training on implicit bias for all its 175,000 employees.
• The store closures were estimated to cost Starbucks $12 million in lost revenue, but were hailed as a smart business move for the brand.
• “Bias training” is the new watchword in human-resource programs.
• But implicit bias can be layered and complicated. It’s simple to explain, but not so easy to see or to rectify.
• Bias training is a fast-growing for-profit business, and finding fault with results could affect the bottom line of the trainers. Better to just check the box that says “Yes, we’ve trained our employees” and call it victory.
• For businesses, there are big upsides to training. But there are also downsides.
• We may not ever know whether the training Starbucks offered to its employees was effective.
• When we are forced to make quick decisions using subjective criteria, the potential for bias is great.
• Bias is also more likely to flare up when our decisions are left unmonitored.
• Monitoring certainly helps.
• Personal connections can override the power exerted by implicit bias.
• Research shows that close attachments between people from different groups can puncture holes in stereotypic beliefs and negative attitudes.
• Science has shown that intense relationships that cross racial, religious, or ethnic boundaries can quickly undo fundamental associations that have built up slowly over time.
• Resetting norms isn’t easy, for a country or a company.
• Curtain interviews have become the norm.
• The founder of the Papa John’s pizza chain was forced to step down from the company he built for using a racial slur.

Conclusion

• The Oakland Police Department was an early adopter of body-worn cameras.
• The role of obvious racial disparities can’t be overlooked.
• Every society has disadvantaged groups that are the targets of bias.

The Big Idea: Small scale permaculture is the solution to most environmental problems.

Ch 1: A Different Approach to Solving World Problems

• Nearly all environmental problems are mostly solved with a combination of homesteading and permaculture.

Ch 2: Environmentalist vs “Environmentalist”

• Most people who call themselves “environmentalist” are probably very wasteful of natural resources.
• Energy use is the best metric for defining an environmentalist.
• The average American adult spends $83 a month on heat and electricity.

Ch 3: The Wicked Lies About Light Bulbs

• The LED light bulb is a good metaphor for environmental thinking.
• It sounds environmentally friendly, but mathematically, the incandescent bulb is better (lower toxicity, more efficient for those in cold climates, better light quality.)

Ch 4: Carbon Footprint

• The average American adult generates 30 tons of annual carbon emissions.
• Focusing on 80/20, the big winners are to reduce your heat usage in cold climates and to grow your own food.

Ch 5: Petroleum Footprint

• The unsubsidized price for a gallon of gasoline is actually three times higher.
• Lots of ways to reduce fuel consumption.
• 80/20 says to telecommute and to grow your own food.

Ch 6: Toxic Footprint

• Sources of toxins that probably cause cancer and other diseases: sugar, high fructose corn syrup, plastic with BPA, aspartame, sucralose, saccharine
• What to do: stop using toxic soaps and shampoos, stop using toxic household cleaners, don’t drink chlorinated water, stop using teflon, stop using plastic containers, live in a home built with toxin-free materials, avoid city pollution

Ch 7: The Wheaton Eco Scale

Ch 8: Moving Way Beyond Recycling

• There is no such thing as waste in nature. Everything is recycled.
• Even better than recycling is not using packaging in the first place. Grow as much of your own food as possible.

Ch 9: Vote with Your Wallet

• Stop buying traditional, industrial-grown food.
• “If you think organic food is expensive, have you priced cancer recently?”

Ch 10: Radically Deviant Financial Strategies

• If your life doesn’t change if you had a million dollar, then is it fair to say you’re living the life of a millionaire.
• Want to learn how to live without a mortgage? Read Rob Roy’s book Mortgage Free.
• Jacob Lund Fisker has a blog “Early Retirement Extreme” which says basically live frugally and save 75% of your income.
• An alternative is to build one or multiple side businesses.
• Another alternative is to try community living and pool your resources.

Ch 11: Organic vs Local

• Permaculture >> organic >> local

Ch 12: Vegan vs Omnivore vs Junk Food

• Veganism is a noble path.
• In terms of impact, polyculture/permaculture >> vegan >> junk food.
• Cowspiracy stats are a load of manure.
• The lowest-impact and most healthy source of food is your own backyard.

Ch 13: Really Reducing Home Energy Usage

• Nearly all war and pollution is related to energy usage.
• Most energy usage is related to heating and cooling, including heating water.
• Use more blankets, insulate your home better, take shorter showers, use a toaster oven, get a smaller house.

Ch 14: More People Living Under One Roof Without Stabbing Each Other

• Keep the common areas clean by charging more rent and hiring a cleaning service.

Ch 15: Toxic Gick vs 20 Years of Your Life

• As a cleaner, water alone is enough 90% of the time.
• Vinegar and baking soda can clean most surfaces fine.
• Cast iron >> teflon.
• Use diatomaceous earth for insect control.

Ch 16: The Huge Link Between Food and Global Footprint

• Learn permaculture concepts to grow your own food with minimal effort.

Ch 17: Double the Food with One Tenth of the Effort

• Direct seeding >> transplanting.
• No-till >> tilling.
• Hugelkultur raised beds.
• Perennials >> annuals.
• Chop-and-drop is an ideal approach to mulching.
• Incorporate deciduous trees in your permaculture design.
• Polyculture is required.
• Include mushrooms for diversity and resiliency.

Ch 18: The Dark Side of Native Plant Enthusiasm

• Better understanding of horticulture >> blind advocacy for native plants.

Ch 19: 20 Things to Do with the Twigs That Fall n Your Backyard

• Mulch, hugelkultur, brush piles.

Ch 20: Not Composting

• Instead of composting, feed kitchen scraps to your chickens.

Ch 21: Better Than a Solar Panel – A Solar Food Dehydrator

• Properly dehydrated food can last for years.

Ch 22: Breaking the Toxic Water Cycle with Greywater Recycling

• Read Create an Oasis with Greywater by Art Ludwig.
• Build a laundry-to-landscape system, and use environmentally friendly laundry detergent.

Ch 23: Harvesting Electricity in Your Backyard

• Going off-grid forces to you question your energy usage.
• The best off-grid power source is micro hydro.

Ch 24: The Conventional Lawn vs a Mowable Meadow

• Mow higher and always leave the clippings.
• Water deep and less often.
• Build earthworm towns once and pile on organic matter regularly for them to eat.

Ch 25: How Vegans Benefit from Caring for Farm Animals

• If you’re a vegan, either your farm animals do the work, or you do the work.
• Pamper your animals with a movable paddock shift system.
• Get a livestock guardian dog.

Ch 26: Replacing Petroleum with People

• Try to incorporate people and hand tools when possible.

Ch 27: Wrestling with Poop Beasts and Peeing in the Garden

• Build a dry outhouse on an elevated mound.
• Urinate near plants or use a urine diverter and use diluted urine to fertilize plants.

Ch 28: The Solutions to Colony Collapse Disorder are Embarrassingly Simple

• Organic beekeeping >> conventional beekeeping.

Ch 29: Destroy Your Orchard to Make a Food Forest

• A monocrop orchard is not permaculture.
• Trees from seeds >> trees grown from starters.
• The bottom third of a fruit tree is for critters, the middle third is for humans, the top third is for birds.

Ch 30: A Building Design that Solves Almost Everything

• A straw bale house has walls made from natural materials, but is otherwise the same as a conventional house, only with thicker walls and more expensive.
• A cob house is similar to a straw bale house, but more labor intensive, and, maybe more fun and beautiful.
• The ideal permaculture home is an underground home, in the style of Mike Oehler – a wofati.

The Big Idea: Forget about goals. Focus on systems, good habits, and continuous improvement.

INTRODUCTION

Changes that seem small and unimportant at first will compound into remarkable results if you’re willing to stick with them for years .

PART 1: THE FUNDAMENTALS – Why Tiny Changes Make a Big Difference

Ch 1: The Surprising Power of Atomic Habits

It is so easy to overestimate the importance of one defining moment and underestimate the value of making small improvements on a daily basis.

Habits are the compound interest of self-improvement.

Making a choice that is 1 percent better or 1 percent worse seems insignificant in the moment, but over the span of moments that make up a lifetime these choices determine the difference.

Breakthrough moments are often the result of many previous actions.

Eg. bamboo can barely be seen for the first five years as it builds extensive root systems underground before exploding ninety feet into the air within six weeks.

Poster in the San Antonio Spurs locker room: “When nothing seems to help, I go and look at a stonecutter hammering away at his rock, perhaps a hundred times without as much as a crack showing in it. Yet at the hundred and first blow it will split in two, and I know it was not that last blow that did it — but all that had gone before.”

FORGET ABOUT GOALS, FOCUS ON SYSTEMS INSTEAD.

Super Bowl winner Bill Walsh says, “The score takes care of itself.”

Winners and losers have the same goals.

Achieving a goal is only a momentary change.

Goals restrict your happiness.

Goals are at odds with long-term progress.

Goals are good for setting a direction, but systems are best for making progress.

True long-term thinking is goal-less thinking. It’s not about any single accomplishment. It is about the cycle of endless refinement and continuous improvement.

You do not rise to the level of your goals. You fall to the level of your systems.

Habits are the compound interest of self-improvement.

If you want better results, then forget about setting goals. Focus on your system instead.

You do not rise to the level of your goals. You fall to the level of your systems.

Ch 2: How Your Habits Shape Your Identity (and Vice Versa)

Once your habits are established, they seem to stick around forever.

Three layers of behavior change

1. Changing your outcomes
2. Changing your process
3. Changing your identity

Outcomes are about what you get. Processes are about what you do. Identity is about what you believe.

Behind every system of actions are a system of beliefs.

The ultimate form of intrinsic motivation is when a habit becomes part of your identity.

The more pride you have in a particular aspect of your identity, the more motivated you will be to maintain the habits associated with it.

The person who incorporates exercise into their identity doesn’t have to convince themselves to train.

Once you have adopted a negative identity, it can be easy to let your allegiance to it impact your ability to change for the better.

Whatever your identity is right now, you only believe it because you have proof of it.

The more evidence you have for a belief, the more strongly you will believe it.

The process of building habits is actually the process of changing yourself.

The most practical way to change who you are is to change what you do.

Decide who you want to be. This holds at any level — as an individual, as a team, as a community, as a nation.

Identity change is the North Star of habit change.

Your habits matter because they shape you into the type of person you wish to be.

There are three levels of change: outcome change, process change, and identity change.

The most effective way to change your habits is to focus not on what you want to achieve, but on who you wish to become.

Every action is a vote for the type of person you wish to become.

Ch 3: How to Build Better Habits in 4 Simple Steps

Habits are mental shortcuts learned from experience.

The process of building a habit can be divided into four simple steps: cue, craving, response, and reward.

Four Laws of Behavior Change

1. Cue: Make it obvious.
2. Craving: Make it attractive.
3. Response: Make it easy.
4. Reward: Make it satisfying.

The ultimate purpose of habits is to solve the problems of life with as little energy and effort as possible.

Any habit can be broken down into a feedback loop that involves four steps: cue, craving, response, and reward.

PART 2: THE 1ST LAW – Make It Obvious

Ch 4: The Man Who Didn’t Look Right

Eg. Pointing-and-Calling, is a safety system designed to reduce mistakes by making an unconscious habit a more conscious action.

Make a list of your daily habits.

The process of behavior change always starts with awareness.

Ch 5: The Best Way to Start a New Habit

An implementation intention is a plan you make beforehand about when and where to act.

Eg. “When situation X arises, I will perform response Y.”

People who make a specific plan for when and where they will perform a new habit are more likely to follow through.

Eg. Meditation. I will meditate for one minute at 7a.m. in my kitchen.

Eg. Exercise. I will exercise for one hour at 5p.m. in my local gym.

Make the time and location so obvious that, with enough repetition, you get an urge to do the right thing at the right time.

One of the best ways to build a new habit is to identify a current habit you already do each day and then stack your new behavior on top. This is called habit stacking (BJ Fogg).

The habit stacking formula is: “After [CURRENT HABIT], I will [NEW HABIT].”

Eg. Meditation. After I pour my cup of coffee each morning, I will meditate for one minute.

Eg. Exercise. After I take off my work shoes, I will immediately change into my workout clothes.

Eg. Gratitude. After I sit down to dinner, I will say one thing I’m grateful for that happened today.

The secret to creating a successful habit stack is selecting the right cue to kick things off; a very strong habit to build from.

Habit stacking works best when the cue is highly specific and immediately actionable.

The 1st Law of Behavior Change is to make it obvious. Strategies like implementation intentions and habit stacking are among the most practical ways to create obvious cues for your habits and design a clear plan for when and where to take action.

The 1st Law of Behavior Change is make it obvious.

Creating an implementation intention is a strategy you can use to pair a new habit with a specific time and location. The implementation intention formula is: I will [BEHAVIOR] at [TIME] in [LOCATION].

Habit stacking is a strategy you can use to pair a new habit with an existing habit. The habit stacking formula is: After [CURRENT HABIT], I will [NEW HABIT ].

Ch 6: Motivation Is Overrated; Environment Often Matters More

Eg. People often choose food not because of what they are, but because of where they are (convenience matters.) Items at eye level tend to be purchased more. End caps are moneymaking machines.

The most powerful of all human sensory abilities is vision.

Eg. Homes with meters located in the main hallway use less electricity.

Creating obvious visual cues can draw your attention toward a desired habit.

Eg. If you want to remember to send more thank-you notes, keep a stack of stationery on your desk.

Eg. If you want to drink more water, fill up a few water bottles each morning and place them in common locations around the house.

The most persistent behaviors usually have multiple cues.

You can train yourself to link a particular habit with a particular context/environment.

Teach your brain that sleeping — not browsing on phones, not watching television, not staring at the clock — is the only action that happens in the bedroom.

Want to think more creatively? Move to a bigger room, a rooftop patio, or a building with expansive architecture.

Trying to eat healthier? Try a new grocery store.

Create a separate space for work, study, exercise, entertainment, and cooking. The mantra I find useful is “One space, one use.”

When you can use your phone to do nearly anything, it becomes hard to associate it with one task.

Make the cues of good habits obvious in your environment.

Ch 7: The Secret to Self-Control

Typically, 90 percent of heroin users become re-addicted once they return home from rehab.

“Disciplined” people are better at structuring their lives in a way that does not require heroic willpower and self-control.

Yes, perseverance, grit, and willpower are essential to success, but the way to improve these qualities is not by wishing you were a more disciplined person, but by creating a more disciplined environment.

Researchers refer to this phenomenon as “cue-induced wanting”: an external trigger causes a compulsive craving to repeat a bad habit.

You can break a habit, but you’re unlikely to forget it.

And that means that simply resisting temptation is an ineffective strategy.

In the short-run, you can choose to overpower temptation. In the long-run, we become a product of the environment that we live in.

A more reliable approach is to cut bad habits off at the source.

Reduce exposure to the cue that causes it.

If you’re continually feeling like you’re not enough, stop following social media accounts that trigger jealousy and envy.

If you’re wasting too much time watching television, move the TV out of the bedroom.

I’m often surprised by how effective simple changes like these can be. Remove a single cue and the entire habit often fades away.

Make the cues of your good habits obvious and the cues of your bad habits invisible.

One of the most practical ways to eliminate a bad habit is to reduce exposure to the cue that causes it.

Self-control is a short-term strategy, not a long-term one.

PART 3: THE 2ND LAW – Make It Attractive

Ch 8: How to Make a Habit Irresistible

Junk food, for example, drives our reward systems into a frenzy.

The more attractive an opportunity is, the more likely it is to become habit-forming.

We begin by examining a biological signature that all habits share — the dopamine spike.

Habits are a dopamine-driven feedback loop.

When it comes to habits, the key takeaway is this: dopamine is released not only when you experience pleasure, but also when you anticipate it.

It is the anticipation of a reward — not the fulfillment of it — that gets us to take action.

This is one reason the anticipation of an experience can often feel better than the attainment of it.

As an adult, daydreaming about an upcoming vacation can be more enjoyable than actually being on vacation.

We need to make our habits attractive because it is the expectation of a rewarding experience that motivates us to act in the first place.

Temptation bundling works by linking an action you want to do with an action you need to do.

Temptation bundling is one way to apply a psychology theory known as Premack’s Principle.

The habit stacking + temptation bundling formula is : After [CURRENT HABIT], I will [HABIT I NEED]. After [HABIT I NEED], I will [HABIT I WANT].

After I get my morning coffee, I will say one thing I’m grateful for that happened yesterday (need). After I say one thing I’m grateful for, I will read the news (want).

If you want to check Facebook, but you need to exercise more: After I pull out my phone, I will do ten burpees (need). After I do ten burpees, I will check Facebook (want).

The hope is that eventually you’ll look forward to calling three clients or doing ten burpees because it means you get to read the latest sports news or check Facebook.

Temptation bundling is one way to make your habits more attractive. The strategy is to pair an action you want to do with an action you need to do.

Ch 9: The Role of Family and Friends in Shaping Your Habits

“A genius is not born, but is educated and trained.”

Eg. The Polgar sisters grew up in a culture that prioritized chess above all else — praised them for it, rewarded them for it. In their world, an obsession with chess was normal. And as we are about to see, whatever habits are normal in your culture are among the most attractive behaviors you’ll find.

Humans are herd animals.

We don’t choose our earliest habits, we imitate them.

Often, you follow the habits of your culture without thinking, without questioning, and sometimes without remembering.

We imitate the habits of three groups in particular: The close, the many, the powerful.

1. Imitating the Close

We pick up habits from the people around us.

Another study found that if one person in a relationship lost weight, the other partner would also slim down about one third of the time.

One of the most effective things you can do to build better habits is to join a culture where your desired behavior is the normal behavior.

Surround yourself with people who have the habits you want to have yourself. You’ll rise together.

Join a culture where (1) your desired behavior is the normal behavior and (2) you already have something in common with the group.

Nothing sustains motivation better than belonging to the tribe.

1. Imitating the Many

We are constantly scanning our environment and wondering, “What is everyone else doing?”

There is tremendous internal pressure to comply with the norms of the group.

Most days, we’d rather be wrong with the crowd than be right by ourselves.

Running against the grain of your culture requires extra effort.

1. Imitating the Powerful

We want pins and medallions on our jackets.

We try to copy the behavior of successful people because we desire success ourselves.

We tend to imitate the habits of three social groups: the close (family and friends), the many (the tribe), and the powerful (those with status and prestige).

One of the most effective things you can do to build better habits is to join a culture where (1) your desired behavior is the normal behavior and (2) you already have something in common with the group.

Ch 10: How to Find and Fix the Causes of Your Bad Habits

It is an inversion of the 2nd Law of Behavior Change: make it unattractive.

Some of the underlying motives of human nature include: conserve energy, obtain food and water, find love and reproduce, connect and bond with others, win social acceptance and approval, reduce uncertainty, achieve status and prestige

Look at nearly any product that is habit-forming and you’ll see that it does not create a new motivation, but rather latches onto the underlying motives of human nature.

You can make hard habits more attractive if you can learn to associate them with a positive experience.

Now, imagine changing just one word: You don’t “have” to. You “get” to.

Reframing your habits to highlight their benefits rather than their drawbacks is a fast and lightweight way to reprogram your mind and make a habit seem more attractive.

Saving money is often associated with sacrifice. However, you can associate it with freedom rather than limitation if you realize one simple truth: living below your current means increases your future means.

These little mind-set shifts aren’t magic, but they can help change the feelings you associate with a particular habit or situation.

If you want to take it a step further, you can create a motivation ritual. You simply practice associating your habits with something you enjoy, then you can use that cue whenever you need a bit of motivation. For instance, if you always play the same song before having sex, then you’ll begin to link the music with the act.

Say you want to feel happier in general. Find something that makes you truly happy — like petting your dog or taking a bubble bath — and then create a short routine that you perform every time before you do the thing you love. Maybe you take three deep breaths and smile. Three deep breaths. Smile. Pet the dog. Repeat.

Once established, you can break it out anytime you need to change your emotional state. Stressed at work? Take three deep breaths and smile. Sad about life? Three deep breaths and smile.

Every behavior has a surface level craving and a deeper underlying motive.

Habits are attractive when we associate them with positive feelings and unattractive when we associate them with negative feelings. Create a motivation ritual by doing something you enjoy immediately before a difficult habit.

PART 4: THE 3RD LAW – Make It Easy

Ch 11: Walk Slowly, but Never Backward

It is easy to get bogged down trying to find the optimal plan for change.

As Voltaire once wrote, “ The best is the enemy of the good.”

Motion makes you feel like you’re getting things done.

When preparation becomes a form of procrastination, you need to change something. You don’t want to merely be planning. You want to be practicing.

If you want to master a habit, the key is to start with repetition, not perfection. You don’t need to map out every feature of a new habit. You just need to practice it.

This is the first takeaway of the 3rd Law: you just need to get your reps in.

“Neurons that fire together wire together.”

Repeating a habit leads to clear physical changes in the brain.

Each time you repeat an action, you are activating a particular neural circuit associated with that habit. This means that simply putting in your reps is one of the most critical steps you can take to encoding a new habit.

One of the most common questions I hear is, “How long does it take to build a new habit?” But what people really should be asking is, “How many reps does it take to form a new habit?”

To build a habit, you need to practice it.

Focus on taking action, not being in motion.

Habit formation is the process by which a behavior becomes progressively more automatic through repetition.

Ch 12: The Law of Least Effort

The Law of Least Effort states that when deciding between two similar options, people will naturally gravitate toward the option that requires the least amount of work.

This is why it is crucial to make your habits so easy that you’ll do them even when you don’t feel like it. If you can make your good habits more convenient, you’ll be more likely to follow through on them.

Trying to pump up your motivation to stick with a hard habit is like trying to force water through a bent hose. You can do it, but it requires a lot of effort and increases the tension in your life. Meanwhile, making your habits simple and easy is like removing the bend in the hose. Rather than trying to overcome the friction in your life, you reduce it.

One of the most effective ways to reduce the friction associated with your habits is to practice environment design.

Habits are easier to build when they fit into the flow of your life. You are more likely to go to the gym if it is on your way to work because stopping doesn’t add much friction to your lifestyle.

The Japanese companies looked for every point of friction in the manufacturing process and eliminated it. As they subtracted wasted effort, they added customers and revenue.

If you look at the most habit-forming products, you’ll notice that one of the things these goods and services do best is remove little bits of friction from your life.

Meal delivery services reduce the friction of shopping for groceries. Dating apps reduce the friction of making social introductions. Ride-sharing services reduce the friction of getting across town. Text messaging reduces the friction of sending a letter in the mail.

Business is a never-ending quest to deliver the same result in an easier fashion.

Whenever you organize a space for its intended purpose, you are priming it to make the next action easy. For instance, my wife keeps a box of greeting cards that are presorted by occasion — birthday, sympathy, wedding, graduation, and more.

There are many ways to prime your environment so it’s ready for immediate use. If you want to cook a healthy breakfast, place the skillet on the stove, set the cooking spray on the counter, and lay out any plates and utensils you’ll need the night before. When you wake up, making breakfast will be easy.

Want to exercise? Set out your workout clothes, shoes, gym bag, and water bottle ahead of time.

Want to improve your diet? Chop up a ton of fruits and vegetables on weekends and pack them in containers, so you have easy access to healthy, ready-to-eat options during the week.

You can also invert this principle and prime the environment to make bad behaviors difficult.

Unplug the television and take the batteries out of the remote after each use, so it takes an extra ten seconds to turn it back on.

When I hide beer in the back of the fridge where I can’t see it, I drink less.

When I delete social media apps from my phone, it can be weeks before I download them again and log in.

Design a world where it’s easy to do what’s right.

Create an environment where doing the right thing is as easy as possible .

Increase the friction associated with bad behaviors. When friction is high, habits are difficult.

Prime your environment to make future actions easier.

Ch 13: How to Stop Procrastinating by Using the Two-Minute Rule

Doing it the same way each morning habitualizes it — makes it repeatable, easy to do. It reduces the chance that you would skip it or do it differently. It is one more item in your arsenal of routines, and one less thing to think about.

40 to 50 percent of our actions on any given day are done out of habit.

Every day, there are a handful of moments that deliver an outsized impact. I refer to these little choices as decisive moments. The moment you decide between ordering takeout or cooking dinner. The moment you choose between driving your car or riding your bike.

The Two-Minute Rule, which states, “When you start a new habit, it should take less than two minutes to do.”

Eg. “Read before bed each night” becomes “Read one page.” “Do thirty minutes of yoga” becomes “Take out my yoga mat.” “Study for class” becomes “Open my notes.” “Fold the laundry” becomes “ Fold one pair of socks.” “Run three miles” becomes “Tie my running shoes.”

A new habit should not feel like a challenge. The actions that follow can be challenging, but the first two minutes should be easy. What you want is a “gateway habit” that naturally leads you down a more productive path.

The point is to master the habit of showing up.

Instead of trying to engineer a perfect habit from the start, do the easy thing on a more consistent basis. You have to standardize before you can optimize.

The more you ritualize the beginning of a process, the more likely it becomes that you can slip into the state of deep focus that is required to do great things.

The Two-Minute Rule states, “When you start a new habit, it should take less than two minutes to do.”

The more you ritualize the beginning of a process, the more likely it becomes that you can slip into the state of deep focus that is required to do great things.

Standardize before you optimize. You can’t improve a habit that doesn’t exist.

Ch 14: How to Make Good Habits Inevitable and Bad Habits Impossible

A commitment device is a choice you make in the present that controls your actions in the future. It is a way to lock in future behavior, bind you to good habits, and restrict you from bad ones.

If you’re feeling motivated to get in shape, schedule a yoga session and pay ahead of time.

Commitment devices increase the odds that you’ll do the right thing in the future by making bad habits difficult in the present.

The best way to break a bad habit is to make it impractical to do. Increase the friction until you don’t even have the option to act.

The brilliance of the cash register was that it automated ethical behavior by making stealing practically impossible. Rather than trying to change the employees, it made the preferred behavior automatic.

ONETIME ACTIONS THAT LOCK IN GOOD HABITS

Nutrition

1. Buy a water filter to clean your drinking water.
2. Use smaller plates to reduce caloric intake .

Sleep

1. Buy a good mattress.
2. Get blackout curtains.
3. Remove your television from your bedroom .

Productivity

1. Unsubscribe from emails.
2. Turn off notifications and mute group chats.
3. Set your phone to silent.
4. Use email filters to clear up your inbox.
5. Delete games and social media apps on your phone.

Happiness

1. Get a dog.
2. Move to a friendly, social neighborhood.

Finance

1. Enroll in an automatic savings plan.
2. Set up automatic bill pay.
3. Cut cable service.
4. Ask service providers to lower your bills.

Technology can transform actions that were once hard, annoying, and complicated into behaviors that are easy, painless, and simple. It is the most reliable and effective way to guarantee the right behavior.

Medicine: Prescriptions can be automatically refilled.

Personal finance: Employees can save for retirement with an automatic wage deduction.

Cooking: Meal-delivery services can do your grocery shopping.

Productivity: Social media browsing can be cut off with a website blocker.

When you automate as much of your life as possible, you can spend your effort on the tasks machines cannot do yet.

The power of technology can work against us as well.

Instead of pressing a button to advance to the next episode, Netflix or YouTube will autoplay it for you. All you have to do is keep your eyes open.

The downside of automation is that we can find ourselves jumping from easy task to easy task without making time for more difficult, but ultimately more rewarding work.

Every Monday, my assistant would reset the passwords on all my social media accounts, which logged me out on each device. All week I worked without distraction. On Friday, she would send me the new passwords.

When working in your favor, automation can make your good habits inevitable and your bad habits impossible.

A commitment device is a choice you make in the present that locks in better behavior in the future.

The ultimate way to lock in future behavior is to automate your habits.

Using technology to automate your habits is the most reliable and effective way to guarantee the right behavior.

HOW TO CREATE A GOOD HABIT

The 1st Law: Make It Obvious
1.1: Fill out the Habits Scorecard. Write down your current habits to become aware of them.
1.2: Use implementation intentions: “I will [BEHAVIOR] at [TIME] in [LOCATION].”
1.3: Use habit stacking: “After [CURRENT HABIT], I will [NEW HABIT].”
1.4: Design your environment. Make the cues of good habits obvious and visible.

The 2nd Law: Make It Attractive
2.1: Use temptation bundling. Pair an action you want to do with an action you need to do.
2.2: Join a culture where your desired behavior is the normal behavior.
2.3: Create a motivation ritual. Do something you enjoy immediately before a difficult habit.

The 3rd Law: Make It Easy
3.1: Reduce friction. Decrease the number of steps between you and your good habits.
3.2: Prime the environment. Prepare your environment to make future actions easier.
3.3: Master the decisive moment. Optimize the small choices that deliver outsized impact.
3.4: Use the Two-Minute Rule. Downscale your habits until they can be done in two minutes or less.
3.5: Automate your habits. Invest in technology and onetime purchases that lock in future behavior.

PART 5: THE 4TH LAW – Make It Satisfying

Ch 15: The Cardinal Rule of Behavior Change

We are more likely to repeat a behavior when the experience is satisfying.

The Cardinal Rule of Behavior Change: What is rewarded is repeated. What is punished is avoided.

The first three laws of behavior change — make it obvious, make it attractive, and make it easy — increase the odds that a behavior will be performed this time. The fourth law of behavior change — make it satisfying — increases the odds that a behavior will be repeated next time. It completes the habit loop.

We are looking for immediate satisfaction.

Our bias toward instant gratification causes problems. Eg. lung cancer, obesity, STD’s.

Put another way, the costs of your good habits are in the present. The costs of your bad habits are in the future.

What is immediately rewarded is repeated. What is immediately punished is avoided.

If you’re willing to wait for the rewards, you’ll face less competition and often get a bigger payoff. As the saying goes, the last mile is always the least crowded.

The best way to do this is to add a little bit of immediate pleasure to the habits that pay off in the long-run and a little bit of immediate pain to ones that don’t.

You want the ending of your habit to be satisfying. The best approach is to use reinforcement, which refers to the process of using an immediate reward to increase the rate of a behavior.

Eg. Open a savings account and label it for something you want — maybe “Leather Jacket.” Whenever you pass on a purchase, put the same amount of money in the account. Skip your morning latte => transfer $5. Pass on another month of Netflix => Move $10 over. It’s like creating a loyalty program for yourself. The immediate reward of seeing yourself save money toward the leather jacket feels a lot better than being deprived.

It is worth noting that it is important to select short-term rewards that reinforce your identity rather than ones that conflict with it.

Eventually, as intrinsic rewards like a better mood, more energy, and reduced stress kick in, you’ll become less concerned with chasing the secondary reward. The identity itself becomes the reinforcer.

Immediate reinforcement helps maintain motivation in the short term while you’re waiting for the long-term rewards to arrive.

The 4th Law of Behavior Change is “make it satisfying.”

We are more likely to repeat a behavior when the experience is satisfying.

The Cardinal Rule of Behavior Change: What is immediately rewarded is repeated. What is immediately punished is avoided.

Ch 16: How to Stick with Good Habits Every Day

Making progress is satisfying, and visual measures — like moving paper clips or hairpins or marbles — provide clear evidence of your progress.

Visual measurement comes in many forms: food journals, workout logs, loyalty punch cards, the progress bar on a software download, even the page numbers in a book. But perhaps the best way to measure your progress is with a habit tracker.

A habit tracker is a simple way to measure whether you did a habit. The most basic format is to get a calendar and cross off each day you stick with your routine.

Jerry Seinfeld reportedly uses a habit tracker to stick with his streak of writing jokes. In the documentary Comedian, he explains that his goal is simply to “never break the chain” of writing jokes every day.

“Don’t break the chain” is a powerful mantra.

Benefit #1: Habit tracking is obvious.

Habit tracking also keeps you honest.

Benefit #2: Habit tracking is attractive.

The most effective form of motivation is progress. When we get a signal that we are moving forward, we become more motivated to continue down that path. In this way, habit tracking can have an addictive effect on motivation. Each small win feeds your desire.

Benefit #3: Habit tracking is satisfying.

Tracking can become its own form of reward. It is satisfying to cross an item off your to-do list, to complete an entry in your workout log, or to mark an X on the calendar.

Habit tracking also helps keep your eye on the ball: you’re focused on the process rather than the result.

You’re not fixated on getting six-pack abs, you’re just trying to keep the streak alive and become the type of person who doesn’t miss workouts.

Furthermore, habit tracking provides visual proof that you are casting votes for the type of person you wish to become, which is a delightful form of immediate and intrinsic gratification.

First, whenever possible, measurement should be automated.

Second, manual tracking should be limited to your most important habits.

Finally, record each measurement immediately after the habit occurs. The completion of the behavior is the cue to write it down.

I try to remind myself of a simple rule: never miss twice.

You don’t realize how valuable it is to just show up on your bad (or busy) days. Lost days hurt you more than successful days help you.

It’s about being the type of person who doesn’t miss workouts. It’s easy to train when you feel good, but it’s crucial to show up when you don’t feel like it.

If your success is measured by quarterly earnings, you will optimize sales, revenue, and accounting for quarterly earnings.

The human mind wants to “win” whatever game is being played.

This pitfall is evident in many areas of life. We focus on working long hours instead of getting meaningful work done.

In short, we optimize for what we measure. When we choose the wrong measurement, we get the wrong behavior. This is sometimes referred to as Goodhart’s Law.

“When a measure becomes a target, it ceases to be a good measure.”

But just because you can measure something doesn’t mean it’s the most important thing. And just because you can’t measure something doesn’t mean it’s not important at all.

One of the most satisfying feelings is the feeling of making progress.

A habit tracker is a simple way to measure whether you did a habit — like marking an X on a calendar.

Habit trackers and other visual forms of measurement can make your habits satisfying by providing clear evidence of your progress.

Don’t break the chain. Try to keep your habit streak alive.

Never miss twice. If you miss one day, try to get back on track as quickly as possible.

Just because you can measure something doesn’t mean it’s the most important thing.

Ch 17: How an Accountability Partner Can Change Everything

Just as we are more likely to repeat an experience when the ending is satisfying, we are also more likely to avoid an experience when the ending is painful.

If you want to prevent bad habits and eliminate unhealthy behaviors, then adding an instant cost to the action is a great way to reduce their odds.

A habit contract is a verbal or written agreement in which you state your commitment to a particular habit and the punishment that will occur if you don’t follow through. Then you find one or two people to act as your accountability partners and sign off on the contract with you.

To make bad habits unsatisfying, your best option is to make them painful in the moment.

The inversion of the 4th Law of Behavior Change is make it unsatisfying.

We are less likely to repeat a bad habit if it is painful or unsatisfying.

An accountability partner can create an immediate cost to inaction. We care deeply about what others think of us, and we do not want others to have a lesser opinion of us.

Knowing that someone else is watching you can be a powerful motivator.

PART 6: ADVANCED TACTICS – How to Go from Being Merely Good to Being Truly Great

Ch 18: The Truth About Talent (When Genes Matter and When They Don’t)

Habits are easier to perform, and more satisfying to stick with, when they align with your natural inclinations and abilities.

In short: genes do not determine your destiny. They determine your areas of opportunity. As physician Gabor Mate notes ,“Genes can predispose, but they don’t predetermine.”

Our habits are not solely determined by our personalities, but there is no doubt that our genes nudge us in a certain direction.

The takeaway is that you should build habits that work for your personality.

There is a version of every habit that can bring you joy and satisfaction. Find it Habits need to be enjoyable if they are going to stick. This is the core idea behind the 4th Law.

Learning to play a game where the odds are in your favor is critical for maintaining motivation and feeling successful.

Pick the right habit and progress is easy. Pick the wrong habit and life is a struggle.

The goal is to try out many possibilities, research a broad range of ideas, and cast a wide net.

After this initial period of exploration, shift your focus to the best solution you’ve found — but keep experimenting occasionally.

Ask: What feels like fun to me, but work to others? What makes me lose track of time? Where do I get greater returns than the average person? What comes naturally to me?

When you can’t win by being better, you can win by being different. By combining your skills, you reduce the level of competition, which makes it easier to stand out. You can shortcut the need for a genetic advantage (or for years of practice) by rewriting the rules.

Specialization is a powerful way to overcome the “accident” of bad genetics. The more you master a specific skill, the harder it becomes for others to compete with you.

Our genes do not eliminate the need for hard work. They clarify it. They tell us what to work hard on.

Pick the right habit and progress is easy. Pick the wrong habit and life is a struggle.

Habits are easier when they align with your natural abilities. Choose the habits that best suit you.

Play a game that favors your strengths. If you can’t find a game that favors you, create one.

Genes do not eliminate the need for hard work. They clarify it. They tell us what to work hard on.

Ch 19: The Goldilocks Rule – How to Stay Motivated in Life and Work

And yet Steve Martin faced this fear every week for eighteen years. In his words, “10 years spent learning, 4 years spent refining, and 4 years as a wild success.”

The Goldilocks Rule states that humans experience peak motivation when working on tasks that are right on the edge of their current abilities.

In psychology research this is known as the Yerkes–Dodson law, which describes the optimal level of arousal as the midpoint between boredom and anxiety.

A flow state is the experience of being “in the zone” and fully immersed in an activity.

They found that to achieve a state of flow, a task must be roughly 4 percent beyond your current ability.

As a result, many of us get depressed when we lose focus or motivation because we think that successful people have some bottomless reserve of passion.

The difference is that they still find a way to show up despite the feelings of boredom.

Mastery requires practice. But the more you practice something, the more boring and routine it becomes. Once the beginner gains have been made and we learn what to expect, our interest starts to fade.

The greatest threat to success is not failure but boredom. We get bored with habits because they stop delighting us.

In psychology, this is known as a variable reward. Slot machines are the most common real-world example. A gambler hits the jackpot every now and then but not at any predictable interval. The pace of rewards varies. This variance leads to the greatest spike of dopamine, enhances memory recall, and accelerates habit formation.

The sweet spot of desire occurs at a 50/50 split between success and failure. Half of the time you get what you want. Half of the time you don’t. You need just enough “winning” to experience satisfaction and just enough “wanting” to experience desire.

Professionals stick to the schedule; amateurs let life get in the way.

You have to fall in love with boredom.

The Goldilocks Rule states that humans experience peak motivation when working on tasks that are right on the edge of their current abilities.

The greatest threat to success is not failure but boredom.

Anyone can work hard when they feel motivated. It’s the ability to keep going when work isn’t exciting that makes the difference.

Professionals stick to the schedule; amateurs let life get in the way.

Ch 20: The Downside of Creating Good Habits

The upside of habits is that we can do things without thinking. The downside of habits is that you get used to doing things a certain way and stop paying attention to little errors.

Habits are necessary, but not sufficient for mastery.

Habits + Deliberate Practice = Mastery

Eg. Lakers coach Pat Riley asks each player to “improve their output by at least 1 percent over the course of the season.” Pat Riley also tracked ‘unsung hero’ stats that measured effort and impact outside of points/assists/rebounds.

“Sustaining an effort is the most important thing for any enterprise. The way to be successful is to learn how to do things right, then do them the same way every time.”

Reflection and review enables the long-term improvement of all habits because it makes you aware of your mistakes and helps you consider possible paths for improvement.

I know of executives and investors who keep a “decision journal” in which they record the major decisions they make each week, why they made them, and what they expect the outcome to be.

Personally, I employ two primary modes of reflection and review. Each December, I perform an Annual Review. Six months later, when summer rolls around, I conduct an Integrity Report.

Daily habits are powerful because of how they compound, but worrying too much about every daily choice is like looking at yourself in the mirror from an inch away. You can see every imperfection and lose sight of the bigger picture. There is too much feedback.

Periodic reflection and review is like viewing yourself in the mirror from a conversational distance. You can see the important changes you should make without losing sight of the bigger picture.

One solution is to avoid making any single aspect of your identity an overwhelming portion of who you are. In the words of investor Paul Graham, “keep your identity small.”

When you cling too tightly to one identity, you become brittle.

Life is constantly changing, so you need to periodically check in to see if your old habits and beliefs are still serving you.

A lack of self-awareness is poison.

The upside of habits is that we can do things without thinking. The downside is that we stop paying attention to little errors.

Habits + Deliberate Practice = Mastery

Reflection and review is a process that allows you to remain conscious of your performance over time.

The tighter we cling to an identity, the harder it becomes to grow beyond it.

PART 7: Conclusion The Secret to Results That Last

The holy grail of habit change is not a single 1 percent improvement, but a thousand of them.

Success is not a goal to reach or a finish line to cross. It is a system to improve, an endless process to refine.

With the Four Laws of Behavior Change, you have a set of tools and strategies that you can use to build better systems and shape better habits.

The secret to getting results that last is to never stop making improvements.

That’s the power of atomic habits. Tiny changes. Remarkable results.