With a wave of complexity and unknowns smashing into the financial and political worlds, the elegant simplicity of Occam's Razor is primed for a revival.
But what is Occam's Razor and how does it work?
Here's Occam's Razor 101!
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1/ Occam's Razor is a classic problem-solving principle and mental model.
It says that when you are weighing alternative hypotheses, the one with the fewest necessary assumptions should be chosen.
Put simply, the simplest explanation is often the best one.
Simple is beautiful.
2/ The benefits of Occam's Razor can be extensive.
Going with the hypothesis with the fewest number of necessary assumptions means it is easier to prove/disprove. There are fewer assumptions to vet in your process.
It allows one to follow the critical path to an outcome.
3/ The origin of the named concept is attributed to William of Ockham, an English friar, theologian, and philosopher. His simplified deductive reasoning led others to coin the term in his name.
But to be sure, the concept itself has been employed by great thinkers for centuries.
4/ Let's look at a few real-world examples of where Occam's Razor might be useful (and where it might get you in trouble).
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5/ Investing?
As @GavinSBaker often says, simple is beautiful when it comes to investing.
In developing perspectives on a company or industry, cut down to the critical assumptions or variables for determining the future state.
Remove the noise and you are left with the signal.
6/ This is a critical concept as it relates to developing true, differentiated insights and ultimately generating alpha.
7/ What about government financial crisis response?
Every crisis is different and complex. COVID-19 precipitated a truly unique financial meltdown.
But if you wanted to determine the government's likely response, the simplest answer was probably the best: they print money.
8/ With so many outstanding variables and assumptions, taking an Occam's Razor approach to determining government policy interventions in times of crisis may make sense.
When in doubt, they print, they bailout, and they kick the can down the road.
9/ But as with all mental models, Occam's Razor is far from perfect.
It is a great way to answer efficiently in the absence of an environment of complete information.
But it can get you into trouble if used too broadly, as @ShaneAParrish points out.
If the thing is within your control, then go do something about it. If the thing is out of your control, then it's just a waste of energy to complain about it.
2. Don't allow negative people to steal your energy.
Stop avoiding difficult conversations. Embrace the need to remove toxicity from your life.
3. Do not allow more than 2 hours of inactivity.
Get up and go for a walk. Do a few pushups or lunges. Move your body regularly.
4. Do not "graze" on low-value tasks.
Parkinson's Law says that work expands to fill the time allotted for its completion. When you don't set fixed windows for managing low-value tasks, you end up "grazing" on them. Create short windows for processing low importance tasks.
This may be the best definition of success I've ever come across...
Here are Ralph Waldo Emerson's 9 Pillars of Success:
Ralph Waldo Emerson once wrote the following passage on his definition of success:
I'd break this down into nine items...
1. To laugh often and much: Laughter keeps us young. Without laughter, you aren't really living!
2. To win the respect of intelligent people: Earning the respect of people you admire (my adaptation on "intelligent people") through the way you live your life.