If you look at Tim Ferris (click here for more info about him), you’ll notice that a major part of his success is his obsession with filtering. He forces himself to have the discipline to sit down, sift through data, and find a solution that is better than all the rest. It works for him — and it can work for you too.
Everything is about filtering in the end. Sports teams filter through players using different levels and leagues of each sport; Employers filter through prospective employees with job interviews; and entrepreneurs constantly try to find the next big idea that will make them rich. If you think about it, it’s very rare indeed to find somebody that doesn’t try to filter through information in some way. There’s a big reason for that too.
Information is tough. There’s lots of logistics involved and it can get complicated pretty quickly — even one wrong assumption can render an entire thought incorrect. All ideas are giant meshes of disorganized facts and figures that might or might not be correct. However, by sitting down and going through the components of an idea, a company, or a project, you have the ability to avoid the pitfalls of bad information and find an easier way to proceed with what you are trying to do. It cuts out the chances of humiliation and puts you in a more stable situation.
By going through the details of thought and obsessing over every single one of its components, you can reach an idea that does exactly what you want it to do without going through the embarrassment of realizing that you are wrong.
There’s another word for this kind of filtering: It’s called thinking.
Thinkers think about what their ideas entail in terms of implications and connections to other ideas.
Try to think about that without having a headache… that is, if you have enough discipline to filter through your thoughts.
You have to think of money in terms of purchasing power. If you make $10 a day, don’t think about the fact that that equates to $3650 a year. After all, what does it really matter how much you make per year?
If you make $10 a day, force yourself to realize that you’re making enough money to have your house cleaned, laundry washed, and body massaged once a week (at least in most cases).
Why? Because it forces you to realize the true value of money. After all, money is not about having a big number of it in your bank account. It’s about using it and maximizing its effect on your life.
Some people complain that “consumption isn’t the goal of working”. That’s completely true.
However, thinking about purchasing power isn’t really about consumption. Not really. It’s about stepping back and realizing that the nitty-gritty details of your life can be taken care of for you. It’s about understanding true value.
Washington Mutual is perhaps one of biggest banks to collapse in American history. In 2008, after 119 years of operation, the bank was brought to its knees after the Recession hit.
What caused the banking giant to fall? It was a combination of things. First, Washington Mutual gave insanely generous loans to corner the market on middle-class consumers. It wanted to be the “Wal-Mart of Finance.” Sadly, this sent the bank to its ultimate doom when the 2008 Crash rolled in and consumers started defaulting on their loans.
Trying to control the panic among depositors and investors, Washington Mutual began reorganizing its Home-Loan Division, laying off more than 22% of its staff. That’s when things went from bad to worse.
Investors, seeing the banking giant losing its grip, decided to bail ship. Suddenly, there was a massive run on Washington Mutual as many depositors withdrew their funds from their accounts and investors tried to get rid of their stock.
It was a race to the bottom and Washington Mutual was losing big. The management tried to negotiate talks with other big banks seeking financial help and a possible buyout. They got nowhere. They received only one offer from J.P. Morgan Chase and it was for $4 a share. They rejected that offer.
By now, things were hopeless. The company tried to prevent further backslide by stopping wholesale money lending and it even tried to replace its CEO. Nothing worked.
It was finally apparent that nothing would save the banking giant, and the Federal Deposit Insurance Corporation (FDIC) seized the bank and brought its horrible year to a close. Depositors were given their money back. Investors got nothing.
This is why you can never assume that a bank is a stable investment. Because anything is possible in the world of finance.
Fear turns some of the greatest minds into mush — and that’s by no means an exaggeration. I’ve known some of the smartest people who threw all their talents away because they were afraid of their own shadow. But that doesn’t have to be the case for you. Fear doesn’t have to beat you. You can control it. You can conquer it.
Almost everything in life boils down to how much you can take. There’s an old boxing quote I’ve always loved that says: “It doesn’t matter how hard you can hit — it’s about how hard you can get hit and keep moving forward.” You have to be stubborn enough to take the hits of life and not let them faze you. Who gives a crap if you’re fearful as long as you move past it and control it instead of letting it control you. If you’re scared, you should think, “So what?” Never let it control you.
If you have some sort of crippling fear that’s bugging you, you can get past it through scheming. That sounds pretty bad, but the truth is that scheming sometimes works. Whereas, if you let yourself get crippled by fear then you are bound to fail. If you’re scared, think your way past the fear and get your head in the game. The more scared you are, the more you should think about situations to beat your fear. Use your fear as a force of power for yourself.
Remember that fear is natural. It’s a primal instinct that has been given to us to keep us safe. Don’t ever ignore your fears outright. Use them to your advantage or at least recognize them.
Fear isn’t unstoppable. You can control it or you can let it control you. The answer is to not let fear faze you; instead use it as a focusing mechanism and always be aware of it.
You can’t live your life hoping for miracles, because in the end you’ll want to hang yourself. The solution is to wait for sure deals before making yourself look like an idiot.
You might not be a good planner, a brilliant thinker, or a good looking person — but in the end it doesn’t matter. What matters is patience and playing the cards you’ve been dealt in life. Don’t give an inch. You can bend, but don’t break.
If you can practice the discipline of never giving up leverage — if you can be smart enough to never give an inch in the other person’s favor except in your own, then you will win.
There are two kinds of goods in the market that every investor needs to know about: consumer cyclicals and consumer staples.
Consumer cyclicals include things like electronics, movie tickets, and other somewhat unnecessary items. Consumer cyclicals are items that are bought specifically for enjoyment, and they often fare worst in bad economic times. Because when money is tight, nobody wants to spend their money on those things.
Then there are consumer staples. Consumer staples are goods that are essentially necessities — like milk, eggs, oil, and paper. These kinds of things are not wants, they are needs. This makes them more valuable in tough economic times.
Consumer cyclicals are goods for people who want it. Consumer staples are for people who require it.
Everything is subjective. There’s no real one-size-fits-all plan for life that works perfectly every time. You have to think in terms of your own personal goals and your own risk tolerance. It’s a bit like investing.
In investing, you have personal goals. Either you can choose investments that are riskier for a chance at greater profits, or you can take the safe route and invest in something stable with less volatility for lower returns. No choice is necessarily “wrong” — it’s just a matter of preference. It just depends on what you want out of your investment.
The same thing goes for life itself. You can either choose to live on the edge your entire life with a greater chance of failure or you can simply do what’s stable. It all depends on your life goals and what you want.
Unfortunately, almost nobody understands what it means to “let go”. They all have some misconceived notion that “letting go” means they should disregard their wants in life to live miserably for no reason. However, it’s quite the opposite. Letting go is the most powerful tool we have at our disposal to get what we want from life and escape misery.
Being too attached to things can hurt you. Overly-attached boyfriends, girlfriends, and family members have a bad reputation for a reason. That’s because when you’re really attached to something, you can become obsessive — and being obsessive rarely works, if ever.
Being too attached to something is a miserable way to live your life. It’s why so many men and women around the world choose to take their own lives every single day. Often it’s because they couldn’t stand the thought of living without something — so they decide to not live at all.
The truth is, you can live without some things. The idea that you can’t is just ludicrous. Don’t let yourself become obsessive. Be able to fight for your goals but have the discipline to live without them. Be able to let go.
Each person has a problem with bad behavior in some form or another — that’s a fact. Everyone, regardless of intelligence, income, or nationality is prone to do or think things that are unequivocally wrong. Of course, because the struggle is so common, everyone likes to pretend that these vices we struggle with are just a sad fact of life. We like to think that just because everyone wrestles with them, that they are somehow undefeatable. However, nothing could be farther from the truth. Our vices can be beaten. Using the steps outlined by a philosopher more than two thousand years ago, you can conquer bad behavior outright.
In a book originally entitled, De Brevitate Vitæ (On the Meaningness of Life), the great Stoic philosopher Seneca tried to explain his framework for living meaningfully. It was in his book that he wrote the following:
“We must attack the passions by brute force and not by logic; that the enemy’s line must be turned by a strong attack and not by pinpricks; for vices have to be crushed rather than picked at.”
If you want to stop doing bad things, thinking bad thoughts, or having bad attitudes, the best way is to stop all of it at once. Everything. Cold turkey. You have to watch everything you do as if you were on a diet, being aware of even the smallest things and putting an end to the things you know you shouldn’t do.
The problem is that most people never do this – they mistakenly believe that it just takes small steps to finally get on the road to purity. But small steps require discipline, and people who struggle with their vices aren’t disciplined enough to take small steps. If they were disciplined, they wouldn’t be struggling with bad behavior in the first place!
Want to be a better person? Start being one. Do what Seneca said: Go strong.
What is classical measurement theory? It’s a fancy way of saying, “How badly did we screw up our data?” Something a lot of statisticians find themselves saying daily (I’m just guessing. After all, I’m not a statistician myself).
No collected data is without errors. You might even say, “To err is data.” But just because it’s not perfect does not mean that it’s not useful – at least, if the errors are correctly identified. That’s what classical measurement theory helps with: identifying the errors.
Understand everything so far?
Let’s keep going.
Here’s the formula:
X = T + E
Here’s what you need to know: It requires three parts, observed measurement, true score, and error. X represents the observed measurement, which is the sum of T (true score) and E (the error).
Let’s create an example. Let’s say you measure a cup of water. The measurement shows that the cup contains 8 ounces of water. However, you know that the true measure of water is 2 ounces less. You would then plug those numbers into the formula like so,
8 = 6 + 2
See? It’s simple. Unfortunately, both T and E are hypothetical, since in the real world you would never know the truth value of measurements, and can only make estimates about whether the data is correct or not.
Congratulations, you just took a baby step to be a master of statistics. Give yourself a pat on the back. You deserve it.