Second Order Thinking

Hello members and subscribers! The ninth Moonshots Master episode is here and we are diving into Critical Thinking and SECOND ORDER THINKING!

Helping set the scene for Second Order Thinking we think it only right to start with Howard Marks, who explains why if you think the same as everyone else you're not going to be a superior investor. We then have breakdowns, courtesy Yanis from Time Management and Productivity, of both Second Order Thinking and how it influences future actions, as well as Second Order Consequences and how every action has a consequence.

Now it’s time to truly understand the concept of Second Order Thinking, so we break down some thinking from Roman Krznaric of Big Think, who tells us that it is possible to utilise long term thinking and imagine the future if you retrain your brain. Swedish Investor then breaks down Howard Marks’ 3 chapters on risk, and how understand, recognize, and control it. Lastly, we have Taylor Benterud, who creates a great example of second order consequences for us, demonstrating some long-term thinking as a mental model with an agency model example.

Helping us adopt the practice and techniques of Second Order Thinking we get introduced to the concept of critical thinking with the TED-Ed channel which help us find the most useful information. We then have Jordan Peterson teaching us how critical thinking and writing are so interconnected. And finally, we have classic Moonshotter Adam Grant who emphasises the power of procrastination, and how it’s essential to leave yourself enough time to really think and grow.

Our reading list is full of tips, tricks and tools to help you harness your thinking, decision making and Second Order Thinking:

What key lesson are you taking from this episode? Get in touch and let us know! Thanks for listening. That’s a wrap.

TRANSCRIPT

Mike Parsons: [00:00:00] Hello, and welcome to the moonshots master series. It's episode number nine. I know, has Mike Parsons and as always, I'm joined by the man with the plan, Mr. Freeland. Good morning, mark. Good morning.

Mark Pearson Freeland: And man, can I say what a plan you and I have ahead of us today with episode nine of the master series,

Mike Parsons: we are going deep.

Mark. We are going to go rigorous, but come on. Let's share. Where are we going today?

Mark Pearson Freeland: Today, yay members and subscribers. We are diving into the fascinating, but pretty large concepts of critical thinking and specifically. The techniques, the tactics and the benefits of doing what's called a second order thinking.

And Mike, it's fair to say, as we tease a little bit about what's to come, there's a lot of helpful tips and tricks and hacks and ways of thinking about second order thinking coming up today. Isn't that. [00:01:00]

Mike Parsons: Indeed. This is all about, I think, making better decisions. And if I reflect on life, I've made some good ones, but boy, hi.

Remember the summer, the bad ones. So I think it's fair to say, mark, that we've all made a few bad decisions in our lifetimes.

Mark Pearson Freeland: Yeah it's a funny thing, isn't it? I believe not to get too meta within the first couple of minutes of our show, Mike, but we all have a tendency to sometimes remember the things that kind of went wrong or the decisions that we regret or that we wish hadn't happened.

But I think the truth is there's still lots and lots that we can learn from those regrets and mistakes. But more, more importantly really is the act of making that decision. Can be explored. We can learn from, and we can get a little bit better at making those decisions.

Mike Parsons: And that's the whole, that's the whole thing, right?

Sure. We made bad ones, but how do we make [00:02:00] better ones, yeah, exactly.

Mark Pearson Freeland: Exactly. So rather than thinking, oh, I'm stuck. I always make the same decisions. Why do I make such bad decisions throughout my life? Am I just a product of one after another bad decision to the truth is it's not fixed as it we've all got the capability of learning either how to roll with the punches or as we're covering today, utilize better tactics to make perhaps better decisions and be more rigorous with our thinking.

Mike Parsons: Exactly. And, I think we're in a war against time and lack of attention. I think all of these things make it harder for us to make better decisions. It makes it harder for us to take some time to examine it. So if we want to survive in the modern world, I think we need a way of going deeper of more critical thinking, going into the second level, second order thinking, consequential thinking the ability to truly [00:03:00] analyze and look at the things on a long-term basis in order to make better steps in the short-term.

That's all in front of us in this show, mark, and we've also got some amazing inspiration from famed investor Howard Marks. Really looking forward to getting into that. We've got great philosophers. We've got some really practical kind of entrepreneurs giving their thoughts on how to do second order thinking.

We even have some to moonshot every weights in Jordan meters in an anagram, or coming up in this moonshot master series. I think this is definitely a moment where you get the red bull where you get the double espresso and get ready to go.

Mark Pearson Freeland: Yeah, I couldn't agree more. I think that idea of long-term thinking is something that perhaps we've discussed and advocated on the moonshots weekly, as well as our master series, but only today are we getting deep getting into our classic comprehensive master series topics?

[00:04:00] Mike, I'm raring to go, can I kick us off?

Mike Parsons: Let's

Mark Pearson Freeland: start thinking deeply. Fantastic. So subscribers and members and Mike, we have opening up our show today on second order thinking the author, the investor, the wow. A man who was the chairman and co-founder of Oaktree capital management is very insightful.

Assessments of markets opportunities, risks. I couldn't sell them anymore. Could I make mistakes or through of the most important thing, uncommon sense for the thoughtful investor, but specifically today, Mike, we will, I want to hear from Howard Marks, really getting us into the concept of second order thinking.

And most importantly for you and our subscribers, how second order thinking can help us think different from others.

Mike Parsons: But the first chapter says the most important thing is second level thinking. If you think the same as everybody else, you're going to act the same. If you act the same as everybody else, you're going to perform this.[00:05:00]

That's not a very good performance of formula for being a superior investor. If you want to be a superior investor, you have to think different from others, you have to act different and maybe then you can have different performance. And then the only question is your performance different and right.

Or difference in wrong relative to the average. But clearly if you think the same as everybody else, you can out perform. So you have to have an organization which is based on what I consider second level thinking, which is thinking different from others and better. So when my son was studying investing and he would come to me and he'd say, dad, I think we should buy Ford stock because Ford is coming out with a great Mustang and they're gonna make a lot of money.

And I would say to him, my answer was always the same because I feel by repetition, you can get your lessons across. So my answer to him was always the same, who doesn't know that. If Ford is going to come out with a great Mustang and it's going to be a killer car, and it's going to make a lot of money, [00:06:00] but everybody who follows forward knows that then that piece of knowledge is not profitable.

So in order to outperform others, you have to know something. They don't know. You have to look at things in a different way than they look at them. Second level thinking different and better. And just a brief one brief example. The first level thinker says, this is a great company. We should buy the stock.

The second level thinker says it's a great company, but it's not as great as everybody thinks we should sell the stock. And that's the thing I hope you'll think of. This wisdom is coming to us from somebody who is one of the top 500 most wealthiest people in America. He's worth mark a cool $2.1 million.

So let's just remember this is coming from an article, almost a Warren buffet like Sage. And what's interesting here is he made this really important [00:07:00] distinction, which I think is really valuable. Who doesn't know that if everybody knows that, then it's not a special insight, it's hard to leverage opportunity from it.

And you can almost imagine his boss and walking upstream wa turning around after hearing from Howard and going back to his bedroom to work on it a bit deeper. I E going to second order thinking, going deeper into it to find something that is there a really insight that very few people. No pretty interesting, pretty inspiring stuff,

Mark Pearson Freeland: right?

Yeah. Super inspiring. And we're going to revisit it and explore it and really tear it open throughout today's episode. That idea of thinking differently, more long-term or bigger versus that surface level response and much like his son in the story is coming up to him and say, yeah forward, bringing out a new car.

Great. That's quite a surface level element, isn't it. And as we're going to explore today and really get into the guts and understand when we can train ourselves to [00:08:00] go that level deeper as how it does thinking about everybody else knows it. What do I know? I know that's different. That's where those investments or any decision-making life really excels, isn't it.

So we've got a lot ahead of us.

Mike Parsons: We do. And this idea of going deeper going into second level or consequential thinking is not only unique to marks. In fact, if you take another famed investor, Peter teal, first investor in Facebook, he says that, secrets are actually really critical to success.

And he bases a lot of his success on here. It is knowing and understanding important truths about the world that other people don't yet realize isn't that good? And it's very similar to what Marx was just saying. Isn't it mark?

Mark Pearson Freeland: Yeah, exactly. You're right. I think what's really interesting for me as I think about second order and second level thinking and [00:09:00] consequences is an important, different differentiation.

I think you don't necessarily know. Choose a contrarian or unusual idea. You're not intentionally working against the flow of things. It's not saying, oh, I'm not going to invest in Ford instead, I'm going invest in Volkswagen. It's not going against the grain necessarily. It's just putting a lot more effort, a lot more diligence, I think a lot more hard work into making that decision.

And therefore you become different from the rest or the lot, because you've done a level of work. And

Mike Parsons: let me just build on that for a second. The reason it feels so contrarian is because so few people do second order

Mark Pearson Freeland: thinking. Exactly.

Mike Parsons: So you've got the wisdom of the market just chases what they think is hot, but the very best investors stand apart from that.

And they say no. I'm going to find a good company that a lot of people don't realize is actually good. Those are the ones that make the real breakthroughs. [00:10:00] So this is really setting the scene for second order thinking, going deeper, going further, looking at the consequences, not just yeah, Ford's a good company.

Go deeper. Let's continue now on this journey into second order thinking here on this moon shot master class, I am so fired up. We're going to hear from a guy called Yannis. He's got a great channel on YouTube called time management productivity, and he's going to set the scene for second order thinking and something pretty exciting that.

Second order thinking is when you think about how your decisions will influence your future actions, rather than just immediate ones, you might be saving money for holidays, but you walk in a store and there are shoes on discount that you always want to purchase. If you use first started thinking, then you'll get the shoes.

But if you use second order thinking, then you'll think about saving money for the holiday. And that is more important for you to better [00:11:00] understand second order thinking. It is important to understand second order consequences. Every action that you take will have a consequence and every consequence will have another consequence.

So sometimes when you think you're selling a problem, you're actually creating another problem for yourself. Let's say you're starting a business on your own, and you decide to do everything by yourself. Finances selling valve development, et cetera. You think that by developing your own website, you're resolving a problem.

And in addition to that, you're also saving some money, but the fact that you're doing everything by herself is creating you and even a bigger problem, and that will affect your business in the future because you're busy all the time. You won't be able to focus on the business growth and expansion. From the first impression, it might look like a good solution to do everything by herself, but ultimately that is not the best solution as it has second order [00:12:00] consequences.

So be sure that you think beyond initial benefits and apply second order thinking to make better decisions in the long run.

Mark Pearson Freeland: I think that's a great little relatable story, Mike, that a lot of us and our members may have experienced either directly or indirectly through a close contact. And so on this idea of making a decision because you almost are forced into it, or you think it's going to have the best long run, I'm going to save a lot of money in the long run, but without sitting down thinking, okay what actually is the impact that I'm going to have on my available time or my ability to spend time with networking or my family or whoever it might be.

It does every action as the honest is calling out in that clip, every action has a potential issue or problem. So it only makes sense for us. And when we're making that decision or taking that moment of action to really try and almost game it out and think, okay [00:13:00] what could happen here either the worst case or the medium bad case, because then I'm more.

In case it does. It does transpire that is going to be a challenge for me.

Mike Parsons: Yeah. And I think everything we're talking about here could be said differently as an invitation to take time and ask yourself, or what happens then let's say you've got a great idea in the case that we were just hearing about in that clip, let's say you do decide to build the website and it takes you a lot of time.

What is it that you're not doing because you decided to make the website and this is all of a sudden where you go, oh yeah, I'm actually going to be really busy that week already. So if I use some second order thinking, I start to say, actually, this is not going to be as easy as I thought, but I think it's so easy just to rush into it.

Isn't it's easy to come up with a quick solution[00:14:00] to over-generalize to just disqualify jump to conclusions, to make wishful thinking. Or sometimes we just let our emotions respond. That sucks. So I'll just do it myself, right? Without any pause, without any consideration of the second level.

This is not easy though, because as we said earlier in the show, we don't have a lot of time that we have a lot of information that we're processing. Mike, how do you see yourself trying to make this second order thinking happened? What war? What are you fighting against? If you think about your habits, what are the real challenges in China?

To think on second level or second order.

Mark Pearson Freeland: It's funny as we are exploring this topic, it sounds almost foolish to follow a first level thinking approach. Doesn't it to not give things the time to percolate, to reflect or game it out in order to try and find out what the potential [00:15:00] consequences are, but the truth is.

And I, hopefully I'm not alone here. Mike, my mind is programmed almost to look for the easiest solution, the one or the path of least resistance, the one where I'm going to maybe offend the least amount of people or cause the least amount of knock-on work perhaps. And I think really does stem. And I think you said it earlier as well, the idea that we are bombarded with so many things that are going on in our lives, that when a problem or a bit of work or a conversation, whatever it might be comes up, you naturally or sorry.

I naturally look for sometimes depending on the level of severity I suppose, or priority, I will look for the path of least resistance because I just want to take it off the list so I can get on with something.

Mike Parsons: Yeah, it's almost like I just want to tick off something and look sometimes if it's like, where are we going to eat [00:16:00] tonight?

That's what are their consequences? Is it pizza or Indian? But actually when there are bigger things in life, it can require a big effort, it can take time. It may not give you that immediate gratification, but what's interesting is what I would propose to both you and our audience.

Mark is that whilst second order thinking is hard and complex and actually it's quite unconventional. Most people don't do it. It is what separates so many successful people, particularly in business because they do the work to rigorously gain data. To process it in the right way to ask the right questions and to really ask if this then what happens when I do that?

And they don't rush to conclusions, they're not a victim of wishful thinking. And unfortunately for [00:17:00] all of us, Mike, what we're prescribing here is no quick fix. But what we are saying is if you do the work, you can have much better outcomes. Just like someone like Howard Marks who is easily top 10 greatest investors of all time.

And he says at the heart of that success, you heard him in second order thinking.

Mark Pearson Freeland: It's unarguable, isn't it. And it's a topic or a theme that comes up across all of the entrepreneurs superstars moonshot is that we uncover on the master series as well as our weekly show. Mike it's that level of diligence and hard work.

Really pays off. So unless you and I, and our subscribers are willing to put in that little bit of extra time, that little bit of diligence, that little bit of hard work in order to make that decision. Yeah. We're bound to repeat the same mistakes as others around us, and maybe we won't have a chance to stand out and do those great [00:18:00] things that people like Howard marks or Elon mask or Michael Jordan, they're all capable of doing because of that hard work.

Mike Parsons: And let me put it to you, mark, and to all of our listeners, if we haven't got you fired up yet about second order thinking, going deeper, we're going to let, yanas hit you with the big reason. The big argument, why you must practice second order. Second order consequences are consequences that come out as a result of you making a certain decision that created another problem.

Let me put it this way. Every action has a consequence and each consequence has another consequence. These are called second order consequences. Let's say you have a problem with managing your team with spreadsheets and you decide to invest in project management software after weeks of integration and onboarding, you realize that you have more problems than you had before, and you still have a problem with managing [00:19:00] your team.

This is a result of not considering second order consequences. When making a decision, you wanted a quick fix, but ended up with more problems to avoid second order consequences. You have to adopt second order thinking. Here's how you can do that. In our previous example, we identified the problem with managing your team, but we didn't identify the root cause of it out of the spreadsheets well-maintained and up to date, because if they're not, then the solution will be to update them.

Is there one team member that is never updating them, and that is affecting the rest of the team. If that is the case, you might need to provide a specific person with additional training. Once you consider these options, then getting a paid project management software might not seem like a best solution.

The key in second order thinking is to consider how your decisions will impact other things in your life or your business. And that will enable you to make a better decision.

Mark Pearson Freeland: So I [00:20:00] love this slight division or at least the build that we're starting to encounter with second order thinking, Mike, in second order consequences.

It's not just a, I don't think we're just hearing the argument for sitting down and thinking if this, then that I think what Yannis is breaking down for us in that clip just then is actually the case for trying to get over problems that may be already. As well as plan for problems that may arise.

Exactly. So I can see the use of this tool. Second order thinking in both avenues, because in that example, the honest was just going into spreadsheets. Is that the issue or is it in fact as you play out in game out second order thinking, is it in fact, an under-trained team member who's causing that potential inefficiency and only through using second order thinking, is it possible to then determine whether or not that is an accurate angle that could in fact be causing that issue?

I think that's a really nice [00:21:00] demonstration of the flexibility of this.

Mike Parsons: Yeah. And I think perhaps what we are all a victim of is solving problems of today. Oh, if I just grab this, it'll fix that. It's almost Hey, there's a fire. I grab an extinguisher, I've put it out. But actually I never took a moment to say what caused that fire?

Is there some great images I can take? So we actually have less fires. And I think if anyone is working in early stage companies, it often feels like you're just running from fire to fire. Oh, we put that one out. Oh, can you one, or it's like a game of whack-a-mole one and then another one pops up.

And I think our bias is great job solved it for today. But what that example shows us as in maybe it just creates a different problem for tomorrow because we never went deep enough. We didn't ask why enough. We didn't take the time enough to understand what do we really need to solve? And this is where, we can learn this great idea of [00:22:00] asking better questions, are we even solving the right problem?

How about that for critical thinking? Like someone says Creek, we need to move away from spreadsheets to assess solution.

Mark Pearson Freeland: Y. Yeah. I think that's a fantastic building. I think you're totally right, because, and again, this level of the second order and third order, and so on order of thinking, I think you're totally right.

That then helps you as a business owner or colleague or teammate make that better decision. Not necessarily, oh, I've found this SAS products online and it promises better, easier understanding of profit and loss. So I'll throw my money at that and I'll purchase that software instead, taking a moment to really percolate on it.

Think about the problems and the consequences to then determine whether or not that is in fact, something that you need to fix or not. You don't need to jump straight into the solution prior to actually figuring out and [00:23:00] validating what the problems.

Mike Parsons: So there you have it. We've heard from one of the greatest investors, it's the ability to go to second order thinking health.

Be superior as an investor to make better decisions that might feel quite contrarian, but are insanely logical to them because they did the work. We heard this idea of not just thinking about today, but it's really about casting our minds towards tomorrow and the future. And Lee Yon has said it there.

He said everything we do has a consequence. So before you go and do something before you decide to do something, have you actually asked yourself, what are the consequences? If I do this, how will my time be spent? What am I focused on? What am I not focused on? If we do that as a business, if we invest in X, will that mean that further down the track we need going to need?

Y and Z, do we have the time and the money for that? Oh, no, we don't. Then it's not even an option then a [00:24:00] second order. Thinking mark, this is like such a tasty subject. And I'll tell you what else brings me great satisfaction. And that is to know that we have such a great bunch of members and patrons who are supporting us.

And I think because we make this master series only an exclusively for that. I think it's only appropriate that we do a roll call of those

Mark Pearson Freeland: moonshots. We certainly do Mike because without calling out all of our family members of the moonshots and master series family, who is just you and I chatting into our Mike's thinking out loud around second order thinking, isn't it.

So I'm really pleased and also honored to welcome into the family. Bob Niles, John and Terry Bridey, Nial modular and Ken DMR, Tom mark, and marsh and Connor, Rodrigo Yasmeen and spaceman, Daniella Liza, [00:25:00] Sarah Maria, Paul Berg, Kalman, and Dan and I and nets. Thank you for joining us a brand new member into the Patreon family.

Mike Parsons: Fantastic and your support. We are so grateful for it because it just for example, just this week, we got a notification from our hosting provider for the podcast. And because we have so many listeners we have to pay. An extra $450 in hosting costs because we have so many people downloading the show and your patronage helps us cover those sorts of costs.

Your membership also tells mark and myself and our researcher that we're doing the right thing. We're creating some value. You appreciate it. And you in return, give us value back. So super grateful. Thank you. And we hope you really do enjoy this journey into second order thinking. And remember, this is a masterclass.

So we would expect that you [00:26:00] jump onto moonshots.io, check out the show notes for this episode. Make sure you can read along. There's a transcript as well. There's a ton of links to all of that. All of the further reading that you might have, if you want to know about how it mods, for example, you can check him out all of that's available on moonshots.io.

So thank you for your patronage. Thank you for being part of the. Tell us, what subjects do you want us to gather him cover? In future master series shows, we are totally open to your thoughts and your considerations, but mark, now we turn, we cast our eye towards second order thinking and we're about to get into the hard core of why second order thing.

Really works,

Mark Pearson Freeland: but that's right, Mike, I think it's fair to say we're both pretty inspired by Howard Marks and is introducing us to the concept of a second order thinking and consequences. I'm suitably a [00:27:00] limber. I've done my stretching. My brain is engaged and now let's hit you and I and our member family with some heavy hitting depth and comprehensive breakdowns of some of these thoughts.

And the first clip Mike that we've got from Roman cause kids had NARIC from big thing is really breaking down for you and I, as well as our members, this concept of a fixed versus growth mindset. And it's a great demonstration of utilizing long-term thinking to make those decisions in the long run. So let's hear from Roman helping you and I, our members understand and remember that it is possible to retrain our brains.

Mike Parsons: Humankind is just an eye blink in the billion year. Cosmic story. If you think about it, there are 7.7 billion people alive today. Now cast your mind back over the past 50,000 years and estimated 100 billion people have been born and died, but both of these are far outweighed by the [00:28:00] nearly 7 trillion people.

Who'll be born over the next 50,000 years amongst them, all your grandchildren and their grandchildren, the friends and communities on whom they'll depend, what obligations we have to those billions upon billions of people who far outnumber all those alive today, the scales are very much in their favor.

So I think if we're going to be good ancestors, we need to think more about the longterm, but there is a struggle going on between the drivers of short-term and long-term do I party today or say for my pension for tomorrow, do I upgrade to the latest iPhone or a seed in the ground from the stereotype and the part of our brain, which drives our short-term behaviors?

I call the marsh mellow brain. It's the part of our neuroanatomy, which is all about immediate rewards and instant gratification. And it's named, of course, after the famous marshmallow test of the 1960s, when a marshmallow was put in front of little kids, and if they [00:29:00] could resist eating it for 15 minutes, We were rewarded with a second marshmallow and it turned out the majority of kids couldn't resist and snatch the snack and gobbled it up.

And it gave us this idea that we are wired for short-termism. We also have inside us a, another part of the brain, which I call the acorn brain. This is the part of our neuroanatomy, which focuses on long-term thinking and planning and strategizing it's. What's enabled us to build the great wall of China or voyage into space.

So what's really happening is that there is a struggle going on between the marshmallow and the acorn. And we need to find ways of switching on a cold brain capacities. So we're not just marshmallow snatchers, but long-term acorn thinkers.

So consider just doing this little exercise for a moment. What I'd like you to do is. Shut your eyes

and imagine a child in your life who you really [00:30:00] care about. It could be a nephew or niece or your own child or grandchild, just picture their face with your eyes closed. And now I'd like you to imagine them still with your eyes, shut on their 90th birthday party.

And now someone comes across and puts a tiny baby into their arms. It's their first great grandchild.

And now just open your eyes again and come back to the present moment. Their future isn't science fiction. It's an intimate family fact, just a couple of steps away from your own. And that's just a little way of prompting ourselves to use our imaginative capacity to dance across time in

Mark Pearson Freeland: our minds.

Mike Parsons: So there you have it. We are really retraining our brain to avoid that short-termism and I think, Robert makes a very good point, mark. He talks about [00:31:00] the fact that we are really wired for the short term and that little exercise really prompts me to ask this question. When was the last time you imagined such a long time into the future, man?

Mark Pearson Freeland: To be totally honest, Mike, I don't know whether I ever had. Because all of my decisions will somewhat be limited by my ability to imagine my own life. So I might think about my pension, what my retirement's, when I'm still recording moonshots and we're on episode 20,000, but to actually think, generations or ancestors into the future, I've probably never done.

And I think. Exercise reveals to me is how wired my brain is for that short term ism. And I would classify to a certain degree. My own life has been quite short term [00:32:00] and not to get to matter, but I think what Romans really calling out is saying, look, every decision you make, you should think about from a much more long-term perspective, because we've all been around for so long that a short-term decision that I might make about maybe what time I get up.

It doesn't, it's quite small. Isn't it. And instead when you actually take a step back and think more longterm. Butterfly wings that you can start changing today will have a huge, almost compound interest in the future, depending on what it is you do today. So I think Roman's example and his story and exercise.

It has an impact on me as I think about my child or whoever it is that, and their great grandchild. I can stop putting into place today. Almost that legacy. If I start thinking in a long-term way, is that the sort of vibe that you're getting from Romans exercises?

Mike Parsons: I think what you said says, oh, you [00:33:00] just, you haven't thought like that before, and it forces you into a whole new train of thinking.

It reminds me of, the regrets series we did on the podcast where you use the the exercise of what's your legacy going to be, where it takes you out of today and like way on the other side of tomorrow. And it becomes a means by which you can behave differently. What Roman's showing us is we can train our brains to think about what happens next from a think perspective, a problem solving perspective.

Whereas the legacy one is about emotionally evoking, new behaviors, reframing where you are as an individual, and maybe changing some behaviors. You can use a similar process like Roman taught us to actually think about. What kind of company do we want to have in 10 years? [00:34:00] Or what kind of company do we want to have leave the world when we've all retired?

How would we change the decision we'd make today, knowing that's a consequence of what we're doing?

Mark Pearson Freeland: What a fascinating question to pose to new business owners, right? Yes. We might all be looking for a inverted commerce side hustle or a way to retire early, or just to make some good products or some good money in our lives.

But then, like you say, think about it from a 10, 20, 30 year perspective. What are you building now that will then be left or. To a colleague or a family member into the future. What a challenging perspective to try and to do as you are building out and making your business decisions each day

Mike Parsons: and the moment I want you.

And all of Alison's to capture is, if we just do a practical exercise, think [00:35:00] about your job that you're in today. How do you want to leave this company when you retire? How do you want the company to be operating when you retire or when the next generation of people are leading this company?

How do you want them to look back at the decisions you made today? The investments you made today? How are they look 10 50 maybe more, maybe a hundred years. As soon as you do these sorts of exercises, you go way beyond today, which is the animal. Of second order thinking, because we're so compelled by this short-termism, we're so compelled about the whack-a-mole the putting out the fires.

These are the sorts of exercises we can do. And I'm very excited now because we can actually return to Howard marks and look further into some of years' models. So tell us, what are

Mark Pearson Freeland: we going to do? We're going to hear from [00:36:00] Swedish investor, a great channel on YouTube. Like you say, Mike breaking down Howard marks a little bit further this time.

We're going to really focus on how it marks his chapters within his book, that focus on risk and the idea of what we need to learn when we consider and therefore try and control risks. So let's hear from Swedish investor breakdown, Howard marks concepts of risks.

Mike Parsons: How it allocates three chapters to risk and divides it into one, understanding risk, two recognizing risk and three controlling risk.

Let's start with the first one. The most important thing is understanding risk. There are lots of unfortunate misconceptions regarding risk. For example, riskier assets do not necessarily provide higher rates of return. Otherwise they wouldn't be. Risk doesn't come from [00:37:00] weak fundamentals for instance alone, because basically any investment bought at the right price may be a profitable investment, figuring out what an asset is worth.

And then comparing that to what it costs is what enables a margin of safety. The most important thing is recognizing risk in order to be able to achieve above average results. You need to have a way of identifying what risk is certain asset carries, and then deciding if that is reasonable compared to the risk that the market is expressing through the price of the asset.

Let us take an example. Pretend there's a company called met flip, which is selling at a PE ratio of a 300. In other words, the market is expressing that met flip is a shore fire bet. You are not convinced though ass lately, the company has experienced an increased level of competition. Also, [00:38:00] you realize that in order for Netflix to reach an average PE ratio of about 20, it would need to increase its earnings by 15 times, which is a huge increase, especially if the company is large to begin with.

And especially if the competition is increasing, this example has of course a bit simplified. But the point is that investing in met flip at the current valuation cannot be considered investing, but it's more like gambling, favorable outcomes could perhaps increase the price a little bit, but it's already stretched at this point.

However unfavorable outcomes would scare this out of the investing community. And the price could drop by quite a lot and still be expensive. This is what's called a bad risk reward, small upside, large downside. And [00:39:00] the opposite is also true at a low price favorable outcomes, have a high expected return.

And the unfavorable outcomes will only result in small losses as they are anticipated and already accounted for in the stock price. Again, high quality assets can be risky and low quality assets can be safe. It's just a matter of the price paid for them. The road to long-term investing success runs through risk control, more than aggressiveness skillful risk control is the mark of the superior investor.

Over an entire lifetime of investing. The result will have more to do with the sizes of investment losses than the magnitude of winners. Warren Buffet is onto the same thing. When he says that rule number one is never lose money. Rule number two is don't forget rule number one, to make things more complicated though.

The fact that the [00:40:00] benefits of controlling risk only comes in the form of losses that don't materialize makes it difficult to measure. This really is the conundrum with second order thinking, long-term thinking and managing concepts like risk, like how you perceive them. It's hard because you're trying to look into the future.

But it's today, that was like a really great expression of how second order thinking actually takes place in a particular industry. Understand, recognize and control the risks. That's how it marks does it practically speaking, like how do we apply something like that in our regular lives? Do you think what do we take from that?

Mark Pearson Freeland: Let me try and put it into a pretty simplistic way of thinking and we can play around with it. You can build on it. Let's see if this works my situation. Let's say we'll make one up. [00:41:00] Let's say we're applying for a new job and. We're currently in a job where there's a healthy, monthly income.

We've got good teammates. We've got good prospects, but the individual wants to change. Course. They want to get out of that business for one reason or another, you could utilize, but there's a lot of questions there on there. There's a lot of. Arming and Aring are you making the right decision? What are people going to think of me?

Should I do this? Should I do that? And a lot of unknowns and their friends, it, I think the case for second order thinking and building on what Swedish investor was doing when he's identifying Howard marks is three chapters on risk is to utilize tools, systems much like second order thinking in order to identify some of those risks.

So for example, with the case of an individual, who's in a solid. But he wants to quit and change. He could utilize second order thinking to [00:42:00] play out. Okay. If I do leave, I don't have a steady income. That's going to be a big risk. I understand that now. How am I going to recognize it? What is the effect of not getting a steady income on pay my bills each month?

And therefore if I understand it and therefore recognize that, how am I going to control it? Maybe I need to build up a little bit of a fortune. Savings accounts before I then handed my notice. Maybe I need to have a little bit of a runway and enough money in the bank to support me during a transition from job a to job B or maybe that job is actually just creating a brand new business, utilizing something like second order thinking to help plan for that future and identify what those groups really are, is where I see that value of a tool or a system like second order thinking really kicking into place.

Mike Parsons: Yeah. So I think for anyone who's probably, and it's probably like a quarter of our listeners. If any of the [00:43:00] statistics are right at their own eye, considering changing jobs first, you have to understand what are we talking about? What kind of change of job am I saying in the industry? Am I going to a different industry?

Am I going up down or sideways hierarchically in terms of compensation and all of that sort of thing. So that's about the understanding it and recognizing what does that look like? In its future Saturday. How do I recognize that? Okay. Let's go to tomorrow and imagine I took that job in a different industry at a different level.

What does that look like? Time, space, income, and all of those things. And I love this saying let's always hope for the best, but plan the worst. So I think a big part of that scenario when people are considering job changes is what happens if the new job site. Isn't that the thing everybody worries about the most.

What do you think,

Mark Pearson Freeland: man? Yeah I think that's exactly it there's the grass is always greener on the other side, that classic saying, [00:44:00] I think again, that speaks to that mindset speaks to that. Short-termism that I think perhaps we're wired towards, oh my job's a little bit uncomfortable right now.

I've just had a fallout with a colleague. What do I need to do? I need to upstairs. I need to get out of here. And I think that reaction is quite short term. Isn't it? You're not thinking through the risks. You're only thinking about the potential reward, which is, Hey, I'm going to change teams and do something completely different instead of thinking what are the knock on effects here?

And the truth is without taking time without maybe sketching it out, writing it down without maybe even talking about it with somebody else. It's always going to have that risk of doing something just for the sake of activity, rather than something more proactive or productive, which is changing the situation through perhaps a new opportunity or conversation with somebody.[00:45:00]

Mike Parsons: Yeah. I would just go following that example a bit further let's say our listeners are thinking about changing jobs, I would say to them. Okay. So you've done the recognizing bit, which is you've envisioned yourself in that future role. I would always adopt the hope for the best plan for the worst scenario.

So okay. What would it look like if it's working? What signs would I be looking for and what signs let's say on week six of the new job? How will I know it's not a good fit because I think this leads you to go, okay. If I see this issue with my boss that's a real flag about things not being good, but then the key thing is what would be playing be then?

What would you do then now you might be in the type of role or industry that if you leave it, it's very hard to reenter. Let's just imagine there's a real barrier to coming back. So [00:46:00] you might say I need a high degree of confidence before making the move an alternative might be, look, I think the risk is low because if it doesn't work out, I'll quit within three months and come back to the industry.

I already know there are a couple of companies that would be interested in having me join them to me. It's exploring that. And I think recognizing the extent of your risk, I think a lot of us find ourselves in sticky situations. Let's keep going with the job analogy. We take the new thing and we have the worst feeling in the world, which is.

Oh, if I had known this, I would never have taken this job. And then you're like, but damn, I'm stuck. I just did this thing. And I actually had one time in my career where I made a move and within a month I was like, oh boy, this was not right. And for various reasons I was I was stuck. So if I had done [00:47:00] better, second order thinking, I probably would've vetted some of the folks I was going to work with further before making the move.

That's a great example, an example, a second, or thinking, okay, let's imagine I'm working with this guy or girl for the next five years. What's that going to look like, ask them, how are you going to deal with it when I do this or that, how would you solve this? What happens if we get stuck here? How would you do that?

Try and future-proof this move and know that if you do make this move, what's your plan B, because in my case, I really had very wishful thinking, very optimistic. And this wasn't quite right, but Houston, we got a problem.

Mark Pearson Freeland: I bet it's a common case, people leaving or taking another opportunity because it seems like a really good idea, but then there's not a good culture fit or the team doesn't quite get on.

You're stuck. You're on the other side of the fence and you [00:48:00] can't get back over for one reason or another. I think that's really made the case, Mike, for this concept of identifying, understanding, recognizing, and therefore trying at least to control risk. From a bigger perspective, this concept of second order thinking, but we're not quite done yet.

Mike, we've already heard this idea of retraining our brain thinking long-term and imagining the future. Now we've heard about risk and therefore the value of thinking about jobs or the industry, or trying to get into new ventures. We've got one more clip in this part of the show, which is again, creating this example of second order thinking and consequences and focusing on how it impacts an agency model.

And this is a great breakdown from Taylor Ben. Tureaud on YouTube and Taylor's gonna break down for us at this concept of using long-term thinking and second order thinking as well as a mental model. [00:49:00]

Mike Parsons: And let me give you some practical and real examples of immediate second order consequences again, in your agency and immediate second order consequences of let's say hiring somebody, let's say the first order consequences you hire.

Okay. And the first order of consequence is it should be able to allow you to grow or save you time. We'll just say, this is going to save you time. Actually, we're going to make it allow you to grow because technically allow you to grow. So because you've hired someone in theory, you should have greater capacity for taking on more clients to pay on the person that you hired.

Let's assume it's an account executive or account manager. Somebody who deals with client communication manages the account, et cetera, et cetera, et cetera. Now that should allow you to grow. But a second order consequence of that may be that it limits your growth because your training is not that great.

And you need to spend. Let's say it limits your growth for two to two to three months. There's a two to three month [00:50:00] delay because your training sucks. And so you need to spend a lot of time one-on-one with that person. Now, the third order consequences, because you spent so much time with that person is that maybe you lose some clients because you were spending so much time focusing on trying to train that person that you were ignoring the existing clients that you are potentially managing.

This has personally happened to myself. Okay. So I'm speaking from firsthand experience. Now, sorry if that's Hawkins in the background. Now, this is a pretty simple second order consequences to understand. And I would say that this actually doesn't fall under immediate, this falls under, I would say midterm to short-term.

Okay. Because again, you hire someone, you think it's going to allow you to grow. And then all of a sudden, after one to two weeks, you realize, holy crap, this is a lot more work than I thought. Fantastic. That's a good example. So immediate would be very simply, let's just say that you build a [00:51:00] software and this software is going to automate a task that is currently being manually done.

Now, if you build this software and this machine quote, unquote, automates the. And now you no longer have to do it manually because you have this beautiful machine doing it. The second or consequence, or the first sort of consequence of that is that you're going to have more time. Okay. That's very simple, but the secondary consequences of having more time could be infinite amounts of things.

But the most obvious one is pretty much that you're going to have greater profit margins because that person who now has more. I can focus on either managing more clients or they could focus on doing more work and getting more work done, which allows you to basically wait it out before you hire another person.

Because if you can increase the capacity or the efficiency of someone's inputs or someone's output, sorry, then you effectively don't necessarily need to hire someone. So if you're, if you feel like your [00:52:00] team is maxed out, you have a couple options. One, you could try to hire someone to increase the maximum capacity or two.

You could try to increase the efficiency levels of. Oh of the system so that the system just runs smoother. It hums along faster, et cetera. So again, second order consequences of building a little software is that it'll save you lots of time immediately. The moment it's built immediately, and that will lead to in the long-term greater profits.

So you can see how these are all mingled together. All of these time dimensions here. They're not necessarily separate. You don't want to think in absolutes. You gotta think relative. And I don't know how you'd say it, but not in an Antonian linear mindset. You have to see this in more or less a quantum perspective and how one thing can activate another thing, which triggers a different timeframe than the initial timeframe that it started on.

What did we just get there? I think this is another example of making a move internally, putting in a piece of software or hiring a new piece, [00:53:00] new person, and actually looking at the assumptions you have as to why you're doing it. And are those assumptions actually? Correct. And have you. Not spend enough time looking at the consequences, the knock on effects of your move.

What came to my mind is you're saying there is I can almost see and say, yeah, I get it. Like I got to, I've got to imagine all these second order thinking concepts and consequences, Mike, but how do I make a step forward? And I believe my if you have the second order thinking in mind, I think, not only would you like research, if other people have tried this sort of hiring approach in this example or the software, we've heard a previously, I think that going out into the world and saying, surely someone's tried this before, how did it go for them?

What were the unintended consequences? But the other idea that came to my mind, yes, Do a little test and experiment a prototype and see what [00:54:00] other second order thinking consequences exist. When you make this move. Are you missing something from the pitcher? Who knows?

Mark Pearson Freeland: I like that as well. I think that's a nice build for me.

Yeah. It certainly speaks again to this concept of doing your hard work and your diligence. Again, it's very easy. I think when you're starting a business to go for that path of least resistance, but you're right. Having a moment to get somebody, whether it's yourself or a colleague to see what else has happened in the space is either possible.

I think, from a practicality angle, Mike, either possible by speaking to partners or agencies that you might have a relationship with using Taylor's example, there. Fundamentally talking to your teammates, playing out the decision-making process with those around you. I think that's a super actionable way of putting short-term or sorry.

Second [00:55:00] order thinking into a real life situation, because if I'm trying to think about the impact or the consequences of my thinking or my decision making, that's going to be only limited to what I can imagine. I think using Taylor's example of an agency model and actually bringing in the the heads of departments or the colleagues that might be involved in certain different areas and actually creating a second order thinking diagram with them feels like a way of taking the research that other agencies might have done and starting to test, as you were just saying a little bit about.

That impact might be obviously another element on the other side of the coin is to build a physical minimum viable product and see how that might affect things. But from a kind of bootstrap, bottom up perspective, just gaming it out with your colleagues or teammates could be a really actionable way of doing this.

Don't you think?

Mike Parsons: I [00:56:00] totally agree. And we're almost finding ourselves In the habit adoption where you almost in the execution, which is the last part of the show. But before we do that, I think it's time that we celebrate all the good stuff that you can get on moonshots.io. So as you're tuning in here to our master series, you're getting a series download on the world of second order thinking, but what can everyone expect to find on that destination moonshots?

Mark Pearson Freeland: My goodness, Mike. I guess the question is what is not on there. In fact, we should probably do some second order thinking and see what else we can add to our destination. Members and subscribers are Patriot and family. You can find over@moonshots.io, everything possible about today's master series episode.

You're going to find links to all of those different clips that we're playing. All of those comprehensive, deep dives that you're hearing. You can go out and watch the raw materials. We've also got a reading list. I [00:57:00] think today's reading list. Mike is a dozen or so books, articles, medium articles that really help bring to life.

If you want to go that level deeper into second order thinking you and I and the team we've certainly gone down into the depths of all of those, but also you can find us transcript for the entire show, as well as all the relevant links to become a member and to support the moonshots family over at moonshots dot.

Mike Parsons: Perfect. And as we get ready now to adopt second order thinking, there is one step that is at the beginning of this process, and it's all about capturing the data, getting the information because surely there is no way to make a good decision if you don't have the data. So let's actually jump in now and listen to the idea of how we might find the most.

Useful information every

Mark Pearson Freeland: day,

Mike Parsons: a sea of decisions stretches before us. Some are small and unimportant, but [00:58:00] others have a larger impact on our lives. For example, which politician should I vote for? Should I try the latest diet craze or will email make me a millionaire we're bombarded with so many decisions that it's impossible to make a perfect choice every time, but there are many ways to improve our chances.

And one particularly effective technique is critical thinking. This is a way of approaching a question that allows us to carefully deconstruct a situation. Reveal its hidden issues such as bias and manipulation and make the best decision. If the critical part sounds negative that's because in a way it is rather than choosing an answer because it feels right.

A person who uses critical thinking subjects, all available options to scrutiny and skepticism using the tools at their disposal, they'll eliminate everything, but the most useful and reliable information, there are many different ways of approaching critical thinking, but here's one, five step [00:59:00] process that may help you solve any number of problems.

One formulate your question. In other words, know what you're looking for? This isn't always as straightforward as it sounds. For example, if you're deciding whether to try out the newest diet craze, your reasons for doing so may be obscured by other factors, like claims that you'll see results in just two weeks.

But if you approach the situation with a clear view of what you're actually trying to accomplish by dieting, whether that's weight, loss, better nutrition, or having more energy, that'll equip you to sift through this information critically find what your looking. And decide whether the new fad really suits your needs to gather your information.

There's lots of it out there. So having a clear idea of your question will help you determine what's relevant. If you're trying to decide on a diet to improve your nutrition, you may ask an expert for their advice or seek other people's testimonies [01:00:00] information gathering helps you weigh different options, moving you closer to a decision that needs your goal.

Three, apply the information, something you do by asking critical questions, facing a decision, ask yourself what concepts are at work. What assumptions exist is my interpretation of the information. Logically sound. In an email that promises you millions, you should consider what is shaping my approach to this situation.

Do I assume the sender is telling the truth based on the evidence? Is it logical to assume I win any money? Four, consider the implications. Imagine it's election time and you've selected a political candidate based on their promise to make it cheaper for drivers to fill up on gas at first glance. That seems great.

But what about the long-term environmental effects? If gasoline use is less restricted by costs, this could also cause a huge surge in air pollution, an unintended [01:01:00] consequence. That's important to think about. Five explore other points of view, ask yourself why so many people are drawn to the policies of the opposing political candidate.

Even if you disagree with everything that candidate says, exploring the full spectrum of viewpoints might explain why some policies that don't seem valid to you, appeal to others. This will allow you to explore alternatives, evaluate your own choices and ultimately help you make more informed decisions.

This five step process is just one tool and it certainly won't eradicate difficult decisions from our lives, but it can help us increase the number of positive choices we make critical thinking can give us the tools to sift through a sea of information and find what we're looking for. And if enough of us use it, it has the power to make the world a more reasonable place.

Mark Pearson Freeland: I think that's a great breakdown, Mike of critical thinking by Ted ed and [01:02:00] Samantha goose. Don't you think that's a really nice we'll dig into each of those five steps in a second, but I think that's a great way of thinking about second order thinking decision-making and critical.

Mike Parsons: I'm looking at this list, formulate your question, gathered the information, apply it, consider the implications and explore other points of view.

I have a feeling that most of us are guilty of skipping all of these inters coming up with a decision that

I made to these, formulate the question. Like how often do I actually think about the question? Oh, I'm not sure. It's a bit, let's be honest. I don't think we do this very much. Dewey.

Mark Pearson Freeland: No. And I think we've covered in a couple of clips earlier in today's show this conduct first step, formulate your question.

Fundamentally, I think that's really calling out the fact that are you trying to solve the right problem? Are you trying to actually solve and create a solution that's relevant? I think a lot of us let's put ourselves now into a product creators [01:03:00] or product marketers. You'd bring out a.

Perhaps without doing your research into the market, is it needed to people, the end users? Do they really want it? Do they need it? And I think without having that question, or as we will call it a problem, solution fit you, you're going out and maybe trying to answer the wrong thing. So straight away, I think I've got to put my hand up Mike and say, there's definitely been times in my career when I've skipped.

Formulate your question.

Mike Parsons: Yeah. So let's think about how we might do this. Like I think for sure, there's a couple of practical things you can do start with a question, but just try and focus on not like doing a double loaded question where you're really asking two, maybe three questions. I would also say really go to our first principles episode because I think in that helps you get to these fundamental truths.

And I think that's what your question really needs to get to. I think another good thing is just ask shorter questions. Cause the longer the question is invariably, you're stuffing it [01:04:00] with 2, 3, 4 questions. And when you're talking with someone and thinking about the question, ask it and then just shut the hell up and let it percolate just consider it.

Maybe you ask more open-ended questions, maybe start them with, what if, how might we don't be like, is this right or wrong? Take an example of a house or a building that's often catching on fire. You don't ask yourself, how do we have more fire extinguishes? You need to go to first principles and say How do we prevent fires from happening at all?

Mark Pearson Freeland: There, there was a wonderful animation or diagram Mike that was going around, I think on maybe LinkedIn or something. Quite recently, maybe some of our members have seen it too. It was an illustration of planes, allied planes coming back and world war two. And it would show all the bullet holes that were [01:05:00] riddled throughout the plane.

And these were the ones that were returning. So engineers immediately turned around and said, okay we'll just make those areas more Bulletproof. We'll just put extra padding, extra armor in all those places. So it doesn't have bullet holes anymore. And then somebody took a step, step back, thought about first principles and say surely we should armor the areas that don't have any bullet holes, because there was other planes that aren't coming back to us.

So those are the weak spots that are then bringing them. The Plains. So utilizing that almost. Okay. Why is this the second level of thinking brought the the allied plane engineers to that conclusion? Let's just armor the planes in their weak spots better than the others.

Mike Parsons: Yeah. And I think following that example, maybe how do we fly at a different time or place where we don't even get shown?

Mark Pearson Freeland: Exactly. Exactly. Consider the implications.

Mike Parsons: Yeah. Think about the implications and try. And this is where you go [01:06:00] beyond oh, let's just fill the gap. Let's fix the hole. No, let's avoid the hole

Mark Pearson Freeland: together. Exactly. Exactly. I I think the final area of that clip that we just heard step number five, explore the other points of view of your competitors or other individuals I think is a really great little tip there.

Isn't it like

Mike Parsons: again, it's putting us in it. Isn't

Mark Pearson Freeland: it's open host. It's the open-ended questions. Work with others. Open your mind, have a growth mindset and allow the opinions of others to influence you rather than you being so closed in only thinking of one situation or something.

Mike Parsons: So imagine that you've done all of these exercises, short questions, one at a time open-ended going for first principles, critical thinking and rigor.

And maybe you have the hint, the suspicion that maybe you've done second [01:07:00] order thinking. You've got the big idea. Here is the beautiful thing. There's still more work to do. In fact, a Jordan Peterson is going to teach us what that next thing to do is so you've got the notion the sense, I think I'm onto something.

What is Jordan Peterson's suggestion on how to explore an idea, how to be ready for this modern age? What do you do when you think you've got an idea? He's advice is learn how to write the best way. The best way to teach people critical thinking is to teach them to write because what's happened now, it's very hard to teach people to write because it's unbelievably time intensive and like writing, marking a good essay.

That's really easy. Check a, you did everything, right? Marking a bad essay. Oh my God, the words are wrong. The phrases are wrong. The sentences are wrong. They're not ordered right in the paragraphs aren't coherent. And the whole thing makes no sense. So trying to tell the person what they did wrong.

It's [01:08:00] whoa, you did everything wrong. Everything about this essay is wrong. That's not helpful either. You have to find a few little things. They did half, and you have to teach them what they did wrong. It's really expensive. And so what I did with this rubric. Address that from the production side instead of the grading side.

But the best thing you can do is to teach people to write. Cause there's no difference between that and thinking. And one of the things that just blows me away about universities is that no one ever tells students why they should write something. It's you have to do this assignment. Why are you writing while you need the grade?

It's no, you need to learn to think, because thinking makes you act effectively in the world, thinking makes you win the battles you undertake. And those could be battles for good things. If you can think and speak and write, you are absolutely deadly. Nothing can get in your way. So that's why he learned to write.

It's like why? I can't believe that people aren't just told that [01:09:00] it's it's. It's the most powerful weapon you could possibly provide someone with. And I know lots of people who've been staggeringly successful and watch them throughout my life. Those people, you don't want to have an argument with them.

They'll just slash you into pieces. And then not in a malevolent way. It's if you're going to make your point and they're going to make their point, you better have your points organized because otherwise you are going to look like and be an absolute idiot. You are not going to get anywhere. And if you can formulate your arguments, coherently and make a presentation, if you can speak to people, if you can lay out a proposal, God people give you money.

They give you opportunities, you have influence. That's what you're at university for. And so that's what you do is you urinate era in English, right? Your language is anyways. It's yeah. Teach people to be articulate because that's the most dangerous thing you can possibly be. So when that's motivating, if people know that it's why are [01:10:00] you learning to write cause your here's your sword?

Here's your M 16, right? Here's your Bulletproof vest. Like your learn, how to use them.

Mark Pearson Freeland: Mike, as I listened to Jordan Peterson, making the case between learning and being articulate and connectivity between conversing as well as writing it's again, standing out to me that without taking the time to think about your business, your decision-making, you're always going to be that slightly weaker party within the situation.

Whether that situation is you'll go up against your competitors. You're trying to make a business that's going to survive and be your legacy or otherwise it feels to me as that. It's always going to, you're always going to reach an endpoint. That's slightly weaker than the other situation of just going out, learning, doing your research, asking the right questions and being able to formulate solutions and anticipate potential [01:11:00] problems, more coherently.

We'll put you in such a stronger position. Is that where you're hearing from Jordan as he breaks this down for the case?

Mike Parsons: Yeah the thing that I related to was, it's this moment you get when you receive an email and it just doesn't make sense. And you're like, what are they talking about?

And it just struck me like learning how to write. It's so true. It's in the same way that journaling helps you get your head clear learning how to write your thinking. Is part of thinking as is part of getting sharper. And when you do so you are clearer, more articulate, more impressive, and he's absolutely right.

People get on board and whatever way. And I think that if you're thinking a lot of ideas, I think we've all had this. Let me test you actually map. Let's say you've got an idea and you've been kicking it around. Isn't it [01:12:00] interesting that when you ride it out, you never ride it out as you thought it, because as you write you go, no, actually it's not quite that it's a bit different to that.

Or you reflect on it. You go actually, no, I could say that better. So what you are doing is improving the thinking as you write. It's not like we're all Mozart and it comes out note. Perfect. The act of writing is part of thinking, isn't it?

Mark Pearson Freeland: Yeah, I totally 100% agree. And also giving yourself.

A, the discipline of writing it in quite a coherent short hand almost is even more challenging. Isn't it? Write down your brand new idea in a nutshell, or in one sentence, how do you describe the moonshot show in just one sentence? Would that level of almost discipline you become very focused and conscious of the words you use, how you put across the tone and you're right.

Writing it out. You'll cross it out and think no. It's not that. Yeah no. It's not that either. And eventually you [01:13:00] settle on the perfect summation that then you realize, oh my God, I never really thought about it this way, but that is what we do. That is

Mike Parsons: where we go and bringing it back to somebody said earlier, share that written piece with a friend or.

Get their feedback, make it better. And you're really on the path, but you still need to do one more thing, mark. And we've got Adam Grant. One of our super popular moonshot is he's got some more thinking for us. And if you really want to take your second order thinking as far as possible, you not only need to ask better questions.

You not only need to learn how to write, but you need to leave yourself time to think and to grow. Now you are all intimately familiar with the mind of a procrastinator. I have a confession for you. I'm the opposite. I'm a procrastinator. Yes. That's an actual term. You know that panic. You feel a few hours before a big deadline when you haven't done anything yet.[01:14:00]

I just feel that a few months ahead of time, but this served me well in college because I finished my senior thesis four months before the. And I was proud of that until a few years ago, I had a student named GA who came to me and said, I have my most creative ideas when I'm procrastinating. And I was like, that's cute.

Where are the four papers? Do you owe me? No, she was one of our most creative students. And as an organizational psychologist, this is the kind of idea that I test. So I challenged her should get some data. She goes into a bunch of companies. She has people to fill out surveys about how often they procrastinate.

Then she gets their bosses to rate how creative and innovative they are. And sure enough, the procrastinator is like me who rush in and do everything early are rated as less creative than people who procrastinate moderately. So I want to know what happens to the chronic procrastinators. She's I don't know.

They didn't fill out. My survey

here are [01:15:00] results. You actually do see that the people who wait until the last minute are so busy goofing off, that they don't have any new ideas. And on the flip side, the people who raced in are in such a frenzy of anxiety, that they don't have original thoughts either. There's a sweet spot where original seem to live.

Why is this maybe original people just have bad work habits. Maybe procrastinating does not cause creativity to find out. We designed some experiments. We ask people to generate new business ideas, and then we get independent readers to evaluate how creative and useful they are. And some of them are asked to do the task right away.

Others. We randomly assigned to procrastinate by dangling Minesweeper in front of them for either five or 10 minutes. And sure enough, the moderate procrastinators are 16% more creative than the other two groups. [01:16:00] Now Minesweeper is awesome, but it's not the driver of the effects because if you play the game first, before you learn about the task, there's no creativity boost.

It's only when you're told that you're gonna be working on this problem, and then you start procrastinating, but the task is still active in the back of your minds, that you start to incubate. Procrastination gives you time to consider divergent ideas, to think of nonlinear ways to make unexpected leaps.

So just as we were finishing these experiments, I was starting to write a book about originals, and I thought this is the perfect time to teach myself to procrastinate while writing a chapter on procrastination. So I met a procrastinated and like any self-respecting procrastinator. I woke up early the next morning and I made a to-do list with steps on how to procrastinate.

And then I worked diligently toward my goal of not making progress toward my goal. I started writing the procrastination chapter and one [01:17:00] day I was halfway through, I literally put it away in mid sentence for months. It was agony. But when I came back to it, I had all sorts of new ideas. As Aaron Sorkin put it, you call it procrastinating.

I call it thinking. And along the way, I discovered that a lot of great originals in history were procrastinators. Take Leonardo da Vinci. He toiled on and off for 16 years on the Mona Lisa, he felt like a failure. He wrote as much in his journal, but some of the diversions, he took an optics transformed the way that he modeled light and made them into a much better painter.

What about Martin Luther king Jr. The night before the biggest speech of his life, the March on Washington, he was up past 3:00 AM, rewriting it. He's sitting in the audience, waiting for his turn to go on stage. And he is still scribbling notes and crossing outlines. When he gets on stage [01:18:00] 11 minutes in, he leaves his prepared remarks to utter four words that changed the course of history.

I have a dream that was not in the script by delaying the task of finalizing the speech until the very last minute he left himself open to the widest range of possible ideas. And because the text wasn't set in stone, he had freedom to improvise. Procrastinating is a vice when it comes to productivity, but it can be a virtue for creative.

Mark Pearson Freeland: Can be a virtue for creativity, Mike. What a perfect little summation to our episode on second order thinking Adam Grant, basically saying to you and I and our members just take it easy.

Mike Parsons: I think we've talked about this thing before. Haven't we that look, if you've got a big deadline, let's say at least a week, if not two weeks out before, say like you're giving a big talk, right?

The outline. So you're already starting to process [01:19:00] subconsciously what's going on. We talk about this other thing. We have great ideas in the shower because we're giving ourselves time for the subconscious to work away at the problem. How many times do you have a, that you're exercising or showering and you have an idea that comes to you.

That's related to a work thing. It's

Mark Pearson Freeland: funny, isn't it. If you're taking the dog for a walk, sometimes I'll, I won't put in my headphones. I'll just allow myself to go for a walk. I'll take the dog for a walk and I'll think of that problem. Like you say, percolate, let it percolate away. And I think the lesson that I'm getting from Adam Grant's talk as well as what we're discussing now is when you're trying to make a big decision and trying to maybe identify problems or game it hours, consider decisions.

Don't do it in a situation where you are forced to find the solution within a set period of time. Don't make a meeting with your colleague and say we have to figure it out in the next 60 minutes instead, remove those [01:20:00] constraints. And

Mike Parsons: not if you want a good decision, right? Like you want a good decision.

I think what we've made the case for us, give it some time.

Mark Pearson Freeland: Give it some time and don't take that low hanging fruit, the easiest solution, which might sometimes be the first decision that you make. Sometimes the first decision that you make might be the right idea. But I think what we were trying to make the case for here, Mike is to not always advocate for your first solution, without having done that little bit of homework, that little bit of maybe teamwork in order to stress, test it

Mike Parsons: thinking fast and slow asking good questions learning how to write and creating that time and space for things to come to life.

And, the. Very simple example of giving a speech, often something people are dreading doing. If you give yourself time and space to work it through, to think about the ideas, by the time you get you give it, it can be [01:21:00] far less stressful and actually exciting cause you know it, but imagine you were making a big decision and you've done second order thinking you're going to buy that house, buy that car.

I feel good. I've looked at all the options. I've thought about the implications of the loan or the cash effect that this has on my personal affairs. I know what I'm in for. I feel good rather than oh God, this isn't a big purchase. I don't know. I think this is such an exciting breakthrough in fighting against this rush that we're in this sea of data that we swim in all the time.

This is no, no take control, ask better questions, learn how to write, give yourself time and space. And you'll not just do second order thinking. You'll do critical. This thinking that helps you make better decisions, not be swayed by the consensus you do. And you think, and you decide what is.

[01:22:00] For you. Yeah, that's a moonshot idea.

Mark Pearson Freeland: My goodness. It's so isn't it. And I remember it's calling to mind Cal Newport and the idea of deep work, Mike, this idea of actually giving yourself enough time to, again, reflect to percolate and to make that good decision, rather than, as you say, be distracted or pressured.

I guess the word is pressured from all of these external factors and influences, which fundamentally. Probably don't have any impact on the problem or difficulty that you're encountering. Anyway, an email about a particular project may have no relation to the problem that you're trying to fix.

Therefore don't allow those external distractions to impact your ability to make a decision about your current problem.

Mike Parsons: Stop the whack-a-mole right. Stop putting out the fires. Ask yourself, am I even thinking about the right fire? Let alone this one, like asking better [01:23:00] questions, going and asking yourself, what are the consequences?

If I go down that route, what are the consequences? What's the cost. What's the time. What's the effort of going down that part? Oh, actually now I think about it. It's actually not such a great idea. That actually sounds like pretty bad. I'm glad I thought about it. Okay. Let's go a different path.

Second order thinking, mark. Critical thinking. Asking yourself, what are the consequences we learned from Howard marks? That's how he's built a billion dollar fortune. W it's how, Adam Grant, he talks about the Mona Lisa was the product of 16 years of procrastination. So I think there's the case for doing it as we broke it down.

Is there one part of this mark that you want to go back and study on? Is there one that's piqued your interest? Oh, that, that

Mark Pearson Freeland: is a tricky question to be honest, Mike, because I think as a whole, the entire concept of second order thinking for me is a penny drop moment. [01:24:00] I've certainly been guilty of rushing into decisions quicker than I should for me though.

I think I've got to go back to the raw data, the raw materials of Howard marks. I've got to go back and really dig into his work and his book, and truly understand that idea of thinking differently compared to those around.

Mike Parsons: Yeah. And for me, when we did those five steps of critical thinking and getting into the second order of things, we said, formulate your question, gather your information, apply the information, consider the implications, and then explore other points of view.

And I admitted, I don't do that many of those at all. And I do none of them nearly enough. That was my big aha. It's oh gosh, I still I still, I try to avoid wishful thing. First order thinking. But I look at some of the things we discussed, some Ms show and this master series, and I might, I could work.

Yeah,

Mark Pearson Freeland: look, I'm going to raise my hands and completely [01:25:00] agree. I think there's been more times than I would say, not only in my past career, but even my career now when I'll rush into something. Ask that question, gather that information, apply the information. I won't do any of that because I'm looking for that low hanging fruit and talk about low-hanging fruit.

Mike, I just want to quickly call out a few of the shows that we've referenced in today's episode for those members who want to dig into that idea of regrets. We've got Daniel pink in episode 170. We had Cal Newport with deep work episode 58. There was growth mindsets with Carol Dweck, 1 45. Daniel kahneman was episode one 40.

And you also referenced first principles, which was for all of our Patreon members. Number two in our master series. So a quick, deep dive for you members in case you want to go back and check out any of our previous shows over at moonshots dot.

Mike Parsons: What a body of work well, mark, thank you for not only helping me with this show, [01:26:00] but thanks for being part of all of the shows and that back catalog too.

It's been so good to have a partner in crime as we go deeper into how we think. And thank you to you. Our listeners here, we are finding ourselves on episode nine of the master series. Second order thinking, this is where we went deep. And this started with the famed investor Howard marks explaining that we really do need to think different from others.

And then we got into a quick one, too, of understanding how things. How second order thinking influences our future actions. And in order to truly embrace this, we have to understand that every action has a consequence with that foundation. We understood that we can retrain our brain. We can use long-term thinking we went into our grandparents, our great-grandparents when we have children, when they have their children, what would the world be?

How do we want to think? How do we want to be? And if you want to break down and bring it [01:27:00] all back into the world of financial. How does Howard markets Mark's do it well, understand, recognize, and then control the risk. This is the path of not only how you do it in investing, but this is how you go out there and start to conduct second order thinking.

And if you really need some habits, always one start with finding the most useful information and learn how to write and then create time in space to thinking there you have it. That is the master series on second order thinking. And this is the moonshots master series that Sera.