Author: Fanyu Zhao
Atomic Habits
by James Clear
The book tells how to cultivate habits.
The author states the following. As changes that seem small and unimportant at first will compound into remarkable results if you’re willing to stick with them for years. We all deal with setbacks but in the long run, the quality of our lives often depends on the quality of our habits. With the same habits, you’ll end up with the same results. But with better habits, anything is possible.
The backbone of this book is the author’s four-step model of habits–cue, craving, response, and reward–and the four laws of behaviour change that evolve out of these steps.
The Fundamentals – Why Tiny Changes Make a Big Difference
1 The Surprising Power of Atomic Habits
- The relentless commitment to a strategy make a Cycling Coach outstanding than others (referred as “the aggregation of marginal gains”, which was the philosophy of searching for a tiny margin of improvement in everything you do). The whole principle of this coach is if you broke down everything you could think of that goes into riding a bike, and then improve it by 1 percent, you will get a significant increase when you put them all together.
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As these and hundreds of other small improvements accumulated, the results came faster than anyone could have imagined.
But when we repeat 1 percent errors, day after day, by replicating poor decisions, duplicating tiny mistakes, and rationalising little excuses, our small choices compound into toxic results.
Making a choice that is 1 percent better or 1 percent worse seems insignificant in the moment, but over the span of moments that make up a lifetime these choice determine the difference between who you are and who you could be. Success is the product of daily habits–not once-in-a-lifetime transformations.
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Time magnifies the margin between success and failure. It will multiply whatever you feed it. Good habits make time your ally. Bad habits make time you enemy.
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Forget about goals, focus on systems instead.
What’s the difference between systems and goals? Goals are about the results you want to achieve. Systems are about the processes that lead to those results.
Goals are good for setting a direction, but systems are best for making progress.
A handful of problems arise when you spend too much time thinking about your goals and not enough time designing your systems.
- Problem #1: Winers and losers have the same goals.
Goal setting suffers from a serious case of survivorship bias. People who end up with winning–the survivors–and mistakenly assume that ambitious goals led to their success while overlooking all of the people who had the same objective but didn’t succeed.
Nobody has the goal of losing, but only winners prove with the goal.
- Problem #2: Achieving a goal is only a momentary change.
When you solve problems at the results level, you only solve them temporarily. In order to improve for good, you need to solve problems at the systems level. Fix the inputs and outs will will fix themselves.
- Problem #3: Goals restrict your happiness. Goals create an “either-or” conflict: either you achieve your goal and are successful or you fail and you are a disappointment. Do not link goals with happiness, instead link with the process. When you fall in love with the process rather than the product, you don’t have to wait to give yourself permission to be happy. You can be satisfied anytime your system is running.
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Problem #4 Goals are at odds with long-term progress. A goal-oriented mindset can create a “yo-yo” effect. Many runners work hard for months, but as soon as they cross the finish line, they stop training. The purpose of setting goals is to win the game. The purpose of building systems is to continue playing the game. Have a long-term thinking, and do not be goal-oriented.
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If you’re having trouble changing your habits, the problem isn’t you. The problem is your system. Focusing on the overall system rather than a single goal, is one of the core themes of this book.
The atomic habit refers to a tiny change, a marginal gain, a 1 percent improvement. Atomic habits are the building blocks of remarkable results.
2 How Your Habits Shape Your Identity (and Vice Versa)
Few things can have a more powerful impact on your life than improving your daily habits. However, once your habits are established, they seem to stick around forever–especially the unwanted ones.
- There are three layers of behaviour changes:
- The first layer is changing your outcomes/results.
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The second layer is changing your process, changing the habits and systems
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The third and deepest layer is changing your identity, changing the beliefs, the worldview, the self-image, etc.
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Outcomes are about what you get. Processes are about what you do. Identity is about what you believe.
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Many people begin the process of changing their habits by focusing on what they want to achieve. This leads us to outcome-based habits. The alternative is to build identity-based habits. With this approach, we start by focusing on who we wish to become.
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The ultimate form of intrinsic motivation is when a habit becomes part of your identity. True behaviour change is identity change. You might start a habit because of motivation, but the only reason you’ll stick with one is that it becomes part of your identity. i.e.
- The goal is not to read a book, the goal is to become a reader/
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The goal is not to run a marathon, the goal is to become a runner.
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The goal is not to learn an instrument, the goal is to become a musician.
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The Shaping Identity is a double-edged sword. The deeply a thought or action is tied to your identity, the more difficult it is to change it.
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A two-step process to changing your identity.
- Decide the type of person you want to be.
- Prove it to yourself with small wins.
- The more you repeat a behaviour, the more you reinforce the identity associated with the behaviour.
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The more evidence you have for a belief, the more strongly you will believe it.
The process of building habits is actually the process of becoming yourself.
- Small habits can make a meaning full difference by proving evidence of a small identity.
- Use the feedback loops. Once you have a handle on the type of person you want to be, you can begin taking small steps to reinforce your desired identity. Your habits shape your identity, and your identity shapes your habits.
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To cultivate a habit. The first step is not what or how, but who.
3. How to Build Better Habits in 4 Simple Steps
Scholar, Thorndike, described the learning process, “Behaviours followed by satisfying consequences tend to be repeated and those that produce unpleasant consequences are less likely to be repeated”
- Why the Brain builds habits?
Whenever you encounter a new situation in life, the brain has to make a decision. Neurological activity in the brain is high during the period.
As habits are created, the level of activity in the brain decreases. When a similar situation arises in the future, you know exactly what to look for. There is no longer a need to let the brain think and make decision and analyse every angle of a situation.
In short, habits are mental shortcuts learned from experience.
Habits reduce cognitive load and free up mental capacity, so you can allocate your attention to other tasks.
Habits do not restrict freedom. They create it. In fact, the people who don’t have their habits handled are often the ones with the least amount of freedom, because the brain is always overloaded.
When you have habits dialed in and the basics of life are handled and done, your mind is free to focus on new challenges and master the next set of problems.
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The process of building a habit.
Four simple steps: cue, craving, response, and reward.
- Cue triggers your brain to initiate a behaviour.
- Cravings are the motivational force behind every habit.
- Response is the actual habit you perform, which can take the form of a thought or an action.
- Rewards are delivered by Response. There are two purposes of reward. (1) Reward satisfy your craving. (2) reward teaches us which actions are worth remembering in the future.
- The author would illustrate those four steps in details later.
- The four steps make a loop, and reinforce the process. The cue triggers a craving, which motivates a response, which provides a reward, which satisfies the craving and, ultimately, becomes associated with the cue.
- The four laws of behaviour change.
- The 1st Law (Cue) <– Make it obvious.
- The 2nd Law (Craving) <– Make it attractive.
- The 3rd Law (Response) <– Make it easy.
- The 4th Law (Reward) <– Make it satisfying.
- For bad habits, do the reveres. Make the cue invisible, make craving unattractive, make response difficult, and make reward unsatisfying.
The 1st Law: Make it Obvious
4. The Man who didn’t Look Right
- With enough practice, your brain will pick up on the cues that predict certain outcomes without consciously thinking about it.
- Once the habits become automatic, we stop paying attention to what we are doing.
- The process of behaviour change always starts with awareness. You need to be aware of your habits before you can change them.
5. The Best Way to Start a New Habit
- The 1st law of Behaviour Change is make it obvious.
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Two most common cues are time and location. Create the Implementation Intention, which is a plan you make beforehand about when and where to act. That is, how you intend to implement a particular habit. Like “When situation X arises, I will perform response Y”. Or, I will [BEHAVIOUR] at [TIME] in [ LOCATION].
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Many human behaviours follow a chain reaction cycle. You decide what to do next based on what you have just finished doing (Bayesian). No behaviours happen in isolation. Each action becomes a cue that triggers the next behaviour.
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Habit Stacking. Inspired by the above, when it comes to building new habits, you can use the connectedness of behaviour to your advantage. One of the best ways to build a new habit is to identify a current habit you already do each day, and then stack your new behaviour on the top. In a word, linking one behaviour with the other.
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Tie your desired behaviour into something you already do each day. Once you have mastered this basic structure, you can begin to create larger stacks by chaining small habits together. The habit stacking allows you to create a set of simple rules that guide your future behaviour.
In short, After I [CURRENT HABIT], I will [NEW HABIT].
6. Motivation is Overrated, Environment Often Matters More
People Often choose products not because of what they are, but because of where they are. Environment is the invisible hand that shapes human behaviour.
In this way, the most common form of change is not internal, but external: we are changed by the world around us. Every habit is context dependent.
By psychologist Kurt Lewin (1936): Behaviour is a function of Person in their Environment, B=f(P,E).
- In humans, perception is directed by the sensory nervous system. We perceive the world through sight, sound, smell, touch, and taste. And other ways of sensing stimuli, some are conscious, but many are non-conscious. Receptors in your body pick up on a wide range if internal stimuli. One of the most powerful human sensory abilities is vision. A small change in what you see can lead to a big shift in what you do.
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The environments where we live and work often make it easy not to do certain actions because there is no obvious cue to trigger the behaviour. What we do is to make it visually obvious. We shall change the environment.
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Environment design is powerful not only because it influences how we engage with the world but also because we rarely do it.
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Create the the Context of Cue.
Over time, your habits become associated not with a single trigger but with the entire context surrounding the behaviour.
The behaviour is not defined by the objects in the environment but by our relationship to them. Thank in terms of how you interact with the spaces around you.
The power of context reveals an important strategy: habits can be easier to change in a new environment.
Whenever possible, avoiding mixing the context of one habit with another. The inspiration is to split the Space to Work, and the Space to Study and Live.
If your space is limited, divide your room into activity zones: a chair for reading, a desk for writing, a table for eating, etc.
7. The Secret to Self-Control
When scientists analyse people who appear to have tremendous self-control, it turns out those individuals aren’t all the different from those who are struggling. Instead, “disciplined” people are better at structuring their lives in a way that does not require heroic willpower and self-control. In other words, they spend less time in tempting situations.
- Bad habits are auto-catalytic: the process feeds itself.
One of the most practical ways to eliminate a bad habit is to reduce exposure to the cue that causes it.
The practice is an inversion of the 1st Law of Behaviour Change. Rather than make it obvious, you can make it invisible (for the bad habit).
The 2nd Law: Make it Attractive
8. How to Make a Habit Irresistible
Scientists refer to exaggerated cues as supernormal stimuli, which is a heightened version of reality and elicits a stronger response than usual. They exaggerate features that are naturally attractive to us, and our instincts go wild as a result, driving us into excessive shopping habits, social media habits, porn habits, eating habits, and many others. Hereafter are some biological response.
- The Dopamine-Driven Feedback Loop
Dopamine is not the only chemical that influences your habits, but it is the one that provide a window into the biological underpinnings of desire, craving, and motivation that are behind every habits.
For years, scientists assumed dopamine was all about pleasure, but now we know it plays a central role in many neurological processes, including motivation, learning and memory, punishment and aversion, and voluntary movement.
When it comes to habits, the key takeaway is this: dopamine is released not only when you experience pleasure, but also when you anticipate it.
The more attractive an opportunity is, the more likely it is to become habit-forming.
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Use the Temptation Bundling to make your habits more attractive.
Temptation bundling works by linking an action you want to do with an action you need to do.
9. The Role of Family and Friends in Shaping Your Habits
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The Seductive Pull of Social Norms: Humans are herd animals. We want to fit in, to bond with others, and to earn the respect and approval of our peers.
Those who collaborated and bonded with others enjoyed increased safety, mating opportunities, and access to resources.
We imitate the habits of three groups in particulars:
- The close.
As a general rule, the closer we are to someone, the more likely we are to imitate some of their habits. Our friends and family provide a sort of invisible peer pressure that pulls us in their direction. We soak up the qualities and practices of those around us.
One of the most effective things you can do to build better habits is to join a culture where your desired behaviour is the normal behaviour. Join a culture where (1) your desired behaviour is the normal behaviour and (2) you already have something in common with the group.
Conversely, peer pressure is bad only if you’re surrounded by bad influences.
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The many.
The normal behaviour of the tribe often overpowers the desired behaviour of the individual.
Humans are similar. There is tremendous internal pressure to comply with the norms of the group. The reward of being accepted is often greater than the reward of winning an argument, looking smart, or finding truth.
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The powerful.
We try to copy the behaviour of successful people because we desire success ourselves.
High-status people enjoy the approval, respect, and praise of others. And the means if a behaviour can get us approval, respect, and praise, we find it attractive.
- The close.
10. How to Find and Fix the Causes of Your Bad Habits
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Habits are all about associations. There associations determine whether we predict a habit to be worth repeating or not. The brain is continually absorbing information and noticing cues in the environment. Every time you perceive a cue, your brain runs a simulation and makes a prediction about what to do in the next moment.
The cause of your habits is actually the prediction that precedes them.
There predictions lead to feelings, which is how we typically describe a craving — a feeling, a desire, an urge. Feelings and emotions transform the cues we perceive and the predictions we make into a signal that we can apply.
To summaries, the specific cravings you feel and habits you perform are really an attempt to address your fundamental underlying motives. Whenever a habit successfully addresses a motive, you develop a craving to do it again.
Habits are attractive when we associate them with positive feelings, and we can use this insight to our advantage rather than to our detriment.
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Reprogram Your Brain to Enjoy Hard Habits.
Changing just one word: You don’t “have” to You “get” to.
Transition from seeing there behaviours as burdens and turn them into opportunities.
Re-framing your habits to highlight their benefits rather than their drawbacks is a fast and light wight way to reprogram your mind and make a habit seem more attractive.
If you want to take it a step further, you can crate a motivation ritual. You simply practice associating your habits with something you enjoy, then you can use that cue whenever you need a bit of motivation.
Three deep breaths. Smile. Ped the dog. Repeat.
Eventually, you’ll begin to associate this breathe-and-smile routine with being in a good mood. It becomes a cue that means feeling happy.
The key to finding and fixing the causes of your bad habits is to re-frame the associations you have about them. It’s not easy, but if you can reprogram your predictions, you can transform a hard habit into an attractive one.
The 3rd Law: Make it Easy
11. Walk Slowly, but Never Backward
When you’re in motion, you’re planning and strategising and learning.
Action is the type of behaviour that will deliver an outcome.
If you want to master a habit, the key is to start with repetition, not perfection. You don’t need to map out every feature of a new habit. You just need to practice it.
Get start, try and protect, get exploration, not prepare for perfection.
- How long does it actually take to form a new habit?
The more you repeat an activity, the more the structure of your brain changes to become efficient at that activity. Neuroscientists call this long-term potentiating, which refers to the strengthening of connections between neurons in the brain based on recent patterns of activity. With each repetition cell-to-cell signaling improves and the neural connections tighten.
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Repetition is a form of change
An English philosopher George H Lewes noted, “In learning to speak a new language, to play on a musical instrument, or to perform unaccustomed movements, great difficulty is felt, because the channels through which each sensation has to pass have not become established; but no sooner has frequent repetition cut a pathway, than this difficulty vanishes; the actions become so automatic that they can be performed while the mind is otherwise engaged.”
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All habits follow a similar trajectory from effortful practice to automatic behavior, a process known as automaticity. Automaticity is the ability to perform a behaviour without thinking about each step, which occurs when the non-conscious mind takes over.
In practice, it doesn’t really matter how long it takes for a habit to become automatic. What matters is that you take the actions you need to take to make progress. Whether an action is fully automatic is of less importance.
12. The Law of Least Effort
- Habits like scrolling on our phones, checking email, and watching television steal so much of our time because they can be performed almost without effort. They are remarkable convenient.
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You don’t actually want the habit itself. What you really want is the outcome the habit delivers. The greater the obstacle — that is, the more difficult the habit — the more friction there is between you and your desired end state. This is why it is crucial to make your habits so easy that you’ll do them even when you don’t feel like it. If you can make your good habits more convenient, you’ll be more likely to follow through on them.
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The less friction you face, the easier it is for your stronger self to emerge. The idea behind make is easy is not only do easy things. The idea is to make it as easy as possible in the moment to do things that payoff in the long run.
- Reduce the friction associated with good behaviours. When friction is low, habits are easy. Increase the griction associated with bad behaviours. When friction is high, habits are difficult.
- Prime your environment to make future actions easier.
13. How to Stoop Procrastinating by Using the Two-Minute Rule
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The Two-Minute Rule. Even when you know you should start small, it’s easy to start too big. When you dream about making a change, excitement inevitably takes over and you end up trying to do too much too soon. The most effective way I know to counteract this tendency is to use the Two-Minute Rule, which states, “When you start a new habit, it should take less than two minutes to do”.
A new habit should not feel like a challenge. The actions that follow can be challenging, but the first two minutes should be easy. What you want is a “gateway habit” that naturally leads you down a more productive path.
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For Example: You can usually figure out gateway habits that will lead to your desired outcome by mapping out your goals on a scale from “very easy” to “very hard”. For instance, running a marathon is very hard. Running a 5K is hard. Walking ten thousand steps is moderately difficult. Walking ten minutes is easy. And putting on your running shoes is very easy. Your goal might be to run a marathon, but your gateway habit is to put on your running shoes. That’s how you follow the Two-Minute Rule.
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focusing on just the first two minutes and mastering that stage before moving on the next level. Eventually, you’ll end up with the habit you had originally hoped to build while still keeping your focus where it should be: on the first two minutes of the behaviour.
14. How to Make Good Habits Inevitable and Bad Habits Impossible
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Usecommitment device, a choice you make in the present that controls your actions in the future.
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The best way to break a bad habit is to make it impractical to do. Increase the friction until you don’t even have the option to act.
- Onetime choices — like buying a better mattress or enrolling in an automatic savings plan — are single actions that automate your future habits and deliver increasing returns over time.
The 4th Law: Make It Satisfying
15. The Cardinal Rule of Behaviour Change
We are more likely to repeat a behaviour when the experience is satisfying. Conversely, if an experience is not satisfying, we have little reason to repeat it.
- The first three laws of behaviour change — make it obvious, make it attractive, and make it easy — increase the odds that a behaviour will be performed this time. The fourth law of behaviour change — make it satisfying — increases the odds that a behaviour will be repeated next time. It completes the habit loop.
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However, there is a trick. Your human nature live in what scientists call an immediate-return environment because your actions instantly deliver clear and immediate outcomes. Yet, you, per se, live in what scientists call a delayed-return environment because you can work for years before your actions deliver the intended payoff.
The world has changed much in recent years, but human nature has changed little. The world becomes more Rewards-Delayed, but human nature needs Rewards-Immediate.
The brain’s tendency to prioritise the present moment means you can’t rely on good intentions.
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Every habit produces multiple outcomes across time. Unfortunately, these outcomes are often misaligned. With our bad habits, the immediate outcome usually feels good, but the ultimate outcome feels bad. With good habits, it is the reverse: the immediate outcome is enjoyable, but the ultimate outcome feels good.
In other words, the costs of your good habits are in the present. The costs of your bad habits are in the future.
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Cardinal Rule of Behaviour Change: What is immediately rewarded is repeated. What is immediately punished is avoided.
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You need to work with the grain of human nature, not against it. The best way to do this is to add a little bit of immediate pleasure to the habits that pay off in the long-run and a little bit of immediate pain to ones that don’t/ Cultivate habits by artificially rewards yourself to the human nature.
To select short-term rewards that reinforce your identity rather than ones that conflict with it.
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In summary, a habit needs to be enjoyable for it to last.
16. How to Stick with Good Habits Every Day
Making progress is satisfying, and visual measures — like moving paper clips or hairpins or marbles — provide clear evidence of your progress. As a result, they reinforce your behaviour and add a little bit of immediate satisfaction to any activity.
- Use habit track. Habit tracking (1) creates a visual cue that can remind you to act, (2) is inherently motivating because you see the progress you are making and don’t want to lose it, and (3) feels satisfying whenever you record another successful instance of your habit.
- What can we do to make tracking easier? First, whenever possible, measurement should be automated. Second, manual tracking should be limited to your most important habits. Finally, record each measurement immediately after the habit occurs.
- How to recover quickly when your habits were interrupted? Never miss twice. Try to not break the Chain.
17. How an Accountability Partner Can Change Everything
- The more immediate the pain, the less likely the behaviour. If you want to prevent bad habits and eliminate unhealthy behaviours, then adding an instant cost to the action is a great way to reduce their odds.
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An accountability partner can create an immediate cost to inaction. We care deeply about what others think of us, and we do not want others to have a lesser opinion of us.
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A habit contract can be used to add a social cost to any behaviour. It makers the costs of violating your promises public and painful.
Just as governments use laws to hold citizens accountable, you can create a habit contract to hold yourself accountable.
Advanced Tactics: How to Go from Being Merely Good to Being Truly Great
18. The Truth About Talent (When Genes Matter and When They Don’t)
The secret to maximising the odds of success is to choose the right field of competition. In short: Genes don’t determine your destiny. They determine your areas of opportunity.
- How your personality influences your habits:
- Openness to experience
- Conscientiousness
- Extroversion
- Agreeableness
- Neuroticism
Our habits are not solely determined by our personalities, but there is no doubt that our genes nudge us in a certain direction.
The Takeaway is that you should build habits that work for your personality. You don’t have to build the habits everyone tells you to build. Choose the habit that best suits you, not the one that is most popular.
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How to find a game where the odds are in your favour:
- In the beginning of a new activity, there should be a period of exploration. The goal is to try out many possibilities, research a broad range of ideas, and cast a wide net.
- After this initial period of exploration, shift your focus to the best solution you’ve found — but keep experimenting occasionally.
- In the long-run it is probably most effective to work on the strategy that seems to deliver the best results about 80 to 90 percent of the time and keep exploring with the remaining 10 to 20 percent.
When you can’t win by being better, you can win by being different. By combining your skills, you reduce the level of competition, which makes it easier to stand out.
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How to getthe most out of your genes:
The genes do not eliminate the need for hard work. They clarify it. They tell us what to work hard on. Once we realise our strengths, we know where to spend our time and energy.
In summary , one of the best ways to ensure your habits remain satisfying over the long-run is to pick behaviours that align with your personality and skills. Work hard on the things that come easy.
19. The Goldilocks Rule: How to Stay Motivated in Life and Work
The way to maintain motivation and achieve peak levels of desire is to work on tasks of “just manageable difficulty”.
The human brain loves a challenge, but only if it is within an optimal zone of difficulty.
- The Goldilocks Rule states that humans experience peak motivation when working on tasks that are right on the edge of their current abilities. Not too hard. Not too easy. Just right.
When you’re starting a new habit, it’s important to keep the behaviour as easy as possible so you can stick with it even when conditions aren’t perfect.
Once the habit has been established, it is important to continue to advance in small ways.
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How to stay focused when you get bored working on your goals
The greatest threat to success is not failure but boredom.
Variable rewards won’t create a craving, but they are a powerful way to amplify the cravings we already experience because they reduce boredom.
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Professionals stick to the schedule; amateurs let life get in the way. Professionals know what is important to them and work toward it with purpose; amateurs get pulled off course by the urgencies of life.
The only way to become excellent is to be endless fascinated by doing the same thing over and over. You have to fall in love with boredom
20. The Downside of Creating Good Habits
Habits are necessary, but not sufficient for mastery. What you need is a combination of automatic habits and deliberate practice.
\text{Habits} + \text{Deliverate Practive} = \text{Mastery}
- Mastery is the process of narrowing your focus to a tiny element of success, repeating it until you have internalised the skill, and then using this new habit as the foundation to advance to the next frontier of your development.
- Improvement is not just about learning habits, it’s also about fine-tuning them. Reflection and review ensures that you spend your time on the right things and make course corrections whenever necessary.
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Perform annual review, in which reflect on the previous year, reflect on my progress by answering three questions:
- What when well this year?
- What didn’t go so well this year?
- What did I learn?
Answer three questions in the yearly Integrity Report:
- What are the core values that drive my life and work?
- How am I living and working with integrity right now?
- How can I set a higher standard in the future.
Never reviewing your habits is like never looking in the mirror. Periodic reflection and review is like viewing yourself in the mirror from a conversational distance. You can see the important changes you should make without losing sight of the bigger picture.
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How to break the beliefs that hold you back:
The more scared an idea is to us — that is, the more deeply it is tied to our identity — the more strongly we will defend it against criticism.
One solution is to avoid making any single aspect of your identity an overwhelming portion of who you are.
“Keep your identity small”. The more you let a single belief define you, the less capable you are of adapting when life changes you. In other words, don’t be overconfident about your identity, Be acceptable to things.
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When you spend your whole life defining yourself in one way and that disappears, who are you now?
The key to mitigating these losses of identity is to redefine yourself such that you get to keep important aspects of your identity even if your particular role change. I.E.
- Instead of saying “I’m the CEO”, say “I’m the type of person who builds and creates things”
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Not “I’m a great soldier”, Yes “I’m the type of person who is disciplined, reliable, and great on a team”
Habits deliver numerous benefits, but the downside is that they can lock us into our previous patterns of thinking and acting — even when the world is shifting around us. Everything is impermanent. Life is constantly changing, so you need to periodically check in to see if your old habits and beliefs are still serving you.
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A lack of self-awareness is poison. Reflection and review is the antidote.
Don’t let the Identity obstacle your belief. Be a Open Person.
Men are born soft and supple; dead they are stiff and hard.
Plants are born tender and pliant; dead, they are brittle and dry.
Thus whoever is stiff and inflexible is a disciple of death.
Whoever is soft and yielding is a disciple of life.
The hard and stiff will be broken.
The soft and supple will prevail.
人之生也柔弱,其死也坚强。草木之生也柔脆,其死也枯槁。故坚强者死之徒,柔弱者生之徒。是以兵强则灭,木强则折。
《道德经》– 老子
小岛经济学
by Peter D. Schiff and Andrew K. Schiff
本书用一个假象的世界——小岛,讲述很多经济和社会现象的起源和影响,隐喻了很多现实中的事件和历史节点。从底层展示了经济的运行规律。
Good Book, but mixed with authors’ personal (something fair) feelings and emotions.
Chapter 1 经济一始
- Scenario 1
假设:在一个岛上(美索尼亚岛,后续11章会提及),三个人,每个人每天可以捕一条鱼,自给自足。没有货币、没有金融etc。
Life = Work + Consume
24h = Working + Leisure
Life = Fishing + Eating
生活相当于 <=> 工作(捕鱼) + 享受(吃鱼)。每天有24个小时,用一定的时间捕鱼,用剩下的时间吃鱼和享受Leisure。
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Scenario 2
其中一个人A研制出了一个捕鱼工具——渔网。为此,他花了一天时间制作渔网,也挨了一天饿。
He takes the risks of starving, and create a “Capital 渔网” that can increase efficiency of working for long time.
“Tech” <-> Capital is created, which increase the efficiency.
他通过技术,制造了工具,提高了生产效率,可以在同样时间内,用渔网捕更多的鱼。但同时他每天仅需要吃一条鱼,那么用工具补的鱼可以被存起来变为 “Saving”;或者可以花更少的时间捕鱼,获得更多时间 Leisure
P.S. 以下均假设鱼Saving 不会变质,可以理解为是经济体的产出 Economic Outputs
Chapter 2 分享经济产出
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小岛上的其他人也想要获得渔网,提升效率的工具。为此,他们可以选择
- 自己也挨饿一天制作渔网。可能有做不出渔网的方法。
但是由于 A 有储蓄,岛上的其他人可以向 A 借鱼吃,以免自己制作网的当天要挨饿。
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但是对于 A 来说,他也有不同的 Options:
- No share saving.
不借给其他人吃,防止他们做不出渔网,或者还不上 A 借给他们的鱼。
这样 A 不会承担风险,但是经济体也不会增长。
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Share saving ( with Interests or no interest ). 金融也因此产生了
把鱼借给其他人,同时收取“利息”,如:要求借出一条鱼,还两条(即利息是一条)。
- If 设置利息为0,那么就是再免费 share saving,
- If 设置利息不为 0,那么 charge interest,对方可能不还钱,那么 A 就亏了,也可以对方还钱,A 就挣了额外收入。
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The cost of the interests is the game, and we do not talk about that further. just now.
- Invest the Saving.
A 还可以自己多制造更多的渔网,通过用现有渔网捕更多鱼 Saving,然后之后消费 Saving 制造更多的渔网。
A 可以开设自己的租鱼公司,将多余的渔网可以用于出租给其他人,挣租金。如果 A 制作渔网的技术无法被其他人学会,那么 A 的公司将能永远盈利。
- Other Options.
- No share saving.
- 我们假设,最终,无论中间经过了哪个 options,每个人都掌握了制作渔网的技术,因为模仿和抄袭的成本和难度远远比创新低。
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每个人都获得了渔网,整个岛上所有人的生产效率都提升了,整个岛的 efficiency, 和 economic output 都提高了。
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A 通过 tech,成为了岛上最初的富人,他可以为其他人提供有价值的东西。尽管此后所有人都有了 tech,他的 tech 变得不再特殊,无法再挣额外的利润。
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在社会的角度,如果 A 有持续的获取利润的能力,或者如果 A 通过自己的利润持续压迫其他人,那么社会可能变得不稳定 instable。起义、变革,直到社会变得公平。The edge A have the ability of making profits is also a sociology game.
Chapter 3 Credit and Loan (Inserted)
In the case,A 有储蓄,可以选择投资 investment,把储蓄以贷款的形式投资出去,挣投资收益。
- 商业贷款:选择能还钱的借款人,有正向收益的项目等,都是为了保证贷款能收回。但是一旦外部力量以各种里有鼓励或者要求储蓄者借出款项,不考虑实际还款的可能性,那么贷款人就难免要承受较大的损失。
因为政府没有储蓄,只有个人才有,加入在政府的激励下,贷款流向了无法还款的个人和企业,那么个人的储蓄就被牺牲了。
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消费贷款:消费贷是风险更高的贷款品种,因为 borrower 拿着钱去消费、度假了,没有用来获得正向现金流。Creditors 会因此承受不必要的风险,此时对 borrower 和 creditor 来说都是一笔负担。
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应急贷款:为应对紧急情况而提供的贷款,可能 borrower 收不到这笔钱就完蛋,也可能 borrower 因为快完蛋了才需要这笔钱,收到了也得完蛋。但是当 borrower 处于不能,或者由外部因素让 borrower 不能完蛋的情况,可能不得不借。社会生死攸关之际,储蓄格外重要。
Chapter 4 How Economy Grows?
基于 Chapter 2 的结尾,每个岛民制造了渔网,大家捕鱼的效率都提升了,每天捕两条吃一条,岛上有了更多的 saving (Outputs, fishes)
他们花费 saving 的鱼,有更多时间开发新的设备,更强的捕鱼机器,etc
Technology boosts the Economy Growth.
Saving 储蓄发挥了作用:1. 给人们机会投资,用 tech 创造;2. 起到缓冲器的作用,应对自然灾害 crisis etc
Saving 创造了资本,资本使生产扩大成为了可能,所有储蓄起来的一美元对经济产生的积极影响要大于消费掉一美元。
Chapter 5 Service, Money, and Comparative Advantage
- 通过储蓄、贷款,人们有机会拓宽投资领域,扩张商业。
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Service:当需要层次到达一定阶段,服务业应然而生(厨师,教培)
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Money:为了满足不同人有不同的需求,如当制矛师向厨师买饭,而厨师不许要买矛时,货币(鱼)产生了,作为普适的交易媒介。
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Comparative Advantages:在这个经济体中,人们发挥不同职能,如有的人擅长体力,他可以搬运更多的鱼,有更高的搬运效率,可以因此挣更多的钱。
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Tech & Productivity:同时,有的人研发新的 devices,用车运输,而非人力运输,再次提高了生产效率 productivity,成本也因此降低了,利润提升了。
技术创新是个单向过程,除非人们失忆,否则生产效率提升会随时间越来越多。价格随时间降低。持续降低的价格还给人们更多空间储蓄
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Employment: 劳动价值通常取决于劳动者所使用的资本,资本的便利,可以提升劳动的价值。如推土机推的土比人铲效率高得多。
- 劳动者在市场中可以扮演不同的角色:
- 制造渔网的人:创新者承担风险, start you own business
- 贷款买鱼网的人:加杠杆承担风险
- 为有渔网的人打工的人:打工人,稳定收入,风险低。
- 最低工资标准:政客通常表示,最低工资制度使员工获得了权益,但实际上也剥削了部分人获得工作的权力。如最低工资为 ¥8,而一个人的效率只值得 ¥6,那么他们会失业,员工选择的权力被剥夺了。政客提出的很多权益,如医保、产假等,实际上并未给员工提供好处,反而让员工失去了选择的权力(主动用自己工资去买这些权益的权力)。但是对政客来说,这么做可能意味着社会稳定性。
- Deflation 通缩:
作者认为通货紧缩是当今经济学中最成功的宣传册。经济学家认为通缩会对经济带来负面影响。
但是如作者此前观点,当efficiency提升,成本降低,价格会降低,那么必定会带来“通缩”。即,生产率的提升会促使价格下降。但这对经济体来说实际上是好事。
作者说,现代经济学错误的认为:消费促进经济增长,一旦通缩,人们不愿消费(价格会继续下降,spiral accelerate的负向),如果人们继续消费,价格下降的影响会减弱。
作者认为,起决定作用的不是消费,而是生产,不需要劝说人们消费,因为人类的需求永远不会得到猫族。如果人们不想要某样东西,那么一定是有理由的,要么商品不够好,要么买不起。
作者认为,政治家宣传通缩不好,是因为通缩是政治家的好朋友。
Chapter 6 What does Saving do?
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Banker create a location, the bank, to accumulate indiviudal’s saving. 人们不愿意在家存放过多的鱼,于是把鱼存到银行。银行同时用吸纳的储蓄放贷,挣贷款利息。
- 储户:Banker 为储户支付利息,吸引他们把钱存到银行。
- 储户存的越久,Banker 给储户的利率就越高,因为 bank 获得了更稳定的鱼(钱),可以用来房贷款·。
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放款:放贷款的时候,Banker 选择可靠的借款人,收取低利率。对风险高的借款人,收取高利率。
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同时,如果鱼存量多,bank 会主动降低利率,因为 bank 承担损失的能力比较强。。
- 当储蓄过量,银行就不需要吸引新的储蓄,贷款利率也比较低,存款利率也比较低。这样也一定程度的抑制了储蓄。
- 一旦储蓄少了,银行想要吸引更多储蓄,给更多利率,同时流动性低,放贷款也要charge more interests。
- bank 作为中间金融机构实现了 equilibrium
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Fund:
银行吸引相对稳定的钱,同时放贷给相对风险低的项目。但是市场中有不同的储蓄者(投资者)和项目。如:有点人能承担更多风险,想把鱼存下来,挣更多的收益。有点项目风险高,银行不愿意给放贷款。此时 Fund 出现了,吸纳 individual 有更高风险偏好的钱,把钱投给有更高预期收益,但是同时更高风险的项目。
- Fed:作为美国财政部的延申,负责制定基准利率,美国市场的利率结构都是建立在基准利率之上的。Fed 被授予这种权力,是为保证经济在繁荣期和萧条期能稳定运行。作者认为,这个机制存在两个缺陷:
- 需假设Fed 的人更了解市场,因此可以通过 ffr 来调整市场,
- Fed 的决策基于政治考量,而非经济因素,如:虽然低利率可以降低市场成本,但同时低利率还能帮时任总统获得更多支持度,因为刺激经济。
- 也因此,Fed 在 covid 之前大多时候都执行低利率的政策。这也推动美国市场长期保持低利率的状态,市场整体利率低,吸引不到储蓄(因为收益少),同时刺激了 loan (因为成本低)
Chapter 7 Infrastructure & Business
- Infrastrucutre Investment
人们意识到缺少基础设施(如没有水源,没路),岛民想寻求解决方案。
岛民决定融资建自来水厂,一方面解决当地缺水的问题,同时自来水厂的收益可以偿还贷款和利息。
基建投资 infrastructure 不光保证贷款能偿还,还提升了社会生产率,甚至推升出新的产业。
但是在项目发起时,投资者会权衡 opportunities cost,毕竟钱被用来投资自来水厂了,就不能用来投资其他项目了。这时投资不同项目就取决于投资者和gov(作为 social planner)的选择。
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Business and Trading – (Comparative Advantages)
随着基建提升了的生产效率,新的产业也产生了。岛屿岛之间开始产生贸易,有些岛把自己过剩的产品出口,刚好有其他岛对此些产品有需求。每个人,每个岛和国家都会利用自己的优势实现利益最大化。
在自由贸易的情况下,在 international trading (岛与岛之间的交易)中,不同国家发挥自己的 comparative advantage
In reality, 在自由贸易中,政治考虑会使情况变得负责。如:自由贸易的反对者会为了保护美国的就业岗位,不受海外竞争影响,而限制低价商品进口,使本国产品在本国市场中任有竞争力。但是 in this case,反对者保护了供给侧,但是需求侧的消费者不得不承受更高的商品价格。Deadweight loss 产生了 (Economics 101)
Chapter 8 How the Government Forms
岛上最开始没有政府,但是当有外敌入侵时,individuals 独自往往难以面对,需要集体反馈。此时 gov 的重要性体现了,岛民决定组建一个对人民负责的政府,政府无权剥夺人们的自由。
岛民中需要选出 leader 来做决策。Assume 岛上的 gov中,由12名议员组成参议院,包括一名能行使行政权力的议长。
同时,为了维护社会稳定,也是为了保护岛民的生命权、自由权和财产权,参议院设立了一套法院体系来解决纠纷,同时成立警察小队执行法官的法令。
gov 建立国防用的基建。
岛民同意每年缴纳一些鱼作为税款,用于 gov 对整个岛的集体花费。
为保证税款不被乱用,人们制定宪法,明确了 gov 应有哪些权益。
法院系统设置了最高法法官,负责维护宪法的权威,并督促议员的行为。
一个政府成立了。
政府用税费雇佣了一些人,如灯塔看守、治安官、法官、海军桨手。大家明白如果没有向政府纳税的社会生产者,这些职位根本不会吃饭,如果没有生产者缴税,政府官员都吃不上饭。
Chapter 9 Evolution of the Govenment
社会保持平稳运行,基础设施完善,社会生产率逐渐提升。当需要层次达到一定阶段,劳动密集型产业的部分labour转去做服务业或者新型产业,如装修公司、巫医医院、剧院 etc。
政府换届时,议员为了获得选票,演讲说要采取刺激的财政计划,支持经济发展。但是政府没有这么多钱(收入、税收、鱼),岛上的 saving 储蓄池不够政府完成支出计划,政府决定发行“鱼联邦储备券”,即可以用来去 bank 自由兑换鱼的纸币,一块钱 = 一条鱼。 政府控制了纸币的发行,就可以自由决定政府支出了。人们以后可以用纸币自由兑换鱼,也因此可以用纸币交易商品和服务。
鱼就像黄金,纸币就像美元。
Days later,政府超发了纸币用于财政支出,但是并没有足够的税收收入(真很正的鱼)来pay the fiscal expenditures,而是用纸币pay。市场的纸币越来越多,多过saving 鱼,导致不再是一块钱纸币能换一条鱼,而是每10块纸币只能换9条鱼。政府也意识到:当人们意识到银行美元足够的saving鱼用来兑换纸币,那么人们会去挤兑,run,去银行兑换鱼,政府就无法兑现 1-to-1 的承诺。
政府要做的,是让人们相信政府还有足够的saving 鱼,来满足兑换的关系。那么当政府超发纸币,人们就不会去挤兑。
In the story,政府研制了一种技术,可以把鱼拆分重组,用两条鱼制造三条鱼(鱼变小了,但是变多了)用来满足纸币兑换的需求。也因此,政府不再担心挤兑,开始肆意的印钱,欺骗人们有足够的 saving 做支撑政府做投资。
- In reality, 美联储早期建立布雷顿森林体系,指定35美元可以兑换1盎司黄金。但是美元不断超发,实际上美国储备的黄金并不能维持 1 盎司金 = 35 dollar 的关系。政府为了防止挤兑,就要用各种方式阻止提款,如限制兑换黄金的银行,禁止私人兑换黄金等。当时脱钩的关系不能阻止,直到一天,布雷顿森林体系瓦解。
Chapter 10 Fish Shrinks with Money Printed
政府不断用拼接鱼的技术来制造 saving (而不是真正的税收,或者output带来的saving),然后印钱,通过government spending 制造新的产业(无用,无意义的 bullsit jobs)用于保证就业,给人们发工资,维持社会稳定。这样的政府也获得了民众的支持,获得了选票,政府实力得到延续。
但问题是,鱼拼接技术,使 2条鱼 – 4条 – 8条 -16条 etc,虽然数量变多了,但是鱼变得越来越小、越来越小,直到人们意识到了问题。
因为纸币能换的鱼越来越小,物价必须上涨已弥补损失的营养价值。通胀问题产生了,尽管生产率提高会使物价下降,但是超发的货币 deduct that。物价上涨了。
简化这个过程,政府超发货币,为了满足社会问题,制造就业,创造了很多inefficient 无效的工作,给人们发工资,涨工资,但是真实产出(捕鱼数量没多,而是通过拼接变多了)并没有随超发货币的节奏,通胀问题产生了。物价上涨。
人们意识到了通胀问题越来越严重,鱼越来越小,通胀真正伤害的是需要养老的人,因为他们存的纸币能换鱼越来越小了,不能满足生活。
通胀问题越来越严重,人们选择把纸币花了买东西,而不是存钱,因为钱越来越不值钱了。通胀抑制了储蓄。储蓄少了,可以用来投资的钱也少了,新的产业在萎缩,企业削减成本,工人失业。社会不稳定的问题产生了。
此时新的政府选举来临,新的竞选者许诺要用 helicopter drop 的方式给人们发钱,满足消费需求。这种选举口号迎合了大众,当选,发钱。但是实际上 output resulted saving 没有提升,反而印了更多钱,通胀的问题更加严重了。
- In reality, espeically Keasian Economists 印钱来解决 recession 的问题,导致了 stagflation,通胀和失业同时出现。
人们认为失业时,需求会下降,物价会降低,导致通胀问题缓解,经济回到动态平衡的水平。但是人们没有意识到,失业,产业生产也减少了,供给减少了,物价也上升了。价格不会因为 unemployment 回落,因印钱导致的通胀不能缓解。
Chapter 11 External Player
作者假想:在一个新的经济体“中岛帝国”,经济体有更多的劳动力(人)labour,更集中的统治,人们捕鱼,上缴(缴税)。民众媒体只能吃到半条鱼,足以生活,但是国王和官员每天能吃到号线。中岛帝国没有储蓄、没有银行、没有信贷、没有企业,经济处于黑暗时代。经济没有持续发展。
中岛帝国的王得知美索尼亚岛后,打算学习银行、借贷和贸易系统,希望以此帮助自己的岛富裕。他认为货币是重要的因素,于是中岛帝国开始用鱼换美索尼亚岛的货币,因为货币可以保证随时在美索尼亚岛换取鱼,同时便捷交易。双方签订合约,中岛帝国定期提供鱼,换取美索尼亚岛的货币。
- 对于中岛帝国来说,他们用换取的货币,买美索尼亚岛上的产品。同时由于中岛帝国没有银行,他们只能把货币存在美岛挣取利率收益。
-
对于美索尼亚岛来说,中岛的购买力来买美岛的商品,为美岛提供了流动性。同时,中岛存入银行的鱼使可用的贷款大幅增加,岛上获得了额外的实物资本,已支撑岛内超发的货币。大量真鱼出现使货币换来的鱼的肉变多了,货币有了实物的支撑,物价上涨(通胀)的问题缓解了。
然而在中岛帝国,国王意识到,过多的税收,即让人们上交所有捕获,只留每天半条吃的量)阻碍了人们的生产动力。于是中岛开始向美岛买渔网,提高人们捕鱼效率。此前,每人每天捕一条,上交半条。现在每天捕两条,上交一条。win-win。
同时,一段时间后,中岛税收增加,持续用税收的鱼买美岛的货币,用货币买资本设备,持续扩大生产。
逐渐的中岛的企业家通过copy past,和创新,也产生了二产,有能力生产勺子、碗等基础产品。他们再把产品卖到美岛,换取货币。
Chapter 12 Evolution of Industrisation
中岛的储蓄(鱼)大量涌入美岛换取货币,储蓄被存入美岛银行,贷款利率随之降低,美岛企业家的投资热情也变得高涨。
- 美岛:由于中岛劳动力多,劳动成本低,美岛把大多捕鱼和制造业外包给中岛。而美岛发展和保留相对localised服务业,和附加值更高的产业。商业计划也更加青睐需要本地员工提供服务的项目,这些工作无法外包,且需要的资本少(轻资本、服务业),技术培训、艺术等。
-
中岛:中岛通过引入捕鱼技术,捕鱼效率大大提升,建造很多巨大捕鱼器(部分涉及通过copy past)。美岛告法院说中岛侵犯专利权,但是这个官司在中岛打不可能打赢。
中岛员工24小时工作,疯狂工作捕鱼,不发展服务业。但是对中岛的国王来说,人们整体忙于工作,甚至没有对服务业有需求的时间,社会稳定,不需要额外的改变。
中岛捕鱼效率高了,持续用捕的鱼,换美岛的货币。为美岛提供实物输血。中岛的人相信货币意味着产出和储蓄,而实际上这些被送往美岛的鱼被用来填补美岛超发货币的窟窿。
In reality,
过去20年,全球经济失衡(即美国贸易逆差)变为常态。相当于美国净获得了全世界的实物生产转为自己的消费,而全世界在用实物生产换美元。
美元储备货币的地位很大程度上导致了贸易逆差的扩大,如果没有全球经济体对美元的内在需求,任何国家都无法长期维持这种状态。
正常情况,贸金差额和货币价值应该处于一种动态平衡equilibrium的状态。一国的生产力更强,其他国家多这个国家的商品有需求,那么强势的贸易地位就会使一国的货币坚挺,弱势贸易地位的国家货币就会贬值。货币坚挺升值,产品的价格也变高了,需求少了,货币价值自然会降下来。
但是此前,中美货币之间的peg打破了这种关系,动态平衡的机制被破坏。
Chapter 13 The Breach of “Gold/Fish” Standard
即使有中岛定期的真鱼输入,美岛仍在超额印钱。开始有外岛的人质疑美岛货币的价值,质疑是否货币能兑换真鱼。于是人们开始去美岛银行兑换真鱼。
美岛银行显然没有足够的鱼来满足兑换,哪怕使用第10章的鱼拼接技术。
美岛政府决定打破鱼和货币的关系,暂停了银行兑换窗口。“鱼本位”瓦解。美岛货币的价值大幅降低。但是即使如此,美岛货币在岛与岛(国际)间交易的地位仍然存在。
In reality,这件事对应着Bretton Woods的瓦解。
Chatper 14 How Housing Price Increases?
银行不愿意投资服务业,业务风险高,而是更愿意寻找稳妥的项目,棚屋贷款,因为棚屋可以作为天热的抵押物。
此前,人们需要储蓄很多钱,然后一笔买棚屋。现在,人们通过贷款,直接买房,跳过了储蓄的时间。
然而银行还是会对人做挑选,富人更容易获得贷款,穷人被认为信用或还款能力较差,不那么容易被授予。
政府为了推动让更多岛民获得贷款,创立了“房利美”&“房地美”为棚屋贷款担保。有了担保,银行就不必担心贷款违约了,于是降低利率和放贷标准,更多贷款被制造出来。
银行开始允许“以小换大”贷款,低首付和棚屋利润免税政策。对棚屋的需求旺盛,推动供给侧更多的棚屋被生产出来,制造业的产业链被塑造,房地产吸收了越来越多的产能。
随着贷款刺激,棚屋价格开始上扬,棚屋的投资属性提升。Price Spiral Accelerately increased。
同时,中岛的钱也涌入美岛,进一步推动棚屋需求,价格进一步上涨。Bubbles Emerge
Chapter 15 Housing Bubble Collapses
由于岛民有限,对房屋的需求终究有尽头。
One day, 新房开始滞销。人们开始发现房屋的价格和价格、供需脱钩。
房屋数量多余人们的真是需求,人都开始想脱手,房屋价格开始大规模下跌。
消费者不再投资房屋,其他相关产业也陷入了困境。建筑工人、设计院、房处Sales,电器Sales纷纷失业。看似不相干的产业也同时收到了冲击。
小岛陷入了经济危机。
政府决定开展经济刺激援助计划。首先向“两房”注入资金(印钱),已保证房产有抵押,或者发消费券。政府希望持续放松信贷,提高市场对房产的需求,阻止价格下点。但显然由于供求失衡,这样做并没有效果。
同时,由于棚屋价格暴跌,人们觉得自己没有以前富裕,所有停止消费。
印钱显然无法从根部组织 bubble collapses 的问题,美岛政府希望寻求更多的鱼注入经济体,支撑超额印钱,已弥补房产市场。
于是美岛开始尝试卖自己的基建产业,如卖掉自来水系统,换取鱼。但美岛的反对派表示如此做会威胁到国家安全,让核心产业离开自己掌控。所以此做法也无法实现。
最终,政府只是提出了所谓“经济刺激援助计划”,但实际什么也没能做,不能改善经济环境。
Chapter 16 The Scenario Gets Even Worse
岛国房产行业崩塌,消费停滞。
新任政府通过“变革”的口号拿到了更多选票,再次扩大了经济刺激计划,并设计了其他新的计划,将新印刷的货币注入市场,增加助学贷款,开展超量基建建设并雇用人员运维,发展新能源等,
但是由于美岛已经没有鱼了,他们所有的开销背后都要依靠外国的资金支持。
经济层面,美岛人们可以有以下选择:1. 减少消费,用储蓄还债。2. 增大产量,卖掉多余的货物还债。3. 追加贷款,旁氏骗局,保持现有消费水平。
给予上述三种选择,前二都需要美岛人“吃苦”,而第三个option可以通过让外国人买新债来转嫁债务。于是美岛的官员选择了3。
Author’s View: 一国的经济不会因为人们的消费而增长,而是经济增长带动人们消费。
Chapter 17 IMF & PIGS
与美岛类似的剧情发生在了其他更“小”的岛,经济体量更小,但是没有美岛的货币在国际交易中的影响力。小岛经济逐步崩溃,经济危机。此时IMF,作为多国出资组建的机构,为小岛提供了大量的美岛货币(目前仍被视为最可靠的货币),希望帮助小岛度过危机。
IMF提供的援助贷款利息很低,但仍需要真是的鱼(output)用于到期偿还。同时,IMF强制小岛政府接受一系列的“刚性”计划,包括提高税收、减少政府支出等。此计划被当地居民强烈抵制,因为居民觉得自己的岛屿被不怀好意的外岛人控制了。
Another Real-world Scenario
2010年,PIGS时陷入债务危机,他们作为欧盟成员,国家维系着丰厚的社会保障体系,但是国家债务水平远超本国经济发展能力。
政府想用量化宽松政策来修复萎靡的经济,就好像企图用汽油去救火,汽油越多,火势越旺。
Chapter 18 What Does/Did CB do?
美岛QE,CB开始Operation Squish的操作,将长期联邦贷款替换短期的,将还款期限延长。虽然始终没有真是的鱼(output)做支撑,但是民众被“无限期债”的计划带来了正向的预期,该计划再次短期抬高了房价,人们追求趋势再次投入资金。然而,CB的操作并没有为市场带来真正的output,当房价暴跌的时候没有人幸免。
In reality,
- at the end of 2008, CB conducted QE, purchasing about 2 triilion USD debts (Open Market Operation).
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2010Q1, after CB reduces purchasing, the stock market collasped. CB conducted the second round of QE , and was coined as “Monetaisation of those Debts”
- 2011Q2Q3, after the end of the second round QE, Fed did Operation Twist, replacing short-term debt with long-term ones. That conduction results in the booming housing market, but is less helpful for the “real” term economy. Stock price hiked but employment went worse.
Chapter 19 The End
中岛逐步打造自己的内循环经济体系后,逐步发现不再需要美岛发行的货币,逐步与美岛脱钩。于是中岛逐步减少向美岛输送output,用来换货币。
中岛继续捕鱼、制造商品、储蓄,这些都是促进其经济增长的因素,中岛也未陷入经济危机。
而美岛因为过度发展服务业和金融业,国内逐渐丧失了制造能力。更多的货币,和更少的output,通胀更加严重。钞票贬值、商品稀缺、物价飞涨。
中岛带着大批的鱼&货币来美岛采购,买基础设施买固定资产,然后离开…
In reality,
The author summarised that 政府总会因为入不敷出而陷入困境,一旦loss累计到一定程度,政府就会面临艰难的选择。
- Option 1. 提高税收。但是人民不喜欢税收,高税收会抑制生产、降低经济活力。税收过高,人们会停止巩固走,甚至发生暴乱。
- Option 2. 削减政府开支。但是这种做法往往会有更多人(利益相关方)反对。
- P.S. 政客为了赢得选举做出无数承诺,而选民从不考虑纳税人是否为这些承诺买单。
- Option 3. 政府拒绝缓债,如果债权人是外国人,那么从政治上,与其增加税收并掠夺国人利益,不如失信于外国人。
- 对于政客,拒绝还债往往令难堪,因为需要承认自己没有偿付能力。为了避免这个情况,政客索性选择印钱,引起通胀,使债务贬值,还债。但以通胀作为代价往往是最次的选择。
Rich Dad Poor Dad
by Robert T. Kiyosaki
Introduction
The author has two “Dad”, one is his real dad, and the other is his friend’s dad. Both his dad and his friend dad are friends as well. For his two dads, one is rich and the other is poor, financially.
One work for bureau and as a professor at university. The other works for his own and strike before attending to college.
One dad had a habit of putting his brain to sleep when it came to finances, and the other had a habit of exercising his brain. For example, one says “I can’t afford it”, the brain stops working. The other ask a question “How can I afford it”, you brain is put to work.
One wanted the author to study hard, earn a degree, and get a good job to earn money, want the author to study to become a professional, an attorney or an accountant, and to go to business school for MBA. The other encouraged the author to study to be rich, to understand how money works, and make money works for you per se.
The rich dad is the one without even a college degree.
The book is not to compare the ideas from the rich and poor dad, but discuss how the rich dad’s insight affects the author.
Chapter 1: The Rich Don’t Work for Money
- Life is difficult. Life pushes all of us around. Some people give up. A few learn the lesson and move on. They welcome life pushing them around. To these few people, it means they need and want to learn something. Learn and move one from the life, instead of blaming. Do not blame, you only are blaming or pushing back against the boss, the job, the wife. However, it is the life that pushing.
Stop blaming the life, instead change yourself, learn something, and grow wiser.
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The poor and the middle class work for money. The rich have money work for them.
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Avoid one of life’s biggest trap. Some can see things most people never have the benefit of seeing because their vision is too narrow. Most people never see the trap they are in.
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The Rat Race: The pattern of get up, go to work, pay bills; get up, go to work, pay bills. People’s lives are forever controlled by two emotion: fear and greed. Offer them more money and they continue the cycle by increasing their spending.
However, do not get in trapped by the Rat Race, do not get trapped by those two emotions: fear and greed.
Tell yourself the truth what you feel not the emotion.
Do not be afraid of losing money.
Avoid the trap caused by those two emotions, fear and desire. Use them in your favour, not against you.
Chapter 2: Why Teach Financial Literacy?
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Rule #1: You must know the difference between an asset and a liability, and buy assets.
Rich people acquire assets. The poor and middle class acquire liabilities that they think are assets.
Asset put money in your pocket. Nice, simple, and usable.
If you want to be rich, simply spend your life buying or building assets. For figures below, I/S of the Rich, Middle class, and Poor are shown.
For the Rich Dad, real estate is on the liability side. Money flow to expense, and run away.
For the Poor Dad, real estate in on the asset side. Money flow as income, get into the I/S.
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Why the Rich Get Richer?
The asset column generates more than enough income to cover expenses, with the balance reinvested into the asset column. The asset column continues to grow and, therefore, the income it produces grows with it.
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Why the Middle Class Struggle?
Their primary income is through their salary. As their wages increase, so do their taxes. Their expenses tend to increase in proportion to their salary increase: hence, the phrase “the Rat Race”. They treat their home as their primary asset, instead of investing in income-producing assets.
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Work for Your Own.
- You work for the Company:
Employees make their business owner or the shareholder rich, not themselves. Your efforts and success will help provide for the owner’s success and retirement.
- You work for the Government:
The government takes its share from your paycheck before you even see it. By working harder, you simply increase the amount of taxes taken by the government. Most people work from January to May just for the government.
- Your work for the Bank:
After taxes, your next largest expense is usually your mortgage and credit-card debt.
Build an asset column that makes you financially independent. If you quit the job today, it still covers your monthly expenses with the cash flow from the asset.
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Invest the excess cash flow from your assets reinvested into the asset column. The more money that goes into the asset column, the more asset column grows.
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In short:
- The rich buy assets
- The poor only have expenses.
- The middle class buy liabilities they think are assets.
Chapter 3: Mind You Own Business
Ray Kroc, the founder of McDonald’s, is not doing hamburger business. The real business behind it is the real estate.
- Mind your own business. Your business resolves around your asset column, not your income column.
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Keep expenses low, reduce liabilities, and diligently build a base of solid assets.
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Categories of real assets the author mentioned: (in the view of the author)
- Business that do not require my presence I own them, but they are managed or run by other people. If I have work there, it’s not a business. It becomes my job.
- Stocks
- Bonds
- Income-generating real estate
- Notes (IOUs)
- Royalties from intellectual property such as music, scripts, and patents.
- Anything else that has value, produces income or appreciates, and has a ready market.
When the author is a boy, The educated dad (poor dad) encouraged the author to find a safe job. But, the rich dad encouraged him to begin acquiring assets that he love.
Start a company, not run it. Stocks are the similar rationale.
Minding your business doesn’t mean starting a company, though for some people it will. Instead, your business revolves around your asset column, not your income
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Luxuries.
An important distinction is that rich people buy luxuries last, while the poor and middle class tend to buy luxuries first. The poor and the middle class often buy luxury item like big houses, diamonds, furs, jewelry, or boats because they want to look rich. They look rich, but in reality they just get deeper in debt on credit.
Buying a luxury on credit often causes a person to eventually resent that luxury because the debt becomes a financial burden.
Chapter 4: The History of Taxes and The Power of Corporations
Though the popular sentiment is that the rich should pay more in taxes and give to the poor, in reality it is the middle class that is heavily taxed, especially the educated upper-income middle class.
What historical dates fail to reveal is that both of taxes were initially levied against only the rich. That idea of taxes was made popular, and accepted by the majority, by telling the poor and the middle class that taxes were created only to punish the rich. This is how the masses voted for the law, and it became constitutionally legal.
Although it was intended to punish the rich, in reality it wound up punishing the very people who voted for it, the poor and middle class.
The poor dad is a government bureaucrat, the rich dad is a capitalist. They get paid, and the success is measured on opposite behaviour. The poor dad get paid to spend money and hire people. The more he spends and the more people he hires, the larger his organisation becomes. In the government, a large organisation is a respected organisation. And, as the government grows, more and more tax dollars are needed to support it.
On the other hand, with in the rich dad organisation, the fewer people he hire, and less money he spend, the more he is respected by the investors.
The rich dad said that government workers were a pack of lazy thieves. The poor dad said the rich were greedy crooks who should be made to pay more taxes.
- Form a Company. A corporation is merely a legal document that creates a legal body without a soul. Using it, the wealth of the rich was once again protected. It was popular because the income-tax rate of a corporation is less than the individual income-tax rates. In addition, certain expenses could be paid by a corporation with pre-tax dollars.
In addition, even been a leader is still working for others. Why not own a company to let others work for you.
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Financial IQ: get certain areas of expertise:
- Accounting
- Investing
- Understanding markets
- The laws:
- Tax advantages: a corporation can do many things that an employee cannot, like pay expenses before paying taxes. A corporate earns, spends everything it can, and is taxed on anything that is left. It’s one of the biggest legal tax loopholes that the rich use. For example, by owning your own corporation, your vacations can be board meetings in Hawaii. Car payments, insurance, repairs, and health-club memberships are company expenses. Most restaurant meals are partial expenses. It’s done legally with pre-tax dollars.
- Protection from lawsuits
In summary:
- Business Owners with Corporations:
- Earn +
- Spend –
- Pay Taxes %
- Employees Who Work for Corporations
- Earn +
- Pay Taxes %
- Spend –
Chapter 5: The Rich Invest Money
Once we leave school, most of us know that it is not so much a matter of college degrees or good grades that count. In the real world outside of academics, something more than just grades is required. That label decides one’s future much more than school grades do.
- Financial Intelligence is made up of four main technical skills, again.
- Accounting
- Investing
- Understanding markets
- The law
- The overall philosophy is to plant seeds inside my asset column. The author start small and plant seeds. Some grow; some don’t. The author use two main vehicles to achieve financial growth: real estate (including REIT) and small-cap stocks.
- The real estate is stable and slow-moving. The cash flow is fairly steady and has a good chance, if properly managed, of increasing in value. The beauty of a solid base of real estate is that it allows to take greater risks of then investing in stocks.
- Some people says, you cannot buy real estate cheap. That is not the author’s experience. Even in New York or Tokyo, or just outskirts of the city, prime bargains are overlooked by most people, or within a short driving distance.
- However, gain is together with risks. It is not gambling if you know what you’re doing. It is gambling if you’re just throwing money into a deal an praying.
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Most people never win because they’re more afraid of losing. That is why I found school so silly. In school we learn that mistakes are bad, and we are punished for making them. Yet if you look at the way humans are designed to learn, we learn by making mistakes. We learn to walk by falling down. If we never fell down, we would never walk. The same is true for learning to ride a bike. I still have scars on my knees, but today I can ride a bike without thinking. The same is true for getting rich. Unfortunately, the main reason most people are not rich is because they are terrified of losing. Winners are not afraid of losing. But losers are. Failure is part of the process of success. People who avoid failure also avoid success.
-
There are two types of investors:
- The first and most common type is a person who buys a packaged investment. They call a retail outlet, such as a real estate company, a stockbroker, or a financial planner, and they buy something. It could be a mutual fund, a REIT, a stock or a bond. It is a clean and simple way of investing. An analogy would be a shopper who goes to a computer store and buys a computer right off the shelf.
- The second type is an investor who creates investments. This investor usually assembles a deal in the same way a person who buys components builds a computer. I do not know the first thing about putting components of a computer together, but I do know how to put pieces of opportunities together, or know people who know how.
Try to be the second type. And, if you want to be the second type of investor, you need to develop three main skills.
- Find an opportunity that everyone else missed. You see with your mind what others miss with their eyes. For example, a friend bought this rundown old house. It was spooky to look at. Everyone wondered why he bought it. What he saw that we did not was that the house came with four extra empty lots. He discovered that after going to the title company. After buying the house, he tore the house down and sold the five lots to a builder for three times what he paid for the entire package. He made $75,000 for two months of work. It’s not a lot of money, but it sure beats minimum wage. And it’s not technically difficult.
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Organize smart people. Intelligent people are those who work with or hire a person who is more intelligent than they are. When you need advice, make sure you choose your advisor wisely
If you do not want to learn those skills, then being a type-one investor is highly recommended.
There is always risk, so learn to manage risk instead of avoiding it
Chapter 6: Work to Learn – Don’t Work for Money
- Financial intelligence is a synergy of accounting, investing, marketing, and law. Combine those four technical skills and making money with money is easier than most people would believe. However, when it comes to money, the only skill most people know is to work hard.
Instead of simply working for money and security, take a second job to learn a second skill.
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Start to do it. Life is much like going to the gym. The most painful part is deciding to go. Once you get past that, it’s easy. There have been many days I have dreaded going to the gym, but once I am there and in motion, it is a pleasure. After the workout is over, I am always glad I talked myself into going.
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Get to learn the skill of sales and marketing. The world is filled with talented poor people. They focus on perfecting their skills at building a better hamburger rather than the skills of selling and delivering the hamburger. Maybe McDonald’s does not make the best hamburger, but they are the best at selling and delivering a basic average burger.
The ability to sell – to communicate to another human being, be it a customer, employee, boss, spouse, or child – is the base skill of personal success.
The skills of selling and marketing are difficult for most people, primarily due to their fear of rejection. The better you are at communicating, negotiating, and handling the fear of rejection, the easier life is.
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Do not trapped by one skill. The author’s educated dad became more trapped the more specialised he got. Although his salary went up, his choices diminished. Sooner after he was locked out of government work, he found out how vulnerable he really was professionally. It is like professional athletes who suddenly are injured or are too old to play. Their once high-paying position is gone, and they have limited skills to fall back on. The negative example is that, when it comes to money, the only skill people knows is working hard.
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Rich dad encourage one to know a little about a lot, to work with people smarter, and to bring smart people together to work as a team. This is called a synergy of professional specialties.
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Job security meant everything to the author’s educated dad. Learning meant everything to the rich dad.
If you are unwilling to work to learn something new and instead insist on becoming highly specialized within your field, make sure the company you work for is unionized.
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The main management skills needed for success are (1) management of cash flow, (2) management of systems, and (3) management of people. The most important specialised skills are sales and marketing. Communication skills such as writing, speaking, and negotiating are crucial to a like of success. Attend courses or buy educational resources to expand the knowledge.
Chapter 7: Overcoming Obstacles
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Overcome fear
Failure inspires winners. Failure defeats losers. This is the biggest secret of winners.
If you have little money and you want to be rich, you must first be focused, not balanced. To gamble, not to diversify, if you have little money.
Do not do what poor and middle-class people do: put their few eggs in many baskets. Put a lot of your eggs in a few baskets and FOCUS: Follow One Course Until Successful.
Think like a Texan. Win big, lose big – it’s the attitude toward that loss that matters.
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Overcome Cynicism
Doubts and cynicism keep most people poor. Rich dad liked to say “Cynics criticise, and winners analyse.” Winners keep their eyes open and see opportunities everyone else missed.
When someone says, “I don’t want to fix toilets”, I want to fire back, “What makes you think I want to?”. Nobody want to fixed toilet, but what if you have to do? The real estate is the investment vehicle. however if you focus on the toilets, instead of the investment, it makes you poor.
That is what rich dad meant by “I-don’t-wants hold the key to your success.” Because I do not want to fix toilets either, I figured out how to buy more real estate and expedite my getting out of the Rat Race. The people who continue to say “I don’t want to fix toilets” often deny themselves the use of this powerful investment vehicle. Toilets are more important than their freedom.
So, how the author manage his real estate, he shop hard for a property manager who does fix toilets. And by finding a great property manager who runs houses or apartments, well, the cash flow goes up.
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In the stock market, I often hear people say, “I don’t want to lose money.” Well, what makes them think I or anyone else likes losing money? They don’t make money because they choose to not lose money. They are keeping themselves from making money by closing their minds to that investment vehicle.
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Overcome Laziness.
One of the most common forms of laziness is staying busy. Too busy to take care of your wealth, or health, or relationship. To be a little greed to cure the problem.
Change your mindset from “I can’t afford it” to “How can I afford it?”
Today, I often meet people who are too busy to take care of their wealth. And there are people too busy to take care of their health. The cause is the same. They’re busy, and they stay busy as a way of avoiding something they do not want to face. Nobody has to tell them. Deep down they know. In fact, if you remind them, they often respond with anger or irritation.
Yet deep down they know they are avoiding something important. That’s the most common form of laziness: laziness by staying busy. So what is the cure for laziness? The answer is—a little greed.
When the spirit is screaming, “Come on. Let’s go to the gym and work out.” And the lazy mind says, “But I’m tired. I worked really hard today.” Or the human spirit says, “I’m sick and tired of being poor. Let’s get out there and get rich.” To which the lazy mind says, “Rich people are greedy. Besides it’s too much bother. It’s not safe. I might lose money. I’m working hard enough as it is. I’ve got too much to do at work anyway. Look at what I have to do tonight. My boss wants it finished by morning.”
So how do you beat laziness? Once again, the answer is a little greed.
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Overcoming Bad Habits
To be successful, you must develop successful habits. Poor dad always paid everyone else first and himself last, but he rarely had left over. Rich dad always paid himself first, even if he was short of money.
He knew that creditors and the government would make a big enough flap if he didn’t pay them that it would motivate him to seek other forms of income to pay them. If he paid himself last, he wouldn’t feel that kind of productive pressure. Forcing himself to think about how to come up with the extra income to pay the creditors made him fiscally stronger.
“So you see, after paying myself, the pressure to pay my taxes and the other creditors is so great that it forces me to seek other forms of income. The pressure to pay becomes my motivation. I’ve worked extra jobs, started other companies, traded in the stock market, anything just to make sure those guys don’t start yelling at me. That pressure made me work harder, forced me to think, and all in all, made me smarter and more active when it comes to money. If I had paid myself last, I would have felt no pressure, but I’d be broke.”
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Overcoming Arrogance
Rich dad said every time he had been arrogant, he had lost money because he thought that what he didn’t know wasn’t important.
Many people use arrogance to hide their own ignorance. Do not be ignorance, find an expert in the field to educate yourself.
What I know makes me money. What I don’t know loses me money.
Chapter 8: Getting Started
You must awaken the financial genius sleeping within in order to find these great deals. The culture has told us that the love of money is the root of all evil, that we just need to find a profession and work hard and the government will take care of us when we’re old. The message is still to work hard, earn money, and spend it, and when we run short, we can always borrow more — and that is why, for so many of us, our financial genius within is asleep.
But we must awaken that financial genius in order to find million-dollar deals of a lifetime. It is far easier to simply find a job and work for money, but that is not the path to wealth.
There are 10 steps as a process to develop your god-given powers, powers over which only you have control.
- Find a reason greater than reality: the power of spirit
The author interviews a athlete who has super-human ambition and sacrifice. The athlete said “I do it for myself and the people I love. It’s love that gets me over the hurdles and sacrifices.”
Without a strong reason or purpose, anything in life is hard.
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Make daily choices: the power of choice
Invest first in education. In reality, the only real asset you have is your mind, the most powerful tool we have dominion over. Each of us has the choice of what we put in our brain once we’re old enough. You can watch TV, read golf magazines, or go to ceramics class or a class on financial planning. You Choose. Most people simply buy investments rather than first investing in learning about investing.
The author loves CDs and audio books. The reason is he can easily review what he just heard. Instead of becoming arrogant and critical, he simply listened to that five-minute stretch at least 20 times, maybe more. By keeping the mind open, he understood why he said what he said.
Arrogant or critical people are often people with low self-esteem who are afraid of taking risks. That’s because, if you learn something new, you are then required to make mistakes in order to fully understand what you have learned.
There are so many “intelligent” people who argue or defend when a new idea clashes with the way they think. In this case, their so-called intelligence combined with arrogance equals ignorance. Each of us knows people who are highly educated, or believe they are smart, but their balance sheet paints a different picture. A truly intelligent person welcomes new ideas, for new ideas can add to the synergy of other accumulated ideas. Listening is more important than talking. If that were not true, God would not have given us two ears and only one mouth. Too many people think with their mouth instead of listening in order to absorb new ideas and possibilities. They argue instead of asking questions.
The author take a long view on my wealth. He do not subscribe to the get-rich-quick mentality most lottery players or casino gamblers have. He may go in and out of stocks, but he is long on education. If you want to fly an airplane, he advises taking lessons first. He is always shocked at people who buy stocks or real estate, but never invest in their greatest asset, their mind. Just because you bought a house or two does not make you an expert at real estate.
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Choose friends carefully: the power of association
The author will admit that there are people he have actually sought out because they had money. But he was not after their money; he was seeking their knowledge.
Don’t listen ti poor or frightened people.
Keep your mind open, because both have valid points. Unfortunately, most poor people listen to Chicken Little.
One of the hardest things about wealth-building is to be true to yourself and to be willing to not go along with the crowd. This is because, in the market, it is usually the crowd that shows up late that is slaughtered. If a great deal is on the front page, it’s too late in most instances. Look for a new deal. As we used to say as surfers: “There is always another wave.” People who hurry and catch a wave late usually are the ones who wipe out.
Smart investors don’t time the markets. If they miss a wave, they search for the next one and get themselves in position. This is hard for most investors because buying what is not popular is frightening. Timid investors are like sheep going along with the crowd. Or their greed gets them in when wise investors have already taken their profits and moved on. Wise investors buy an investment when it’s not popular. They know their profits are made when they buy, not when they sell. They wait patiently. As I said, they do not time the market. Just like a surfer, they get in position for the next big swell.
Regarding the “Insider Trading”. How far away from the inside are you? The reason you want to have rich friends is because that is where the money is made. It’s made on information. You want to hear about the next boom, get in, and get out before the next bust. I’m not saying do it illegally, but the sooner you know, the better your chances are for profits with minimal risk. That is what friends are for. And that is financial intelligence.
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Master a formula and then learn a new one: the power of learning quickly
Learn a formula.
Learned a lot that made you stock and real estate investing more meaningful and lucrative.
In today’s fast-changing world, it’s not so much what you know anymore that counts, because often what you know is old. It is how fast you learn. That skill is priceless. It’s priceless in finding faster formulas—recipes, if you will—for making dough. Working hard for money is an old formula born in the day of cavemen.
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Pay yourself first: the power of self-discipline
If you cannot get control of yourself, do not try to get rich.
It is the lack of self-discipline that causes most lottery winners to go broke soon after winning millions.
Simply put, people who have low self-esteem and low tolerance for financial pressure can never be rich. As I have said, a lesson learned from my rich dad was that the world will push you around. The world pushes people around, not because other people are bullies, but because the individual lacks internal control and discipline. People who lack internal fortitude often become victims of those who have self-discipline.
The three most important management skills necessary to start your own business are management of:
- Cash Flow
- People
- Personal Time
The skills to manage these three could apply to anything.
Cash flows go to asset, can generate further cash flows. The above figure is when you pay yourself fits. However, the figure below is if salary goes to pay expenses.
To successfully pay yourself first, keep the following in mind:
- Don’t get into large debt positions that you have to pay for. Keep your expenses low. Build up assets first. Then buy the big house or nice car. Being stuck in the Rat Race is not intelligent.
- When you come up short, let the pressure build and don’t dip into your savings or investments. Use the pressure to inspire your financial genius to come up with new ways of making more money, and then pay your bills. You will have increased your ability to make more money as well as your financial intelligence.
- Pay your brokers well: the power of good advice
Today, the author has expensive attorneys, accountants, real estate brokers, and stockbrokers. Why? Because if, and the author do mean if, the people are professionals, their services should make you money. And the more money they make, the more money the author make.
We live in the Information Age. Information is priceless. A good broker should provide you with information, as well as take the time to educate you.
A good broker saves me time, in addition to making me money. A broker is my eyes and ears in the market.
When the author interview any paid professional, he first find out how much property or stocks they personally own and what percentage they pay in taxes. And that applies to the author’s tax attorney as well as t the accountant. The author have an accountant who minds his own business. His profession is accounting, but his business is real estate.
Find a broker who has your best interests at heart. Many brokers will spend the time educating you, and they could be the best asset you find. Just be fair, and most of them will be fair to you. If all you can think about is cutting their commissions, then why should they want to help you? It’s just simple logic.
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Be an Indian giver: the power of getting something for nothing
When the first European settlers came to America, they were taken aback by a cultural practice some American Indians had. For example, if a settler was cold, the Indian would give the person a blanket. Mistaking it for a gift, the settler was often offended when the Indian asked for it back.
The Indians also got upset when they realized the settlers did not want to give it back. That is where the term “Indian giver” came from, a simple cultural misunderstanding.
The author pulls the initial dollar amount out, and stop worrying about the fluctuations of the market, because the initial money is back and ready to work on another asset.
The author also lose. On an average 10 investments, he hit home runs on two or three, while five or six do nothing, and he lose on two or three
Wise investors must look at more than ROI. They look at the assets they get for free once they get their money back. That is financial intelligence.
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Use assets to buy luxuries: the power of focus
if a person cannot master the power of self discipline, it is best not to try to get rich. This is because, although the process of developing cash flow from an asset column is easy in theory, what’s hard is the mental fortitude to direct money to the correct use. Due to external temptations, it is much easier in today’s consumer world to simply blow money out the expense column. With weak mental fortitude, that money flows into the paths of least resistance. That is the cause of poverty and financial struggle.
Developing cash flow from an asset column is easy in theory — what’s hard is the mental fortitude to direct money to the correct use. Borrowing money is easy in the short term but harder in the long run.
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Choose heroes: the power of myth
By having heroes, we tap into a tremendous source of raw genius. Learn from someone.
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Teach and you shall receive: the power of giving
“Teach and you shall receive”. The more the author teaches those who want to learn, the more he learn. If you want to learn about money, teach it to someone else. A torrent of new ideas and finer distinctions will come in
Chapter 9: Still Want More? Here Are Some To Do’s
The to-do list might be as the following:
- Stop doing what you’re doing.
Take a break and assess what is working and what is not working.
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Look for new ideas.
Go to bookstores and search for books on different and unique subjects. The book The 16 Percent Solution by Joel Moskowitz taught Robert something new and spurred him to action.
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Find someone who has done what you want to do.
Take them to lunch and ask them for tips and tricks of the trade.
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Take classes, read, and attend seminars.
Robert searches newspapers and the Internet for new and interesting classes.
And,
- Make an offer, someone may say yes.
You don’t know what the right price is until you have a second party who wants to deal. Most sellers ask too much. It is rare that a seller asks a price that is less than something is worth. It’s fun and only a game. Make offers. Someone might say yes. (And make offers with escape clauses)
A friend wanted me to show her how to buy apartment houses. So one Saturday she, her agent, and I went and looked at six apartment houses. Four were dogs, but two were good. I said to write offers on all six, offering half of what the owners asked for. She and the agent nearly had heart attacks. They thought it was rude, and would offend the sellers, but I really don’t think the agent wanted to work that hard. So they did nothing and went on looking for a better deal.
No offers were ever made, and that person is still looking for the right deal at the right price. Well, you don’t know what the right price is until you have a second party who wants to deal.
Make an offer, someone may say yes.
lol
I always make offers with escape clauses. In real estate, I make an offer with language that details “subject-to” contingencies, such as the approval of a business partner. Never specify who the business partner is. Most people don’t know that my partner is my cat. If they accept the offer, and I don’t want the deal, I call home and speak to my cat. I make this ridiculous statement to illustrate how absurdly easy and simple the game is. So many people make things too difficult and take it too seriously.
And more hints:
- Finding a good deal, the right business, the right people, the right investors, or whatever is just like dating. You must go to the market and talk to a lot of people, make a lot of offers, counteroffers, negotiate, reject, and accept.
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Jog, walk, or drive a certain area once a month for 10 minutes.
Robert has found some of his best real estate investments doing this. He will jog a certain neighborhood for a year and look for change. For there to be profit in a deal, there must be two elements: a bargain and change. There are lots of bargains, but it’s change that turns a bargain into a profitable opportunity.
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Shop for bargains in all markets.
Consumers will always be poor. When the supermarket has a sale, say on toilet paper, the consumer runs in and stocks up. But when the housing or stock market has a sale, most often called a crash or correction, the same consumer often runs away from it.
Remember: Profits are made in the buying, not in the selling.
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Look in the right places.
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Look for people who want to buy first. Then look for someone who wants to sell.
Buy a pie, and cut it in pieces. Most people look for what they can afford, so they look too small. They buy only a piece of the pie, so they end up paying more for less. Small people remain small because they think small, act alone, or don’t act all.
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Learn from history.
All the big companies on the stock exchange started out as small companies.
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Action always beats inaction.
Take action before you can receive the financial rewards. Act Now.
Never Split the Difference
by Chris Voss
A former FBI Top Hostage Negotiator’s Filed-Tested Tools for Talking
Chapter 1 The New Rules
One core assumption is that feeling is a form of thinking. Inspired by Daniel Kahneman and Amos Tversky, people are neither fully rational nor completely selfish, and that their tastes are anything but stable. Thus, do not assume people make rational decision especially when they are in negotiation.
- Human suffers several behavioural phenomenons or theories, including Cognitive Bias, Framing Effect, Prospect Theory, Loss Aversion, etc.
- System 1 (fast, instinctive, and emotional) and System 2 (slow, deliberative, and logical) are there to guide and steer the rational thoughts.
- Tactical Empathy. When individuals feel listened to, they tend to listen to themselves more carefully and to openly evaluate and clarify their own thoughts and feelings. Listening is a martial art.
- Negotiation servers to distinct (1) information gathering and (2) behaviour influencing
Chapter 2 Be A Mirror
Negotiator should engage the process with a mindset of discovery. The goal is to extract and observe as much information as possible. We start with we know nothing, and get to explore in the negotiation.
- Don’t commit to assumptions; instead, view them as hypotheses and use the negotiation to test them rigorously. Negotiation is not an act of battle, it’s a process of discovery.
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Slow Down, put together all the puzzle pieces.
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Use the Late-Night, FM DJ Voice: deep, soft, slow, and reassuring. Clam the other side down. It’s the voice of an easygoing, good-natured person. The attitude is light and encouraging. Relax and smile. Smiling would have an impact tonally.
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Mirroring, also called isopaxism, is essentially imitation. It’s another neuro-behaviour humans display in which we copy each other to comfort each other. Establish Trust. Use mirrors to encourage the other side to empathise and bond with you, keep people talking, buy your side time to regroup, and encourage your counterparts to reveal their strategy.
- Repeat the last three words of what someone has just said.
- Start with “I’m sorry …”
- Mirror. Repeat the last three words (or the critical one to three words).
- Silence. At least four seconds, to let the mirror work its magic on your counterpart.
- Repeat
Chapter 3 Don’t Feel Their Pain, Label It
Negotiation is about emotional and feelings. How can one separate people from the problem when the emotions are the problem?
Instead of denying or ignoring emotions, good negotiators identify and influence them. Emotion is a tool.
- Tactical Empathy. The ability to recognise the perspective of a counterpart, and of that recognition.
- That’s an academic way of saying that empathy is paying attention to another human being, asking what they are feeling and making a commitment to understanding their world.
- understand the feelings and mindset of another in the moment and also hearing what is behind those feelings so you increase your influence in all the moments that follow.
- Labeling, by spotting their feelings, turned them into words, and then very calmly and respectfully repeated their emotions back to them.
- Labeling is a way of validating someone’s emotion by acknowledging it. Give someone’s emotion a name and you show you identify with how the person feels.
- use the wording with “roughly”: “it looks like you are …”, “it seems you don’t want to go back to jail”.
- when you phrase a label as a neutral statement of understanding, it encourages your counterpart to be responsive.
- The last rule of labeling is silence. Once thrown out a label, be quite and listen.
- Label counterpart’s fears to diffuse their power. When deal with a person who wants to be appreciated and understood. So use labels to reinforce and encourage positive perceptions and dynamics.
- when people are shown photos of faces expressing strong emotion, the brain shows greater activity in the amygdala, the part that generates fear. But when they are asked to label the emotion, the activity moves to the areas that govern rational thinking. In other words, labeling an emotion-applying rational words to a fear-disrupt its raw intensity.
- list the worst things that the other party could say about you and say them before the other person can.
Chapter 4 Beware “Yes” – Master “No”
“Yes” is often a meaningless answer that hides deeper objection (and “Maybe” is even worse). Pushing hard for “Yes” doesn’t get a negotiator any closer to a win; it just angers the other side. “No” is pure gold. That negative provides a great opportunity for you and the other party to clarify what you really want by eliminating what you don’t want. ‘No’ is not failure, it lead to “Yes”, as the final goal. Don’t get to ‘Yes’ before the final. “No “make people feel safe, “Yes” make people guard.
- “No” could be one of the alternative, i.e. I am not yet ready to agree;I don’t understand; I don’t think I can afford it.
- After getting ‘No’, ask solution-based questions or simply label their effect, i.e. what about this doesn’t work for you? what would you need to make it work?
- Every ‘No’ gets me closer to ‘Yes’. But how to lead to a ‘No’? Two ways as below.
- Mislabel one’s emotions or desires. Say something that you know is totally wrong, i.e. “So it seems that you really are eager to leave your job”. That forces them to listen and makes them comfortable correcting you by saying ‘No’.
- Ask the other party what they don’t want. People are comfortable saying ‘No’ because it feels like self-protection. And once you’ve gotten them to say ‘No’, people are much more open to moving forward to new options and ideas.
- In Email, how ever to be ignored again. Provoke a “No” with a one-sentence email.
Chapter 5 Trigger The Two Words That Immediately Transform Any Negotiation
Never try to get “Yes” at the end point. “Yes” is nothing without “how”. In business negotiation, “that’s right” often leads to the best outcomes. “That’s right” is great, however if “You’re right”, nothing changes. Consider this: whenever someone is bothering you, and they just won’t let up, and they won’t listen to anything you have to say, what do you tell them to get them to shut up and go away? The answer is “You’re right”.
- The more person feels understood, and positively affirmed in that understanding, the more likely that urge for constructive behaviour will take hold.
- “That’s right” is better than “Yes”. Strive for it. Reaching “That’s right” in a negotiation creates breakthroughs.
- Use a summary to trigger a “that’s right”. The building blocks of a good summary are a label combined with paraphrasing. Identify, reariculate, and emotionally affirm “the world according to…”
Chapter 6 Bend Their Reality
People are emotional, irrational beasts who are emotional and irrational in predictable, pattern-filled way. Using the knowledge and tools to bend the reality is rational, not cheating. Tools are:
- Don’t let yourself be fooled by the surface.
- Not not Compromise by a split difference.
- The win-win mindset pushed by so many negotiation experts is usually ineffective and often disastrous.
- Compromise is often a ‘bad deal’. No deal is better than a bad deal.
- Approaching deadlines. Deadlines regularly make people say and do impulsive things that are against their best interest, because we all have a natural tendency to rush as a deadline approaches. Having a deadline pushes you to speed up your concessions, but the other side, thinking that it has time, will just hold out for more. So, reveal the deadline to the counterpart could reduce the risks of impasse, and lead to a quickest concession.
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- The F-word, “Fair”, is an emotional term people usually exploit to put the other side on the defensive and gain concessions. When your counterpart drops the F-bomb, don’t get suckered into a concession. Instead, ask them to explain how you’re mistreating them.
- Bend the counterpart’s reality by anchoring one’s starting point.
- People will take more risks to avoid a loss than to realise a gain. Make sure your counterpart sees that there is more things to lose by inaction. (Prospect Theory)
Chapter 7 Create the Illusion of Control
Successful Negotiation involved getting your counterpart to do the work for you and suggest your solution himself. It involved giving him the illusion of control while you were the one defining the conversation.
A tool is provided in this chapter: Calibrated, or Open-ended, Question.
- Don’t try to negotiate in the Fire-Fight.
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There is always a team on the other side.
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Suspend Unbelief. “Unbelief” is active resistance to what the other side is saying, complete rejection. That’s where the two parties in a negotiation usually start.
If you can get the other side to drop their unbelief, you can slowly work them to your point of view on the back of their energy. You don’t directly persuade them to see your ideas. Instead, you ride them to your ideas. As the saying goes the best way to ride a horse is in the direction in which it is going.
- Giving your counterpart the illusion of control by asking calibrated question is one of the most powerfull tools for suspending unbelief.
- When you go into a store, instead of telling the salesclerk what you “need”, you can describe what you’re looking for and ask for suggestions. (give the counterpart the illusion of control).
- As question such as “How am I supposed to do that?”. The critical party of this approach is that you really are asking for help and your delivery must convey that. Instead of bullying the clerk, you’re asking for their advice and giving them the illusion of control.
- Asking for help in this manner is an incredibly powerful negotiating technique for transforming encounters from confrontational showdowns into joint problem-solving sessions. And Calibrated Questions are the best tool.
- Calibrated Your Question.
- The Rationale: Like the softening words and phrases “perhaps”, “maybe”, “I think”, and “it seems”, the calibrated open-ended question takes the aggression out of a confrontational statement or close-ended request that might otherwise anger your counterpart. What makes them work is that they are subject to interpretation by your counterpart instead of being rigidly defined. They allow you to introduce ideas and requests without sounding overbearing or pushy.
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The real beauty of calibrated questions is that fact that they offer no target for attach like statements do. Calibrated questions have the power to educate your counterpart on what the problem is rather than causing conflict by telling them what the problem is.
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Once you figure out where the conversation to go, you have to design the questions that will ease the conversation in that direction while letting the other guy think it’s his choice to take you there.
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Rules:
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Avoid Verbs or words like “can”, “is”, “are”, “do”, or “does”. There are closed-ended questions that can be answered with a simple “yes” or a “no”.
- Instead, start with a list of words people know as reporter’s questions: “who”, “what”, “when”, “where”, “why”, and “how”. Those words inspire your counterpart to think and then speak expansively.
- It’s best to start with “what”, “how”, and sometimes “why”. Not do “who”, “when”, and “where”, as the counterpart will share a fact without thinking.
- “Why” can backfire. Regardless of what language the word “why” is translated into, it;s accusatory. Rarely rarely as “why”. The only time you can use “why” successfully is when the defensiveness that is created supports the change you are trying to get them to see. Treat “why” like a burner on a hot stove — don’t touch it.
- Even something as harsh as “Why did you do it?” can be calibrated to “What caused you to do it?”, which takes away the emotion and makes the question less accusatory.
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Questions like “What is the biggest challenge you face?” can get the other side to teach you something about themselves, which is critical to any negotiation because all negotiation is an information-gathering process.
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Great Standbys:
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What about this is important to you?
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How can I help to make this better for us?
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How would you like me to proceed?
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What is it that brought us into this situation?
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How can we solve this problem?
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What’s the objective? / What are we trying to accomplish here?
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How am I supposed to do that?
The implication of any well-designed calibrated question is that you want what the other guy wants but you need his intelligence to overcome the problem. You’ve not only implicitly asked for help, but engineered a situation in which your formerly recalcitrant counterpart is now using his mental and emotional resources to overcome your challenges. That guides the other party toward designing a solution. – Your Solution.
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Calibrated questions make your counterpart feel like they’re in charge, but it’s really you who are framing the conversation.
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Avoid questions that can be answered with “Yes” or tiny pieces of information.
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Ask “how” and “what” to give your counterpart an illusion of control, inspiring them to speak more, revealing more.
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When you are attacked, Pause, Think. Let the passion dissipate. Keep your emotional cool. Lower the change of saying more than you want to. Every calibrated question and apology would lower his heart rate just a little bit. That’s how you get to a dynamic where solution can be found.
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Be a listener, as talker is revealing information, while the listener is directing the conversation toward his own goals.
Chapter 8 Guarantee Execution
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“Yes” is nothing without “No”.
By making your counterparts articulate implementation in their own words, your carefully calibrated “How” questions will convince them that the final solution is their idea.
Two key questions you can ask to push your counterparts to think they are defining success their way:
- How will we know we’re on track?
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How will we address things if we find we’re off track?
When they answer, you summarise their answers until you get a “That’s right”
No get to “I’ll try”, that means “I plan to fail”. When get that, dive back in with calibrated “How” questions until they define the terms of successful implementation.
“Yes” is nothing without “How”. So keep asking “How?”
Ask calibrated “How” questions, and ask them again and again. Ask “how” keeps your counterparts illusion of control. It will lead them to contemplate your problems when making their demands.
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Influencing those behind the table.
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Spotting liars, dealing with jerks, and charming everyone else. Learn how to spot and interpret the subtleties of communication – both verbal and nonverbal – that reveal the mental states of your counterparts.
Tactics, Tools, and methods for using subtle verbal and nonverbal forms of communication to understand and modify the mental states of your counterpart: Tools are like:
- The 7-38-55 percent rule: by studies, only 7 percent of a message is based on the words while 38 percent comes from the tone of voice and 55 percent from the speaker’s body language and face.
Pay close attention to tone and body language to make sure they match up with the literal meaning of the words. If they don’t align, it’s quite possible that the speaker is lying for at least unconvinced. Then, use labels to discover the source of the incongruence. Label will make them feel respected.
- The Rule of Three. There are three kinds of “Yes”: Commitment, Confirmation, and Counterfeit. We want to avoid the trap of Counterfeit “Yes”. The Rule is simply getting the other guy to agree to the same thing three times in the same conversation. In doing so, it uncovers problems before they happen, because it’s hard to repeatedly lie or fake conviction.
The No. 1 yes if the counterpart agree to something to give a commitment.
The No. 2 you might label or summarise what the counterpart said so they answer, “That’s right”.
The No. 3 could be a calibrated “How” or “What” question about implementation that asks them to explain. Something like “What do we do if we get off track”
Or, the three times might just be the same calibrated questions phrased three different ways, like “What’s the biggest challenge you faced? What are we up against here? What do you see as being the most difficult thing to get around?”
- The Pinocchio Effect. On average, liars use more words than truth tellers and use far more third-person pronouns. They start talking about “him, her, it, one, they, their”, rather than “I”, in order to put more distance between themselves and the lie. Discover that liars tend to speak in more complex sentences in an attempt to win over their suspicious counterparts.
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Pay attention to their usage of pronouns. The more in love they are with “I”, “me” and “my” the less important they are. Conversely, the harder it is to get a first person pronoun out of a negotiator’s mouth, the more important they are.
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The Chris Discount. Remember and use your counterpart’s name in a negotiation. People are tired of being hammered with their own name. Also, use your own name. Humanise yourself. Use your name to introduce yourself. Say it in a fun, friendly way. Let them enjoy the interaction, too. That can get you a special price.
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How to get the counterparts to bid against themselves.
The best way to get your counterparts to lower their demands is to say “No” using “How” questions. These indirect ways of saying “No” using won’t shut down your counterpart the way a blunt, pride-piercing “No” would. So, Say “NO” in a Blunt way.
Say “How am I suppose to do that?” – show empathy, request for help.
Say “I’m sorry”, “I’m sorry but I’m afraid I just can’t do that”, “I’m sorry, No”
Chapter 9 Bargain Hard
There three categories of people in negotiation. (1) Accommodators, (2) Assertive, and (3) Data-Loving Analysts. Each styles can be effective. And to truly be effective you need elements from all three.
To be good, you have to learn to be yourself at the bargaining table. To be great you have to add to your strengths, not replace them.
- Analyst
- Characteristics:
(Time = Preparation)
(Silence makes Analysts think)
The motto: As much time as it takes to get it right. The analysts need extensive preparation, and they hate surprises.
Classic Analysts prefer to work on their own and rarely deviate from their goals. They rarely show emotion. Analysts often speak in a way that is distant and cold instead of soothing. This puts people off without them knowing it and actually limits them from putting their counterpart at ease and opening them up.
They are reserved problem solvers, and information aggregators, and are hypersensitive to reciprocity.
- As a counterpart:
People like this are skeptical by nature. So asking too many questions to start is a bad idea, because they’re not going to want to answer until they understand all the implications. With them, it’s vital to be prepared.
Silence to them is an opportunity to think. If you feel they don’t see things the way you do, give them a chance to think first.
Apologies have little value to them since they see the negotiation and their relationship with you as a person largely as separate things. They are not quick to answer calibrated questions, or closed-ended questions when the answer is “Yes”. They may need a few days to respond.
- If you’re this type:
You should be worried about cutting yourself off from an essential source of data, your counterpart. The single biggest thing you can do is to smile when you speak. People will be more forthcoming with information to you as a result. Smiling can also become a habit that makes it easy for you to mask any moments you’ve been caught off guard.
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Accommodator
- Characteristics:
(Time = Relationship)
(Silence make accommodators anger)
The most important thing to this type of negotiator is the time spent building the relationship.
Accommodators want to remain friends with their counterpart even if they can’t reach an agreement.
- As a counterpart:
If your counterparts are sociable, peace-seeking, optimistic, distractible, and poor time managers, they’re probably Accommodators.
If they’re your counterpart, be sociable and friendly. Listen to them talk about their ideas and use calibrated questions focused specifically on implementation to nudge them along and find ways to translate their talk into action.
- If you’re this type:
Stick to your ability to be very likable, but do not sacrifice your objections.
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Assertive
- Characteristics:
(Time = Money)
(Silence means nothing to say, lol)
Assertives believe time is money.
Assertives are fiery people who love winning above all else, often at the expense of others. They have aggressive communication style and they don’t worry about future interactions. Their view of business relationships is based on respect, nothing more and nothing less.
Assertives want to be heard, and mostly do not have ability to listen, until they know that you’ve heard them. They focus on their own goals rather than people. And they tell rather than ask.
- As a counterpart:
It’s best to focus on what they have to say, because once they are convinced you understand them, then and only then will they listen for your point of view.
Every silence is an opportunity to speak more. So, Mirrors are wonderful tool with this type. So are calibrated questions, labels, and summaries. The most important thing to get from an Assertive will be a “that’s right”.
- If you’re this type:
be particularly conscious of your tone.
Use calibrated questions and labels with your counterpart since that will also make you more approachable and increase the changes for collaboration.
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Why people often fail to identify their counterpart’s style?
The great obstacle to accurately identifying someone else’s style is the “I am normal” paradox. This is, our hypothesis that the world should look to others as it looks to us. SO, do not project the counterpart the same as you.
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Take a Punch.
Set boundaries, and learn to take a punch or punch back, without anger. The guy across the table is not the problem, the situation is.
Be prepared to withstand the hit and counter the panache, while taking a punch.
- Deflect the punch in a way that opens up your counterpart. Say “no”, or “How am I supposed to accept that?”, or “What are we trying to accomplish here?”
- When you feel you’re being dragged into a haggle, you can detour the conversation to the non-monetary issues that make any final price work. Says, “What else would you be able to offer to make that a good price for me.”
- Punching Back: Using assertion without getting used by it.
When a negotiation is far from resolution and going nowhere fast, you need to shake things up and get your counterpart out of their rigid mindset. There are tools:
- Use anger, but use anger under control, because anger reduces our cognitive ability. Researchers found that expressions of anger increase a negotiator’s advantage and final take. But there are different angers.
When someone puts out a ridiculous offer, one that really pisses you off, take a deep breath, allow little anger, and channel it-at the proposal, not the person-and say, “I don’t see how that would ever work”
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“Why” question. Remember “Why” is usually defensive and might be less used. But while punching back, employ the defensiveness the question triggers to get your counterpart to defend your position.
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“I” messages:
“I fell __ because __”
Label + because to make it more convinced.
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Have the ready-to-walk mindset.
Maintain the collaborative relationship even when you’re setting boundaries.
Anger and other strong emotions can on rare occasions be effective. In any bare-knuckle bargaining session, the most vital principle to keep in mind is never to look at your counterpart as an enemy.
The person across the table is never the problem. The unsolved issue is. So focus on the issue.
- Use anger, but use anger under control, because anger reduces our cognitive ability. Researchers found that expressions of anger increase a negotiator’s advantage and final take. But there are different angers.
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Ackerman Bargaining Model
Steps are:
- Set your target price (your goal)
- Set your first offer at 65% of your target price
- Calculate three raises of decreasing increments (to 85, 95, and 100 percent)
- Use lots of empathy and different ways of saying “No” to get the other side to counter before you increase your offer.
- When calculating the final amount, use precise, non-round numbers like, say, USD 37,893, rather than USD 38,000. It gives the number credibility and weight.
- On your final number, throw in a non-monetary item (that they probably don’t want) to show you’re at your limit.
Rationale: (1) knocking them off their game with an extreme anchor, (2) hitting them with calibrated question, (3) slowly give progressively smaller concession, (4) dropped the weired and accurate number that closed the deal.
Chapter 10 Find the Black Swan
Black Swan theory tells us that things happen that were previously thought to be impossible – or never thought of at all.
In every negotiating session, there are different kinds of information. Those are known knowns that are things we are certain that exist but we don’t know, like the possibility that the other side might get sick and leave us with another counterpart. And, known unknowns that you know they’re out there but you don’t know that we don’t know, pieces of information we’ve never imagined but that would be game changing if uncovered.
The Black Swan is unknown unknowns.
- The key is to find unknown unknowns.
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Three types of leverage.
- Positive Leverage: the ability to provide things that your counterpart wants. If you can provide, then you have the positive leverage.
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Negative Leverage: the ability to make the counterpart suffer. If you have negative leverage, you can tell the counterpart, “if you do not fulfill your commitment/pay your bill/etc, I will destroy your reputation.”
However, threats can be like nuclear bombs. There will be a toxic residue that will be difficult to clean up. You have to handle the potential of negative consequences with care, or you will hurt yourself and poison or blow up the while process.
May using “Label” to alleviate the attacking power of the negative leverage.
Attention: The “Paradox of Power”, namely, the harder we push, the more likely we are to be met with resistance. That’s why you have to use negative leverage sparingly.
- Normative Leverage: using the other party’s norms and standards to advance your position. If you can show inconsistencies between their beliefs and their actions, you have normative leverage.
discover the Black Swan that give you normative valuation can be as easy as asking what your counterpart believes and listening openly.
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Know their religion
Access to this hidden space very often comes through understanding the other sides’ worldview, their reason for being, and their religion.
Digging into your counterpart’s “religion” inherently implies moving beyond the negotiating table and into the life, emotional and otherwise, of your counterpart. – Know your counterpart.
- Two Tips for reading religion correctly:
- Review everything you hear. Compare notes with your team members. Double-Check, and discover new information that helps your advance the negotiation.
- Use backup listeners whose only job is to listen between the lines. They will hear things you miss.
- Listen, listen, and listen some more.
- The Similarity Principle
Social scientists find that we trust people more when we view them as being similar or familiar.
When our counterpart displays attitudes, beliefs, ideas – even modes of dress – that are similar to our own, we tend to like and trust them more. Similarities as shallow as club memberships or college alumni status increase rapport.
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Religion as a Reason
Research studies have shown that people respond favorably to requests made in a reasonable tone of vice and followed with a “because” reason. And it didn’t matter if the reason made sense. People just responded positively to the framework.
So, if there is not reasoning, using religion as a reason.
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Mistakes:
- They are ill-informed.
Often the other side is acting on bad information, and when people have bad information they make bad choices. GIGO.
People operating with incomplete information appear crazy to those who have different information. Your job when faced with someone like this in a negotiation is to discover what they do not know and supply that information.
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They are constrained.
The other side might not be able to do something because of legal advice, or because of promises already made, or even to avoid setting a precedent. Or they may just not have the power to close the deal.
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They have other interests.
The presence of hidden interests isn’t as rare as you might think. Your counterpart will often reject offers for reasons that have nothing to do with their merits.
- They are ill-informed.
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Get Face Time. Try getting face time, because it can avoid using email that gives counterpart too much time to think and re-center themselves to avoid revealing too much. Pay special attention to your counterpart’s verbal and non-verbal communication at unguarded moments.
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Overcoming fear and learning to get what you want out of life.
Pushing hard for what you believe is not selfish. It’s not bullying. It’s not just helping you. Your amygdala, the part of the brain that processes fear, will try to convince you to give up, to flee, because the other guy is right, or you’re being cruel.
Club de Paris
The Paris Club (Club de Paris, 巴黎俱乐部) has reached 478 agreements with 102 different debtor countries. Since 1956, the debt treated in the framework of Paris Club agreements amounts to $ 614 billion.
Low-income countries generally do not have access to these markets. The assistance from bilateral and multilateral donors remains vital for them. Non-Paris Club creditors are becoming an increasingly important source of financing for these countries. Yet despite the fact that Paris Club creditors now have to deal with far more complex and diverse debt situations than in 1956, their original principles still stand.
Members
Duty of Members
Permanent Members
The 22 Paris Club permanent members are countries with large exposure to other States woldwide and that agree on the main principles and rules of the Paris Club. The claims may be held directly by the government or through its appropriate institutions, especially Export credit agencies. These creditor countries have constantly applied the terms defined in the Paris Club Agreed Minutes to their bilateral claims and have settled any bilateral disputes or arrears with Paris Club countries, if any. The following countries are permanent Paris Club members:
AUSTRALIA
AUSTRIA
BELGIUM
BRAZIL
CANADA
DENMARK
FINLAND
FRANCE
GERMANY
IRELAND
ISRAEL
ITALY
JAPAN
KOREA
NETHERLANDS
NORWAY
RUSSIAN FEDERATION
SPAIN
SWEDEN
SWITZERLAND
UNITED KINGDOM
UNITED STATES OF AMERICA
Ad Hoc Members
Other official creditors can also actively participate in negotiation sessions or in monthly “Tours d’Horizon” discussions, subject to the agreement of permanent members and of the debtor country. When participating in Paris Club discussions, invited creditors act in good faith and abide by the practices described in the table below. The following creditors have participated as creditors in some Paris Club agreements or Tours d’Horizon in an ad hoc manner:
Abu Dhabi
Argentina
China
Czech Republic
India
Kuwait
Mexico
Morocco
New Zealand
Portugal
Saudi Arabia
South Africa * prospective member on 8 July 2022
Trinidad and Tobago
Turkey
Development and History of Paris Club
Early Stage
In 1956, the world economy was emerging from the aftermath of the Second World War. The Bretton Woods institutions were in the early stages of their existence, international capital flows were scarce, and exchange rates were fixed. Few African countries were independent and the world was divided along Cold War lines. Yet there was a strong spirit of international cooperation in the Western world and, when Argentina voiced the need to meet its sovereign creditors to prevent a default, France offered to host an exceptional three-day meeting in Paris that took place from 14 to 16 May 1956.
Dealing with the Debt Crisis (1981-1996)
1981 marked a turning point in Paris Club activity. The number of agreements concluded per year rose to more than ten and even to 24 in 1989. This was the famous “debt crisis” of the 1980s, triggered by Mexico defaulting on its sovereign debt in 1982 and followed by a long period during which many countries negotiated multiple debt agreements with the Paris Club, mainly in sub-Saharan Africa and Latin America, but also in Asia (the Philippines), the Middle East (Egypt and Jordan) and Eastern Europe (Poland, Yugoslavia and Bulgaria). Following the collapse of the Soviet Union in 1992, Russia joined the list of countries that have concluded an agreement with the Paris Club. So by the 1990s, Paris Club activity had become truly international.
Debt Burden Enlarges for some Countries
In 1996, the international financial community realized that the external debt situation of a number of mostly African low-income countries had become extremely difficult. This was the starting point of the Heavily Indebted Poor Countries (HIPC) Initiative.
The HIPC Initiative demonstrated the need for creditors to take a more tailored approach when deciding on debt treatment for debtor countries. Hence in October 2003, Paris Club creditors adopted a new approach to non-HIPCs: the “Evian Approach”.
Evian Approach
General frame of the Evian approach
- Analysis the sustability
When a country approaches the Paris Club, the sustainability of its debt would be examined, before the financing assurances are requested, in coordination with the IMF according to its standard debt sustainability analysis to see whether there might be a sustainability concern in addition to financing needs. Specific attention would be paid to the evolution of debt ratios over time as well as to the debtor country’s economic potential; its efforts to adjust fiscal policy; the existence, durability and magnitude of an external shock; the assumptions and variables underlying the IMF baseline scenario; the debtor’s previous recourse to Paris Club and the likelihood of future recourse. If a sustainability issue is identified, Paris Club creditors will develop their own view on the debt sustainability analysis in close coordination with the IMF.
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if face liquidity problem
For countries who face a liquidity problem but are considered to have sustainable debt going forward, the Paris Club would design debt treatments on the basis of the existing terms. However, Paris Club creditors agreed that the rationale for the eligibility to these terms would be carefully examined, and that all the range built-into the terms including through shorter grace period and maturities, would be used to adapt the debt treatment to the financial situation of the debtor country. Countries with the most serious debt problems will be dealt with more effectively under the new options for debt treatments. For other countries, the most generous implementation of existing terms would only be used when justified.
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if not sustainable or need special treatment
For countries whose debt has been agreed by the IMF and the Paris Club creditor countries to be unsustainable, who are committed to policies that will secure an exit from the Paris Club in the framework of their IMF arrangements, and who will seek comparable treatment from their other external creditors, including the private sector, Paris Club creditors agreed that they would participate in a comprehensive debt treatment. However, according to usual Paris Club practices, eligibility to a comprehensive debt treatment is to be decided on a case-by-case basis.
In such cases, debt treatment would be delivered according to a specific process designed to maintain a strong link with economic performance and public debt management. The process could have three stages. In the first stage, the country would have a first IMF arrangement and the Paris Club would grant a flow treatment. This stage, whose length could range from one to three years according to the past performance of the debtor country, would enable the debtor country to establish a satisfactory track record in implementing an IMF program and in paying Paris Club creditors. In the second stage, the country would have a second arrangement with the IMF and could receive the first phase of an exit treatment granted by the Paris Club. In the third stage, the Paris Club could complete the exit treatment based on the full implementation of the successor IMF program and a satisfactory payment record with the Paris Club. The country would thus only fully benefit from the exit treatment if it maintains its track record over time.
Data
There data in the website yoy.
Insights
Refer to Horn et al., (2021) figure 9 in page 13, Paris Club seems played important role during 2010s.
tbc
Reference
https://clubdeparis.org/en
About Gold
About Gold ?
There seems some “irrational” movements of gold price since the end of 2023.
How gold should be priced? What factors affect the pricing of gold. Here below are some of my reading and insights.
Typical Determinants
Typically, the gold price is considered to be correlated with a list of factors:
- Inflation
In counter with the inflation.
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Long-term Real Interest Rate
TIPS, the Treasury Inflation-Protected Securities, is considered to be the real-interest rate, as the inflation rate is counter-deducted. The long-term rate, specifically 10-yr rate, is preferred as we generally assume holding the Gold in a long-term investment horizon. The long-term Real Interest Rate is considered as the opportunity of holding gold. Therefore, the higher rate, the greater the cost of holding golds, and less demand of gold. Price decrease thereafter.
-
US Dollar
The Brandon Wood System links the gold price with US Dollar, with 35USD = 1 ounce Gold. Since the collapse of Brandon Wood System, there is not a fixed exchange rate between USD and Gold anymore. However, USD is still the most important determinant of gold price in that the unit of Gold price is still USD/ounce. It is also like an exchange rate, the more per ounce value of gold is, the more USD/ounce should be. Or, contrastively, the weak USD is, the more USD/ounce shall be.
-
US Dollar Index
The US Dollar Index might be consider an proxy of the strength and weakness of US dollar. However, as US dollar is the weighted geometric mean of the exchange rates of six major currencies compared to the US dollar:
- Euro (EUR) – 57.6% weight
- Japanese yen (JPY) – 13.6% weight
- British pound (GBP) – 11.9% weight
- Canadian dollar (CAD) – 9.1% weight
- Swedish krona (SEK) – 4.2% weight
- Swiss franc (CHF) – 3.6% weight
The USD Index is actually a composite of weighted average of above listed currency. The increase of US dollar index means USD is appreciated w.r.t. above currencies. I.E. if USD appreciates w.r.t. EURO, then USDX is likely to increase.
Therefore, an increase in USDX means appreciation of USD, and then USD/ounce shall decrease, gold price decrease.
-
Risks / Uncertainty
-
Demand and Supply from Central Banks.
We ignore the impact of demand and supply from individuals and industries, but focus on the demand of Central Banks. Like what those CB did during February and March 2024 would increase the demand of gold price.
Empirical Research
Refer to the research report from CICC, a four-factor model is established. The authors specified the relationship between gold and those four factors, one by one.
- The dependent variable: Gold Price. (Also, attention that they focus on the gold price, not the return as machine learning usually do)
-
Explanatory Variables:
- US Real Interest rate
Capture the Opportunity Cost of holding gold. Similar as the explanation in the above section.
- US Dollar Index,
Similar as the explanation in the above section.
- Central Bank Net Gold Purchasing,
The supply side is limited, demand is mainly driven by the Central Banks of US, China, EU, JP, etc.
- US Gov Debt Level.
This factor represents the credibility of US dollar or US government. The greater US Debt level, the less credit-worthy the US gov is. Then, the more desire of holding gold as the counter party of US Dollar credibility.
The Statistic table is shown below.
The author argue that people do not need to consider the spurious regression though the R-squared is incredibly high. They state that the reason is that they are only considering the model like a co-integration model. They have tested the integration of the residual term, and find that the residual is stationary. High R-squared means there are less left in the residual.
Their explanation is like the Bull Shit. However, we just ignore the bull shit econometric modeling and statistic figure in the above table, as we are not doing academic. Let consider the predictable power and the implication of the model.
Here below is their simulated result and the real gold price movement. Let’s investigate is their model perform as good as stated in their report. Also, let’s see how ML way could perform.
Code Example
CFA Learning Notes and Materials
11th April 2024
I have passed the CFA III level exam, and been granted the chart.
For any errates and insights, please free to contact to me.
Here below are my learning footprints for CFA level III. All files are converted to .html as you will find in the following . If you need the raw markdown codes, please move to my Github Repo.
P.S. there are typos and miswritten parts in the notes. Welcome to find me and help me update those mistakes. Or, probably I will update them if I fail the level III exam (in that I would review those notes). 🙂
Best Wishes
FZ
Two Approaches for Forecasting Exchange Rate
The first approach is that analysts focus on flows of export and imports to establish what the net trade flows are and how large they are relative to the economy and other, potentially larger financing and investment flows. The approach also considers differences between domestic and foreign inflation rates that relate to the concept of purchasing power parity. Under PPP, the expected percentage change in the exchange rate should equal the difference between inflation rates. The approach also considers the sustainability of current account imbalances, reflecting the difference between national saving and investment.
The second approach is that the analysis focuses on capital flows and the degree of capital mobility. It assumes that capital seeks the highest risk-adjusted return. The expected changes in the exchange rate will reflect the differences in the respective countries’ assets’ characteristics such as relative short-term interest rates, term, credit, equity and liquidity premiums. The approach also considers hot money flows and the fact that exchange rates provide an across the board mechanism for adjusting the relative sizes of each country’s portfolio of assets.
Source by CFA reading materials
Least Squares Method – Intro to Kalman Filter
Consider a Linear Equation,
$$ y_i = \sum_{j=1}^n C_{i,j} x_j +v_i,\quad i=1,2,…$$
, where C_{i,j} are scalars and v_i\in \mathbb{R} is the measurement noise. The noise is unknown, while we assume it follows certain patterns (the assumptions are due to some statistical properties of the noise). We assume v_i, v_j are independent for i\neq j. Properties are mean of zero, and variance equals sigma squared.
$$\mathbb{E}(v_i)=0$$
$$\mathbb{E}(v_i^2) = \sigma_i^2$$
We can rewrite y_i = \sum_{j=1}^n C_{i,j} x_j +v_i as,
$$ \begin{pmatrix} y_1 \ y_2 \ \vdots\ y_s\end{pmatrix} = \begin{pmatrix} C_{11} & C_{12} & \cdots & C_{1n} \ C_{21} & C_{22}& \cdots & C_{2n} \ \vdots & \vdots & \cdots & \vdots \ C_{s1} & C_{s2} & \cdots & C_{sn}\end{pmatrix} \begin{pmatrix} x_1 \ x_2 \ \vdots\ x_n\end{pmatrix} + \begin{pmatrix} v_1 \ v_2 \ \vdots\ v_s\end{pmatrix} $$
, in a matrix form,
$$ \vec{y} = C \vec{x} + \vec{v} $$
, but I would write in a short form,
$$ y= C x +v$$
We solve for the least squared estimator from the optimisation problem, (there is a squared L2 norm)
$$ \min_x || y-Cx ||_2^2 $$
Recursive Least Squared Method
The classic least squared estimator might not work well when data evolving. So, there emerges a Recursive Least Squared Method to deal with the discrete-time instance. Let’s say, for a discrete-time instance k, y_k \in \mathbb{R}’ is within a set of measurements group follows,
$$y_k = C_k x + v_k$$
, where C_k \in \mathbb{R}^{l\times n}, and v_k \in \mathbb{R}^l is the measurement noise vector. We assume that the covariance of the measurement noise is given by,
$$ \mathbb{E}[v_k v_k^T] = R_k$$
, and
$$\mathbb{E}[v_k]=0$$
The recursive least squared method has the following form in this section,
$$\hat{x}k = \hat{x}{k-1} + K_k (y_k – C_k \hat{x}_{k-1})$$
, where \hat{x}k and \hat{x}{k-1} are the estimates of the vector x at the discrete-time instants k and k-1, and K_k \in \mathbb{R}^{n\times l} is the gain matrix that we need to determine. K_k is coined the ‘Gain Matrix’
The above equation updates the estimate of x at the time instant k on the basis of the estimate \hat{x}_{k-1} at the previous time instant k-1 and on the basis of the measurement y_k obtained at the time instant k, as well as on the basis of the gain matrix K_k computed at the time instant k.
Notation
$\hat{x}$ is the estimate.
$$ \hat{x}k = \begin{pmatrix} \hat{x}{1,k} \ \hat{x}{2,k} \ \vdots \\hat{x}{n,k} \end{pmatrix} $$
, which is corresponding with the true vector x.
$$x = \begin{pmatrix} x_1 \ x_2 \ \vdots \ x_n \end{pmatrix}$$
The estimation error, \epsilon_{i,k} = x_i – \hat{x}_{i,k} \quad i=1,2,…,n.
$$\epsilon_k = \begin{pmatrix} \epsilon_{1,k} \ \epsilon_{2,k} \ \vdots \\epsilon_{n,k} \end{pmatrix} = x – \hat{x}_k = \begin{pmatrix} x_1-\hat{x}_{1,k} \ x_2 – \hat{x}_{2,k} \ \vdots \x_n-\hat{x}_{n,k} \end{pmatrix} $$
The gain K_k is computed by minimising the sum of variances of the estimation errors,
$$ W_k = \mathbb{E}(\epsilon_{1,k}^2) + \mathbb{E}(\epsilon_{2,k}^2) + \cdots + \mathbb{E}(\epsilon_{n,k}^2) $$
Next, let’s show the cost function could be represented as follows, (tr(.) is the trace of a matrix)
$$ W_k = tr(P_k) $$
, and P_k is the estimation error covariance matrix defined by
$$ P_k = \mathbb{E}(\epsilon_k \epsilon_k^T )$$
Or, says,
$$ K_k = arg\min_{K_k} W_k = tr\bigg( \mathbb{E}(\epsilon_k \epsilon_k^T ) \bigg)$$
Why is that?
$$\epsilon_k \epsilon_k^T = \begin{pmatrix} \epsilon_{1,k} \ \epsilon_{2,k} \\vdots \ \epsilon_{n,k} \end{pmatrix} \begin{pmatrix} \epsilon_{1,k} & \epsilon_{2,k} & \cdots & \epsilon_{n,k} \end{pmatrix}$$
$$ = \begin{pmatrix} \epsilon_{1,k}^2 & \cdots & \epsilon_{1,k}\epsilon_{n,k} \ \vdots & \epsilon_{i,k}^2 & \vdots \ \epsilon_{1,k}\epsilon_{n,k} & \cdots & \epsilon_{n,k}^2\end{pmatrix} $$
So,
$$ P_k = \mathbb{E}[\epsilon_k \epsilon_k^T] $$
$$tr(P_k) = \mathbb{E}(\epsilon_{1,k}^2) + \mathbb{E}(\epsilon_{2,k}^2) + \cdots + \mathbb{E}(\epsilon_{n,k}^2)$$
Optimisation
$$ K_k = arg\min_{K_k} W_k = tr\bigg( \mathbb{E}(\epsilon_k \epsilon_k^T ) \bigg) = tr(P_k)$$
Let’s derive the optimisation problem.
$$\epsilon_k = x-\hat{x}_k$$
$$ =x-\hat{x}{k-1} – K_k(y_k – C_k \hat{x}{k-1}) $$
$$ = x- \hat{x}{k-1} – K_k (C_k x + v_k – C_k \hat{x}{k-1}) $$
$$ = (I – K_k C_k)(x-\hat{x}_{k-1}) – K_k v_k $$
$$ =(I-K_k C_k )\epsilon_{k-1} – K_k v_k $$
Recall y_k = C_k x + v_k and \hat{x}k = \hat{x}{k-1} + K_k (y_k – C_k \hat{x}_{k-1})
So, \epsilon_k \epsilon_k^T would be,
$$\epsilon_k \epsilon_k^T = \bigg((I-K_k C_k )\epsilon_{k-1} – K_k v_k\bigg)\bigg((I-K_k C_k )\epsilon_{k-1} – K_k v_k\bigg)^T$$
$P_k = \mathbb{E}(\epsilon_k \epsilon_k^T)$, and $P_{k-1} = \mathbb{E}(\epsilon_{k-1} \epsilon_{k-1}^T)$.
$\mathbb{E}(\epsilon_{k-1} v_k^T) = \mathbb{E}(\epsilon_{k-1}) \mathbb{E}(v_k^T) =0$ by the white noise property of $\epsilon$ and $v$. However, $\mathbb{E}(v_k v_k^T) = R_k$. Substituting all those into $P_k$, we would get,
$$P_k = (I – K_k C_k)P_{k-1}(I – K_k C_k)^T + K_k R_k K_k^T$$
$$ P_k = P_{k-1} – P_{k-1} C_k^T K_k^T – K_k C_k P_{k-1} + K_k C_k P_{k-1}C_k^T K_k^T + K_k R_k K_k^T $$
$$W = tr(P_k)= tr(P_{k-1}) – tr(P_{k-1} C_k^T K_k^T) – tr(K_k C_k P_{k-1}) + tr(K_k C_k P_{k-1}C_k^T K_k^T) + tr(K_k R_k K_k^T) $$
We take F.O.C. to solve for K_k = arg\min_{K_k} W_k = tr\bigg( \mathbb{E}(\epsilon_k \epsilon_k^T ) \bigg) = tr(P_k), by letting \frac{\partial W_k}{\partial K_k} = 0. See the Matrix Cookbook and find how to do derivatives w.r.t. K_k.
$$\frac{\partial W_k}{\partial K_k} = -2P_{k-1} C_k^T + 2K_k C_k P_{k-1} C_k^T + 2K_k R_k = 0$$
We solve for K_k,
$$ K_k = P_{k-1} C_k^T (R_k + C_k P_{k-1} C_k^T)^{-1}$$
, we let L_k = R_k + C_k P_{k-1} C_k^T, and L_k has the following property L_k = L_k^T and L_k^{-1} = (L_k^{-1})^T
$$ K_k = P_{k-1} C_k^T L_k^{-1} $$
Plug K_k = P_{k-1} C_k^T K_k^{-1} back into P_k.
$$ P_k = P_{k-1} – K_kC_k P_{k-1} = (I-K_k C_k)P_{k-1} $$
Summary
In the end, the Recursive Least Squared Method could be summarised as the following three equations.
- 1. Update the Gain Matrix.
$$ K_k = P_{k-1} C_k^T (R_k + C_k P_{k-1} C_k^T)^{-1}$$
- 2. Update the Estimate.
$$\hat{x}_k = \hat{x}_{k-1} + K_k (y_k – C_k \hat{x}_{k-1})$$
- 3. Propagation of the estimation error covariance matrix by using this equation.
(I-K_k C_k)P_{k-1}