Mindset
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One of sixty questions written for investors, the same for everyone on the same date. Answer it in a line, before the inbox.
Answer it in your journalReframe a situation
You're about to put a number in writing.
Margin of safety · Benjamin Graham
Leave a gap between what you pay and what it's worth, so mistakes don't sink you.
How wrong can I be before this deal stops working?
Inversion · Charlie Munger
Work out what would guarantee failure, then make sure you avoid it.
What would make this deal fail for certain, and have I ruled each of those out?
The map is not the territory · Alfred Korzybski
A model, spreadsheet or score is a simplified picture of reality, not reality itself.
What can't my numbers see that I'd only learn by being there?
Mental models library
22 of 22 models
Associated with Charlie Munger
Work out what would guarantee failure, then make sure you avoid it.
Example
Before offering on a terrace in Hull, list the ways the deal could ruin you: no insurance in a flood zone, a lender who won't lend, a refurb that doubles. Each item becomes a check you do before the offer goes in.
What would make this deal fail for certain, and have I ruled each of those out?
Associated with Howard Marks
Ask what happens after the obvious consequence, and then after that.
Example
Converting a house to a seven-bed HMO lifts the rent, which is the first-order result. The second-order results are a licence, a planning question, higher turnover and a smaller pool of buyers when you sell.
And then what? What follows the result I'm expecting?
Associated with Blaise Pascal and Pierre de Fermat
Weigh each possible outcome by how likely it is, and add them up before you decide.
Example
A plot with a 40% chance of consent and a £90,000 gain is worth less than it sounds once you weigh in the 60% chance of losing £15,000 in fees. Run every outcome, with its odds, and the option price looks very different.
If I made this decision a hundred times, what would I expect to come out with on average?
Associated with Benjamin Graham
Leave a gap between what you pay and what it's worth, so mistakes don't sink you.
Example
If the numbers only work at a 5% void rate and a perfect refurb, there is no margin. Price the offer so the deal still stands with a 10% void, a 20% overrun and a rate two points higher.
How wrong can I be before this deal stops working?
Associated with Richard Thaler
Money and time already spent are gone either way, so they shouldn't decide what you do next.
Example
You've spent £1,800 on surveys and searches and the vendor now wants another £8,000. The £1,800 is gone whether you walk or not, so judge the new price on its own numbers.
If I were starting fresh today, with nothing spent, would I still do this?
Associated with Friedrich von Wieser
The real cost of a choice is the best thing you gave up to make it.
Example
Leaving £40,000 tied up in a flip that stalls for nine months costs more than the interest. It's the BRR you couldn't fund in the meantime.
What else could this money, or this month, be doing instead?
Associated with Jeff Bezos
Picture yourself years from now and choose the option you'd be least likely to regret.
Example
At 70, you're unlikely to regret a sensible first buy-to-let that went sideways for a year. You're more likely to regret another five years of analysing deals and never offering.
Looking back from ten years on, which choice would I wish I'd made?
Associated with Warren Buffett
Know the edge of what you truly understand, and be careful outside it.
Example
You know two-up two-down terraces in south Leeds street by street. A commercial-to-residential conversion in a town you've never visited is outside the circle, however good the brochure looks.
Do I understand this deal well enough to explain how it could go wrong?
Associated with Warren Buffett
Small gains that build on themselves grow slowly, then quickly.
Example
Recycling the deposit through one BRR a year looks slow in year two and very different by year eight. The same is true of ten analyses a week and one agent call a day.
What small thing, done every week, would be worth the most in five years?
Associated with Daniel Kahneman and Amos Tversky
Start with how things usually turn out for cases like yours, then adjust for the details.
Example
Your builder says six weeks, but most refurbs like this one run over by a third. Plan the bridge term around the usual outcome, not the hopeful one.
What normally happens to deals like this, before I think about why mine is different?
Associated with Gary Klein
Imagine the project has already failed and write down why, before you start.
Example
It's a year from now and the Sheffield rent-to-rent unit has been handed back. Write the three most likely reasons today, and the fixes go into the lease and the budget.
It's a year from now and this went badly. What's the most likely story?
Associated with Alfred Korzybski
A model, spreadsheet or score is a simplified picture of reality, not reality itself.
Example
A Deal Score of 84 is built from comparables and averages. It can't smell the damp in the back bedroom or hear the main road at 2am, so go and stand in the property.
What can't my numbers see that I'd only learn by being there?
Associated with Vilfredo Pareto
A small share of the inputs usually produces most of the results.
Example
Looking back, most of your viable deals came from two agents and one auction house. Those relationships deserve more of your week than the portals do.
Which few things produced most of my results this year?
Associated with William of Ockham
When several explanations fit, start with the simplest one.
Example
Three offers rejected in a row may not mean agents distrust you. The simpler explanation is that your offers are 15% under in a market where 5% gets accepted.
What's the simplest explanation that fits all the facts?
Associated with Robert J. Hanlon
Don't assume bad intent when a mistake or a busy day explains it.
Example
The agent didn't pass on your offer for four days. It's more likely they were juggling forty listings than trying to cut you out, so a friendly call gets further than a complaint.
What's the most innocent explanation for what they did?
Associated with Aristotle
Break a problem down to the facts you know are true and rebuild from there.
Example
Everyone says you need £50,000 to start. Strip it back: a lender needs a deposit, a vendor needs a sale and a tenant needs a home, and there are several ways to meet each need.
What do I know is true here, and what am I just assuming?
Associated with Nassim Nicholas Taleb
Improve things by taking away what doesn't work before adding anything new.
Example
Instead of adding another strategy, drop the two portal alerts that never produce a viewing and the networking event that never produces a deal. The time that frees up is the progress.
What could I stop doing that would make everything else easier?
Associated with Nassim Nicholas Taleb
Prefer choices that keep doors open, where the upside is large and the downside is small and known.
Example
A £2,000 option on a plot of land caps your loss and keeps the planning upside. A house with a large garden and side access gives you an extension or a plot later, at no extra cost today.
Which choice leaves me with more good moves later?
Associated with Nassim Nicholas Taleb
Give more weight to advice from people who share the downside if they're wrong.
Example
A sourcer paid on completion has a different interest from you, the person holding the mortgage. Ask who loses money if the deal goes wrong, and weigh their view accordingly.
Who carries the cost if this advice turns out to be wrong?
Associated with Nassim Nicholas Taleb
Build things that gain from shocks and stress, not just survive them.
Example
A rate rise that forces weaker landlords to sell is a buying chance if you kept cash and a lender ready. Every rejected offer is also data that makes your next offer sharper.
How could this setback leave me stronger than before it happened?
Associated with Daniel Kahneman and Amos Tversky
Losses feel roughly twice as heavy as equal gains, which can make you too cautious.
Example
Losing a £500 reservation fee can feel worse than missing a deal worth £5,000 a year. Name the feeling, then compare the two numbers side by side.
Am I avoiding a small, certain loss at the price of a bigger, quieter one?
Associated with C. Northcote Parkinson
Work expands to fill the time you give it, so set tighter limits.
Example
Given a whole weekend, analysing one deal takes a whole weekend. Give it 45 minutes and a checklist, and you'll analyse four.
What deadline would force me to decide this today?
Go deeper
From habits to decisions under uncertainty, chosen for investors who’d rather read the source than a summary of a summary.
See the credited reading listMindset in the app
Five steps for a deal that fell through or an offer turned down, saved to your journal with one next action.
Log wins by date and category, keep a streak of weeks with a win, and see them in your Friday review.
A board of proof that your identity statement is true: wins, numbers and moments, written down as cards.
Your own operating rules, seeded with twelve examples you can edit, reorder or replace.
Describe an ordinary week twelve months from now in detail, dated, and revisit it each quarter.
Keep the mental models you reach for most at the top of your library.
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