Book Review: The Checklist Manifesto

This post is an overview of the book The Checklist Manifesto by Atul Gawande

Atul Gawande's bio: Dr. Gawande is a surgeon at the Brigham and Women's Hospital in Boston, a staff writer at The New Yorker, and an associate professor at Harvard Medical School. He also leads the World Health Organization's Safe Surgery Saves Lives program.

Key point: The world is becoming increasingly complex and we need tools to cope with that complexity. (One of my favorite paradoxes is that, "It is hard to keep things simple.")

Let's start off with a shocking statistic. Columbia Law Professor James S. Liebman did some research and found that two-thirds of death penalty cases are overturned because of errors. If that number doesn't bother you, I encourage you to imagine if you, or someone you love, were wrongly convicted of a heinous crime. Putting someone to death is a very serious decision. What's more, it can't be reversed. So, it would stand to reason that we do our level best to not make any mistakes in capital cases. And yet it seems that lots of errors are still being made.

Alexander Pope famously said, “To err is human.” The fact is, we humans make lots of mistakes. And, as the world becomes more specialized, and more complex, the chance of making an error goes up. The author of this book is a surgeon. And so a lot of what he talks about comes from the world of medicine. Gawande says, these days surgery is so specialized that they joke about right ear surgeons and left ear surgeons.

Consider these statistics, from the book, “On any given day in the United States alone, ninety thousand people are admitted to intensive car … Critical care has become an increasingly large portion of what hospitals do. Fifty years ago, ICUs barely existed … The average patient required 178 individual actions per day.” With all that complexity and activity lots of mistakes are made. The knowledge exists so that all surgeries are safe. Even still, steps are still missed and mistakes are still made. As it turns our, upwards of 150,000 people die annually after surgery. So the question becomes, what do you do when expertise is not enough?

“On October 30, 1935, at Wright Air Field in Dayton, Ohio, the U.S. Army Corps held a flight competition for airplane manufacturers vying to build the military's next-generation long-range bomber. It wasn't supposed to be much of a competition. In early evaluations, the Boeing Corporation's gleaming aluminum-alloy Model 299 had trounced the designs of Martin and Douglas. Boeing's plane could carry five times as many bombs as the army had requested; it could fly faster than previous bombers and almost twice as far. A Seattle newspaperman who had glimpsed the plane on a test flight over his city called it the “flying fortress,” and the name stuck. The flight “competition,” according to the military historian Phillip Meilinger, was regarded as a mere formality. The army planned to order at least sixty-five of the aircraft.

“A small crowd of army brass and manufacturing executives watched as the Model 299 test plane taxied onto the runway. It was sleek and impressive, with a 103-foot wingspan and four engines jutting out from the wings, rather than the usual two. The plane roared down the tarmac, lifted off smoothly, and climbed sharply to three hundred feet. Then it stalled, turned on one wing, and crashed in a fiery explosion. Two of the five crew members died, including the pilot, Major Ployer P. Hill.

“An investigation revealed that nothing mechanical had gone wrong. The crash had been due to “pilot error,” the report said. Substantially more complex than previous aircraft, the new plane required the pilot to attend to the four engines, each with its own oil-fuel mix, the retractable landing gear, the wing flaps, electric trim tabs that needed adjustment to maintain stability at different airspeeds, and constant-speed propellers whose pitch had to be regulated with hydraulic controls, among other features. While doing all this, Hill had forgotten to release a new locking mechanism on the elevator and rudder controls. The Boeing model was deemed, as a newspaper put it, “too much airplane for one man to fly.” The army air corps declared Douglas's smaller design the winner. Boeing nearly went bankrupt.

“Still, the army purchased a few aircraft from Boeing as test planes, and some insiders remained convinced that the aircraft was flyable. So a group of test pilots got together and considered what to do.

“What they decided not to do was almost as interesting as what they actually did. They did not require Model 299 pilots to undergo longer training. It was hard to imagine having more experience and expertise than Major Hill, who had been the air corps' chief of flight testing. Instead, they came up with an ingeniously simple approach: they created a pilot's checklist. Its mere existence indicated how far aeronautics had advanced. In the early years of flight, getting an aircraft into the air might have been nerve-racking but it was hardly complex. Using a checklist for takeoff wold no more have occurred to a pilot than to a driver backing a car out of a garage. But flying this new plane was too complicated to be left to the memory of any one person, however expert.

“The test pilots made their list simple, brief, and to the point–short enough to fit on an index card, with step-by-step checks for takeoff, flight, landing, and taxiing. It had the kind of stuff that all pilots know to do. They check that the brakes are released, that the instruments are set, that the door and windows are closed, that the elevator controls are unlocked–dumb stuff. You wouldn't think it would make that much difference. But with the checklist in hand, the pilots went on to fly the Model 299 a total of 1.8 million miles without one accident. They army ultimately ordered almost thirteen thousand of the aircraft, which it dubbed the B-17. And, because flying the behemoth was now possible, the army gained a decisive air advantage in the Second World War, enabling its devastating bombing campaign across Nazi Germany.

“Much of our work today has entered its own B-17 phase. Substantial parts of what software designers, financial managers, firefighters, police officers, lawyers, and most certainly clinicians do are now too complex for them to carry out reliably from memory alone. Multiple fields, in other words, have become too much airplane for one person to fly.”

There are two main problems. The first one is the fallibility or human memory and attention. And, the other one is complacency. A lot of the work we do is routine and can get overlooked. If you're confronted with simple and routine problems; you want what engineers call a “forcing function: relatively straightforward solutions that force the necessary behavior–solutions like checklists.”

Peter Pronovost (Johns Hopkins Hospital) created a checklist to try to reduce the rate of central line infections. The central line is the large catheter that is inserted at the top of your chest near your collar bone. “Within the first three months of the project, the central line infection rate in Michigan's ICUs decreased by 66 percent. Most ICUs–including the ones at Sinai-Grace Hospital–cut their quarterly infection rate to zero. Michigan's infection rate fell so low that its average ICU outperformed 90 percent of ICUs nationwide. In the Keystone Initiative's first eighteen months, the hospitals saved an estimated $175 million in costs and more than fifteen hundred lives. The successes have been sustained for several years now–all because of a stupid little checklist.”

“Two professors who study the science of complexity–Brenda Zimmerman of York University and Sholom Glouberman of the University of Toronto–have proposed a distinction among three different kinds of problems in the world: the simple, the complicated, and the complex. Simple problems, they note, are ones like baking a cake from a mix. There is a recipe. Sometimes there are a few basic techniques to learn. But once these are mastered, following the recipes brings a high likelihood of success.

“Complicated problems are the ones like sending a rocket to the moon. They can sometimes be broken down into a series of simpler problems. But there is no straightforward recipe. Success frequently requires multiple people, often multiple teams, and specialized expertise. Unanticipated difficulties are frequent. Timing and coordination become serious concerns.

“Complex problems are ones like raising a child. Once you learn how to send a rocket to the moon, you can repeat the process with other rockets and perfect it. One rocket is like another rocket. But not so with raising a child, the professors point out. Every child is unique. Although raising one child may provide experience, it does not guarantee success with the next child. Expertise is valuable but most certainly not sufficient. Indeed, the next child may require an entirely different approach from the previous one. And this brings up another feature of complex problems: their outcomes remain highly uncertain. Yet we all know that it is possible to raise a child well. It's complex, that's all.”

In trying to understand how to be successful in an increasing complex world, Gawande drew much inspiration from the construction of large buildings. He remembered trying to build a bookcase when he was eleven years old, growing up in Athens, Ohio. His creation was an absolute mess and it gave Atul an appreciation for the difficulties of constructing things. When it comes to building large buildings, “All together, projects today involve some sixteen different trades.” That's quite a complicated task and Gawande makes note that it isn't too different from medicine.

One of the items on the construction checklist was that people take the time to talk to each other. As simple as that may sound. Even simpler, a point on a surgery checklist was that everybody introduce themselves to the members of the team. The idea, in construction, is that “Man may be fallible, but maybe men are less so.” It is the nature of the construction checklist to believe in the wisdom of the group.

A common reaction to risk is to central authority and power. But, that's the exact wrong solution. Gawande writes, “In the face of an extraordinarily complex problem, power needed to be pushed out of the center as far as possible.” Stated differently, command-and-control doesn't work. You want to empower the troops. Atul calls it, “A seemingly contradictory mix of freedom and expectation.” The author gives the example of Hurricane Katrina. The government did a lousy job because they decided to centralize authority and power. Walmart ended up being tremendously helpful because they made the conscious decision to push authority and power out to where the action was happening.

During his research for the book, Gawande visited many locations. Including restaurants. What he found was that cooking recipes are, indeed, checklists. On a busy Friday or Saturday night a restaurant can serve lots and lots of meals. The way the business assures efficiency and consistency is through the effective use of recipes. Gawande writes, “There seemed no field or profession where checklists might not help.”

One area where the problems of complexity is most pronounced is with medicine. According to Gawande, “Worldwide, at least seven million people a year are left disabled and at least one million dead,” after surgery. What's more, “Studies in the United States alone had found that at least half of surgical complications were preventable.” As we know, doctors are very smart people. And yet they still make their share of mistakes. In a lot of ways medicine is like trying to fly the B-17 all by yourself. It may well be too much plane for one man. And so, like aviation, Gawande believed that checklists could be of great benefit to the medical field.

There are two types of aviation checklists; DO-CONFIRM and READ-DO. The names suggest how they work. With do-confirm lists you do what you have been trained to do and then you check to make sure you did all the right things. But, with read-do checklists, you first read the list to refresh your memory about the things you need to do. In constructing a checklist Gawande makes the following observations, “A rule of thumb some use is to keep it to between five and nine items, which is the limit of working memory … An inherent tension exists between brevity and effectiveness … It should fit on one page. It should be free of clutter and unnecessary colors … A checklist has to be tested in the real world … First drafts always fall apart.”

“It is common to misconceive how checklists function in complex lines of work. They are not comprehensive how-to guides, whether for building a skyscraper or getting a plane out of trouble. They are quick and simple tools aimed to buttress the skills of expert professionals. And by remaining swift and usable and resolutely modest, they are saving thousands upon thousands of lives.”

“If someone discovered a new drug that could cut down surgical complications with anything remotely like the effectiveness of the checklist, we would have television ads with minor celebrities extolling its virtues.” But, professionals resist using them. Atul continues,“It somehow feels beneath us to use a checklist, an embarrassment.” But, “Good checklists could become as important for doctors and nurses as good stethoscopes (which, unlike checklists, have not been proved to make a difference in patient care).”

Gawande talks about the guys at Pabrai Investment Funds in Irvine, California. Mohnish Pabrai, and his crew, have decided to use checklists when making their decisions on where to invest. The folks at PIF are value investors in the mold of Warren Buffett. Atul says, “Neuroscientists have that found that the prospect of making money stimulates the same primitive reward circuits in the brain that cocaine does.” The big problem is that the cocaine brain can lead to very bad decisions. So, what did Pabrai do? He created a checklist to counteract the potential problems that arise from the cocaine brain. “Forty-nine times out of fifty, he said, there's nothing to be found.”

Dr. Gawande also talks about the book Who by Geoff Smart. Smart's book is basically a long checklist on the method his company teaches for finding good people for your business. When investors are looking for the right place to put their money, they're much more concerned with who they invest in rather than what. Gawandes explains, “Finding a good idea is apparently not all that hard. Finding an entrepreneur who can execute a good idea is a different matter entirely.” Most new businesses fail and a checklist is a great way to increase your odds of successes.

Speaking of success, remember the story of airplane pilot Chelsey “Sully” Sullenberger? Well, you shouldn't read this book if you like to think of him as some superhuman hero. Turns out that Sully was able to land an passenger airplane on the Hudson River because of the system and checklists the plane had on board. As Sullenberger himself said, the crew's successful landing was do to teamwork and a checklist. It's wasn't the work of ordinary genius and Sully doesn't view himself as a hero.

I will leave you with a few more notes from the book. “The routine can be pointless most of the time … The fear people have about the idea of adherence to protocol is rigidity … What you find, when a checklist is well made, is exactly the opposite. The checklist gets the dumb stuff out of the way, the routines your brain shouldn't have to occupy itself with … We are by nature flawed and inconstant creatures … We are not built for discipline. We are built for novelty and excitement, not careful attention to detail. Discipline is something we have to work at.”

Have you ever heard the advice to fight fire with fire? Of course you have. And, sometimes, it's really good advice. But, sometimes, it's not. Sometimes it's much better to fight fire with water. This book is about fighting fire with water. To combat the ills, and dangers, of complexity Gawande is recommending one of the most simple of solutions–the checklist. Try it, it works.

The Last of the Human Freedoms

Americans love freedom, and rightfully so. Freedom is a very American concept. Today I want to talk a little about freedom but do so from the perspective of an Austrian bloke. The man's name was Viktor Frankl. You may have heard of Dr. Frankl but I still think a short bio is in order.

Viktor was Professor of Neurology and Psychiatry at the University of Vienna Medical School. He also happened to be Jewish. It was the Jewish part which caused him, during World War II, to spend 3 years in various concentration camps, including Theresienstadt, Auschwitz, and Dachau.

In 1946 Frankl wrote a book that eventually became known as Man's Search for Meaning. In the book, Viktor chronicles his experiences living in concentration camps. The reading is profound and tragic. I won't get into the specifics because they are heart-breaking. What I want to discuss are a couple Frankl's findings. However, I do encourage you to read Man's Search for Meaning because it is very interesting to hear about life, under the Nazis, from the perspective of a trained professional.

Viktor eventually founded a school of psychotherapy called Logotherapy. From the book, “Logotherapy focuses on the meaning of human existence as well as on man's search for such a meaning … Man's search for meaning is the primary motivation in his life and not a 'secondary rationalization' of instinctual drives. This meaning is unique and specific in that it must and can be fulfilled by him alone; only then does it achieve a significance which will satisfy his own will to meaning.” Frankl says, “The categorical imperative of logotherapy is, 'Live as if you were living already for the second time and as if you had acted the first time as wrongly as you are about to act now!'”

But the thing I really wanted to draw your attention to is what Frankl called, “The Last of the Human Freedoms.” The last of the human freedoms is the ability to choose one's attitude in any given set of circumstances. Now, mind you, this is coming from a man who was stripped naked, both literally and figuratively, chained and forced into hard labor, and confronted with the very real prospect that he would soon die. Frankl writes, “In the final analysis it became clear that the sort of person the prisoner became was the result of an inner decision, and not the result of camp influences alone.”

This last quote is truly earth-shattering. For me, one of the messages is to live a life of responsibility, no matter what. If these prisoners couldn't blame the concentration camp for their attitude, what excuse could you or I possibly have?

Live Experimentally

I said last week would probably be the end of my discussion on inaction. What can I say? I changed my mind. This is such a terribly important idea, I have decided to continue. I've decided to keep taking action on the concept of inaction. Is that a paradox?

This week we need to talk about imagination. Imagination is such a fascinating concept. Albert Einstein is quoted as saying “Imagination is more important than knowledge. For knowledge is limited to all we now know and understand, while imagination embraces the entire world, and all there ever will be to know and understand.”

The powers of human imagination are very romantic, even sexy. A lot of people gobble up the idea that imagination is more important than knowledge. It's such an egalitarian notion. I mean, we all have an imagination, don't we? We all have an equal ability to imagine. At least in theory. And so to hear Einstein, the world's smartest person, downplay the importance of knowledge feels so empowering. It makes us feel as though we too can change the world.

I do believe anybody can change the world. And, imagination is definitely the first step to making that change. I am a daydreamer and I encourage you to be one as well. Dream of the future you wish to create and then simply keep moving towards it. You see, a lot of people sell dreams and I think it's a very valuable service. Thinking about the future can be a very enjoyable activity. But, today I want to talk about the element of our imagination that holds us back.

You see, like anything, imagination is not necessarily a good thing. I mean, if it really were as simple as dreaming about the future, and then creating that very dream, wouldn't we all do it? Wouldn't we all feel as though we're blissfully dancing across the clouds? But, we don't always feel that way, do we? So, what went wrong? Unfortunately, it's your imagination that's the problem. The very same imagination that started the train down the tracks, towards our bliss, also is responsible for derailing our dreams. Imagination is both the problem and the solution. Now, that's a serious paradox! So, follow me on this one.

Let's revisit that question. Riddle me this, is imagination a good thing? The truth is, you can't answer yes or no to that question. It all depends on what you're imagining. With all due respect to my boy Einstein, I think we need some knowledge on what it is we should be imagining. Because not all dreams and imaginations are created equal. Like I've said, I do encourage you to dream about good things. This is a great way to generate the motivation and inspiration to take the necessary action.

But, sometimes you need to be prepared to punch the devil in the face. Have you ever heard it said that an idle mind is the devil's playground? Without the proper attention and effort, really bad thoughts can creep into your consciousness. What we need to talk about are the feelings created by anxious thoughts. And yes, as a reminder, our feelings are created by our thoughts.

What we know is that anxiety is a product of our imagination. This is a fact. Fear and anxiety exist in the future. Let me restate that a little more accurately. The feeling of fear/anxiety happens in the present. But the thoughts that generate the feeling are thoughts about the future. You can't feel fear about an event in the past. So, another way to say it is that anxiety is anticipatory. That is to say, fear/anxiety exist only in our imagination. It is for this reason that I think we need a little clarity on the value of imagination. Imagination can be a good thing and it can also be a bad thing.

As I've mentioned, this post is about inaction. And a lot of inaction is caused by fear. We fear what will happen as the result of our actions so we do nothing. We doubt our abilities which causes us to be nervous. But, as it turns out, a lot of what we fear (perhaps most) never happens. Thus, we often fret over nothing. I think this is the very essence of what Jack Paar meant when he said, “My life is one long obstacle course with me as the chief obstacle.”

We know that avoidance is the hallmark of anxiety. The way most people cope with anxiety is by avoiding whatever it is that causes them to feel fearful. Avoidance is also a synonym for inaction. So, let me tell you this, I think there's a better way to cope with fear than avoidance or inaction. A great way to deal with anxiety is the following, “Live experimentally.” What do I mean by that? I mean it's a good idea to view your life as an ongoing experiment. Don't catastrophize over what may, or may not, happen because most of it won't happen (catastrophize being a word coined by the great Albert Ellis.) Instead, take action with a focus on what it is that you can learn from the things you do. Aiming for feedback, rather than success or perfection, is a great way to take the pressure off.

Living experimentally is an idea that I also wrote about here: N = 1

Simply having the mindset of an experiment, visualizing yourself as an experimenter, can often do the trick. However, sometimes you have to be a little more specific. So, let me help you set up and run a good experiment. Next time you are avoiding something, slow down and ask yourself what it is that's scaring you. Is it a negative consequence, is it doubt, is it shame? Make a list of all the negative outcomes, you imagine happening, if you go ahead and do the thing you are avoiding. Really sit down and take some time with it. Then go ahead and do that thing you're avoiding. Afterward, pull out the list and see what portion of the things that you predicted actually came true. What you will create is hard evidence that a lot of what we fear never even happens. And, the brain loves concrete evidence!

I realize not all of life has to be approached in such a nerdy fashion. (Hey! Nerdy fashion, there's a paradox for ya!) I also realize that being so meticulous takes work and isn't very romantic. But, above all, I know that sometimes we get stuck. And, we need techniques and tactics which, while requiring us to slow down now, allow us to speed up later. The paradox of living experimentally is that we slow down in order to speed up.

Why You Shouldn't Suck Your Thumb

This week will likely end up being the last of a three-part series. I didn't intend to make a three-part series. I simply started writing, one day, while I was watching a baseball game. The game led to my post of two weeks ago. That post, the “reverse K” post, was about being called out on strikes. It was about the inexcusably sad nature of inaction. Here's the link if you haven't read it: Opening Day

Then, last week, I talked about the science of inaction and regret. Specifically, I talked about the findings of a hardcore, Harvard scientist named Daniel Gilbert. In the post I even mentioned a research study by two Cornell psychologists. So, whereas talking about baseball is rather whimsical, talking about rigorous science is much more concrete. If you didn't read last week's post here it is: The Importance of Do Do

So, for this week, I thought I'd take something more in the middle of the road. I want to talk about inaction and regret from an anecdotal perspective relating to the world high-finance. You see, like a lot of people, I am a huge fan of Warren Buffett. As you probably know, Warren's company is called Berkshire Hathaway. When he bought the company, BH was a textile manufacturing firm in New Bedford, Massachusetts. Today, Berkshire's mills are closed and the company no longer makes clothing.

What's more, Buffett and his partner, Charlie Munger, are very clear in saying that buying Berkshire Hathaway was a mistake. And yet, even though he has the power to change it, Buffett has kept the company named after a mistake. Why? Well, he probably wouldn't say it this way but, Mr. Buffett has a psychological immune system. (See last week's post)

You see, Warren has no problem with making mistakes. He says mistakes are inevitable. What drives him and Charlie nuts is what they call “Thumb-sucking.” By thumb-sucking they mean sitting around like a baby doing nothing. In fact, when asked, what was his biggest investment mistake ever, Buffett is very clear. His biggest mistakes were NOT errors of commission but rather they were errors of omission. Meaning, his biggest mistakes were not what he did, i.e. buying a struggling textile company. His biggest mistakes were the things he didn't do. These are the things people don't see because they don't show up in any report. They are the times when he knew enough to act, but he failed to pull the trigger.

Here's a short, one-minute video where Buffett says this exact thing:

YouTube video number one

If you dig Buffett, like I do, here's a lengthier video for your viewing pleasure:

YouTube video number two

Now, I have to imagine you have heard the name Jack Welch. Welch is the famed former CEO of General Electric. If you haven't already, I encourage you to read Jack's autobiography title Straight From The Gut. In the book you will see a photograph with Welch standing next to Buffet. In the caption of the photograph, Welch refers to Buffett as, “The smartest guy in any room.” Quite a compliment coming from one of history's more successful CEO's.

And it is true that Warren Buffett is ridiculously intelligent. If you're goal is business success, you should definitely read his annual reports and his authorized biography titled The Snowball. At any rate, to list all the ways that Buffett is a genius would take a very long time. Right now, I'd just like to point out his marvelous ability to look into the mirror objectively.

Looking in the mirror, and being honest with yourself, is a very hard thing to do. But it is also very useful. It's a big element of Buffett and Munger's success. Here are two gentlemen who are astonishing rational. They accept life as it is and not as they wish it would be. As an illustrative side note, let me tell you about an experience Charlie had. Munger went in for eye surgery and the doctor botched it. The eye ended up having to be eviscerated and Charlie has long been able to see through only one eye. Did this destroy Munger's life? Hardly. Charlie simply reasoned that, statistically speaking, surgical mistakes are bound to happen. And it just so happened that he was the recipient of this most undesirable gift. So, he decided to just get on with life. Pretty amazing perspective, wouldn't you say?

Anyways, back to the point of this post. What Munger and Buffett clearly understand is how they arrived at where they're at. They understand that they're biggest regrets, they're biggest mistakes, were errors of omission rather than acts of commission. Stated differently, their biggest mistakes were the result of inaction. To guard against our natural tendency to do-nothing (procrastinate), Warren and Charlie warn against the dangers of “Thumb-sucking.” Thumb-sucking is for babies who sit around and do nothing. Be careful to not fail into that trap.

So, now you have three ways to think about this lesson. The lesson being that action, while prone to error, is far superior to inaction. You can think of the baseball analogy and the backwards K. You can think of Do Do. Or you can think of Thumb-sucking. And, of course, it's possible that you have an even better symbol to place in your memory (And, if you do, I'd love to hear it). The point is, it doesn't matter how you remember the lesson. The important thing is to remember that Do Do is better than Thumb-Sucking, K?

The Importance of Do Do

Last week I wrote about the reverse K, about striking out with the bat on your shoulder. That is to say, I wrote about the pathetic nature of inaction. And it got me to thinking about Dan Gilbert.

Who is Dan Gilbert? Very simply, he's the real deal. You may, or may not, have heard of Mr. Gilbert. He's a professor of psychology at Harvard University. Even if you haven't heard of Dan, chances are you have seen him. The Prudential company recently used Gilbert in their television ads.

Have you seen the TV commercial that asks people how old is the oldest person they have ever known? The commercial was shot in Austin, Texas and they asked people to help them construct a graph. They gave people a blue dot and asked them to stick it on a wall to visually illustrate how far people are living past the official age of retirement.

The host of the advertisement is a bald guy with glasses and a goatee. That guy is Dan Gilbert. Several years ago Dan wrote a fantastic book titled Stumbling on Happiness. If you haven't already read it, I can't recommend the book highly enough. Over time, I'm sure I will talk about various items from the book. One of the things Gilbert talks about is how humans have something he calls a, “Psychological immune system.”

I won't get into it too much, right now, other than to quote Gilbert who says the psychological immune system, “Defends the mind against unhappiness in much the same way that the physical immune system defends the body against illness.” Think of the story of a young man who crashes his motorcycle and becomes a paraplegic. When asked, the young man will tell you he is much happier today than he was when he could walk. Kind of odd, right?

How could that be? Well, the psychological immune system kicked in, that's how. You see, prior to the accident this young man was simply stumbling through life without much direction or sense of purpose. Today he coaches newly paralyzed people to help them adjust to life in a wheelchair. Instead of dwelling on the loss of the his legs, he is now focused on the good he can do for the world. With the help of his psychological immune system, this man's life now has meaning, purpose, and joy.

I say all that to simply set the stage. What I really want to talk about is regret. And what I have to say ties directly in to last week's post. If you haven't read it already, here's a link: Opening Day

Back in 1995 two Cornell psychologists wrote a great paper titled The Experience of Regret. What we know, pretty much beyond all doubt, is that people regret the things they don't do much more than the things they do do.

Please allow me to quote from Stumbling on Happiness, “Consider this scenario. You own shares in Company A. During the past year you considered switching to stock in Company B but decided against it. You now find that you would have been better off by $1,200 if you had switched to the stock of Company B. You also owned shares in Company C. During the past year you switched to stock in Company D. You now find out that you'd have been better off by $1,200 if you kept your stock in Company C. Which error causes you more regret? Studies show that about nine out of ten people expect to feel more regret when they foolishly switch stocks than when they foolishly fail to switch stocks, because most people think they will regret foolish actions more than foolish inactions. But studies also show that nine out of ten people are wrong. Indeed, in the long run, people of every age and in every walk of life seem to regret not having done things much more than they regret things they did, which is why the most popular regrets include not going to college, not grasping profitable business opportunities, and not spending enough time with family and friends.

“But why do people regret inactions more than actions? One reason is that the psychological immune system has a more difficult time manufacturing positive and credible views of inactions than of actions. When our action causes us to accept a marriage proposal from someone who later becomes an axe murderer, we can console ourselves by thinking of all the things we learned from the experience (“Collecting hatchets is not a healthy hobby”). But when our inaction causes us to reject a marriage proposal from someone who later becomes a movie star, who can't console ourselves by thinking of all the things we learned from the experience because … well, there wasn't one. The irony is all too clear: Because we do not realize that our psychological immune system can rationalize an excess of courage more easily than an excess of cowardice, we hedge our bets when we should blunder forward.”

To paraphrase Mr. Gilbert we are better off with an excess of courage than we are with an excess of cowardice. As the professor recommends, "We should blunder forward." This is such a critically important idea to internalize and master. Because I'm a big fan of baseball, I like to visualize the symbol that is the backwards K. But maybe you'd prefer to think about Gilbert's much more humorous example of failing to pull the trigger on a future movie star. Or maybe you have your own example. However you choose to think about it, it's extremely wise to remember that in life we regret the things we don't do much more than the things we do do.

Opening Day

One week ago today was opening day for Major League Baseball. America's pastime. Most teams played the first of the 162 games they will play, this year, during the regular season. It's a very exciting time for players and fans alike.

Being from Orange County California I am, of course, partial to the Anaheim Angels. So, when the Seattle Mariners came to “The Big A,” for opening night, you know I was watching. One of the great things about opening day is that each team sends their ace to the mound to start the game. For the Angels, that meant the tall, lean Jered Weaver was first to take the bump.

In the top of the first inning Weaver set the Mariners down 1-2-3. The inning was ended when Seattle's new slugger, Robinson Cano, grounded a sharply hit ball to the shortstop Erick Aybar. Aybar fielded the ball cleanly and tossed it over to Albert Pujols to record the out. If you were keeping score you would write “6-3” next to Cano's name.

Leading off the game for the Angels was right fielder Kole Calhoun. On the mound, for the Mariners, was the imposing Cy Young Award winning Felix Hernandez. King Felix as they call him. After taking two straight balls, Calhoun hit a line drive to right field for a single. And in steps Mike Trout.

Trout is only 22 years old but he is already making a name for himself in MLB. The Angels recently recognized Mike's brilliance by signing the youngster to a six-year contract extension. Immediately Trout began earning his money. On a 1-1 count, Hernandez throws him an inside slider and Mike crushes the ball into the second bullpen for a home run. The crowd explodes.

Baseball, like life, is a game of momentum. When the wind is at your back, and things are going your way, you want to capitalize. As the next batter, Albert Pujols, checks into the batter's box, the stadium is still buzzing. And that's were my story really begins.

King Felix throws Pujols a 2-2 fastball, right down the middle of the plate. What does the Angels' MVP do? He pops a foul ball behind the plate which is caught, by Seattle's catcher Mike Zunino, for the first out of the inning. But it gets worse. Next up is Josh Hamilton. This is Josh's second year playing for the Halos and last year was quite a disappointment. Having just signed a five-year $125 million contract, the expectations for Hamilton were high. And 2013 turned out to be the worst offensive year of Josh's career.

Perhaps time for some redemption. In the box, Hamilton is a big, strong left-handed beast. And he bats clean-up. Throughout the history of baseball the fourth slot in the lineup (clean-up) has been reserved for the team's best run producer. In recent years that has more shifted to the third spot, but let's not split hairs. The fact is Hamilton can flat out rake. And in 2010 he was honored as the league's Most Valuable Player.

Josh takes the first pitch, a fastball on the outside corner, for a called strike. Next Hernandez throws a sinker and Hamilton swings right throw it. On the 0-2 count Mr. Clean-Up takes a fastball, right down the middle, for a called third strike. A terrible at-bat.

And, it got me to thinking about one of the saddest symbols in baseball. Early I mentioned that a ground out to shortstop is recorded as “6-3.” The shortstop is position number six on the field and first base is position number three. Hence the notation. The way the recorder would note what Hamilton did would be with a backwards K. It would look like this:

In the parlance of baseball, the letter K stands for strikeout. Actually there's a little more to it. The letter K, more accurately, means a strikeout where the batter swings the bat. When the batter doesn't swing, the out is recorded as a reverse or backwards K. Like above.

In a lot of ball parks you will see fans keeping records very publicly. The hometown crowd will often record their pitchers' strikeouts for everyone to see. It looks like this:

I'm not sure which game, or ball park, that was at. From the guy on the left, it looks like it may have been the Washington Nationals. But that is neither here nor there. As you can see, ten of the visiting players have been struckout that day. Nine of the times, the player swung the bat. And only once was he caught looking. That's what they call it, “Caught looking.” As the out batter walks back to the dugout, a good heckler might inquire as to how much the batter had paid for his seat :)

For me, that symbol, the reverse K, is so germane to life in general. It's okay to strikeout. Even the biggest boppers strikeout more often than they hit home runs. Everybody knows, Babe Ruth hit 714 home runs during his career. And "Hammering" Hank Aaron hit 755. But, how many strikeouts did he have? Nobody knows. I had to look it up! The answer is 1383. But nobody cares. We easily forgive failure. What we have a hard time accepting is inaction. To not even try, that's practically unforgivable (Especially when you're making $30M a year.)

So, this week, remember, don't get rung-up looking. As I once heard Dale Murphy say, “Swing hard, in case you hit it.”

Do You Know Claude Hopkins?

Over the weekend I was rereading a book from 1923 and it was fantastic! It's always interesting how trends work and how dismissive people can be about old information. Here's a book that is almost one hundred years old and the information is as timely as ever.

The book is titled Scientific Advertising and it was written by a gentleman named Claude Hopkins. It's not a very long book and I highly recommend reading it. You might think this is not a concept that applies to you, in which case, you couldn't be more wrong. If you're in business (and aren't we all, in one way or another) you have two main functions; innovation and marketing. This is an idea I wrote about here: The only reason your business exists

So, don't kid yourself, advertising, marketing, and selling are vitally important to business. As a matter of fact, they're important to all aspects of life. And, the second chapter of Hopkins' book talks specifically about these critically important activities. The chapter is titled Just Salesmanship and it's so good that I have decided to reproduce it for your reading pleasure. Here it is in its entirety:

To properly understand advertising or to learn even its rudiments one must start with the right conception. Advertising is salesmanship. Its principles are the principles of salesmanship. Successes and failures in both lines are due to like causes. Thus every advertising question should be answered by the salesman's standards.

Let us emphasis that point. The only purpose of advertising is to make sales. It is profitable or unprofitable according to its actual sales.

It is not for general effect. It is not to keep your name before the people. It is not primarily to aid your other salesmen.

Treat it as a salesman. Force it to justify itself. Compare it with other salesmen. Figure its cost and result. Accept no excuses which good salesmen do not. Then you will not go far wrong.

The difference is only in degree. Advertising is multiplied salesmanship. It may appeal to thousands while the salesman talks to one. It involves a corresponding cost. Some people spend $10 per word on an average advertisement. Therefore every ad should be a super-salesman.

A salesman's mistake may cost little. An advertising mistake may cost a thousand times as much. Be more cautious, more exacting, therefore.

A mediocre salesman may affect a small part of your trade. Mediocre advertising affects all of you trade.

Many think of advertising as ad-writing. Literary qualifications have no more to do with it than oratory has with salesmanship.

One must be able to express himself briefly, clearly and convincingly, just as a salesman must. But fine writing is a distinct disadvantage. So is unique literary style. They take attention from the subject. They reveal the hook. Any studied attempt to sell, if apparent, creates corresponding resistance.

That is so in personal salesmanship as in salesmanship-in-print. Fine talkers are rarely good salesmen. They inspire buyers with the fear of over-influence. They create the suspicion that an effort is made to sell them on other lines than merit.

Successful salesmen are rarely good speech makers. They have few oratorical graces. They are plain and sincere men who know their customers and know their lines. So it is in ad-writing.

Many of the ablest men in advertising are graduate salesmen. The best we know have been house-to-house canvassers. They may know little of grammar, nothing of rhetoric, but they know how to use words that convince.

There is one simple and right way to answer many advertising questions. Ask yourself, “Would this help a salesman sell the goods?” “Would it help me sell them if I met the buyer in person?”

A fair answer to those questions avoids countless mistakes. But when one tries to show off, or does things merely to please himself, he is little likely to strike a chord which leads people to spend money.

Some argue for slogans, some like clever conceits. Would you use them in personal salesmanship? Can you imagine a customer whom such things would impress? If not, don't rely on them for selling in print.

Some say, “Be very brief. People will read but little.” Would you say that to a salesman? With a prospect standing before him, would you confine him to any certain number of words? That would be an unthinkable handicap.

So in advertising. The only readers we get are people whom our subject interests. No one reads ads for amusement, long or short. Consider them as prospects standing before you, seeking for information. Give them enough to get action.

Some advocate large type and big headlines. Yet they do no admire salesmen who talk in loud voices. People read all they care to read in 8-point type. Our magazines and newspapers are printed in that type. Folks are accustomed to it. Anything larger is like loud conversation. It gains no attention worth while. It may not be offensive, but it is useless and wasteful. It multiples the cost of your story. And to many it seems loud and blatant.

Others look for something queer and unusual. They want ads distinctive in style or illustration. Would you want that in a salesman? Do not men who act and dress in normal ways make a far better impression?

Some insist on dressy ads. That is alright to a certain degree, but it is quite unimportant. Some poorly-dressed ads, like poorly-dressed men, prove to be excellent salesmen. Over-dress in either is a fault.

So with countless questions. Measure them by salesmen's standards, not by amusement standards. Ads are not written to entertain. When they do, those entertainment seekers are little likely to be the people whom you want.

That is one of the greatest advertising faults. Ad-writers abandon their parts. They forget they are salesmen and try to be performers. Instead of sales, they seek applause.

When you plan and prepare an advertisement, keep before you a typical buyer. Your subject, you headline has gained his or her attention. Then in everything be guided by what you would do if you met the buyer face-to-face. If you are a normal man and a good salesman you will then do your level best.

Don't think of people in the mass. That gives you a blurred view. Think of a typical individual, man or woman, who is likely to want what you sell. Don't try to be amusing. Money spending is a serious matter. Don't boast, for all people resent it. Don't try to show off. Do just what you think a good salesman should do with a half-sold person before him.

Some advertising men go out in person and sell to people before they plan or write an ad. One of the ablest of them has spent weeks on one article, selling from house to house. In this way they learn the reactions from different forms of argument and approach. They learn what possible buyers want and the factors which don't appeal. It is quite customary to interview hundreds of possible customers.

Other send out questionnaires to learn the attitude of buyers. In some way all must learn how to strike responsive chords. Guesswork is very expensive.

The maker of an advertised article knows the manufacturing side and probably the dealer's side. But this very knowledge often leads him astray in respects to consumers. His interests are not their interests.

The advertising man studies the consumer. He tries to place himself in the position of the buyer. His success largely depends on doing that to the exclusion of everything else.

This book will contain no more important chapter than this one on salesmanship. The reason for most of the non-success in advertising is trying to sell people what they do not want. But next to that comes the lack of true salesmanship.

Ads are planned and written with some utterly wrong conception. They are written to please the seller. The interests of the buyer are forgotten. One can never sells goods profitably, in person or in print, when that attitude exists.

Two Plus Two Before

The human mind is endlessly fascinating. It is the most complex thing in the known universe. And yet we know very little about the brain. Every day we use our minds to live. But there's much each of us doesn't understand about the very organ we are constantly using. For example, are you aware that great discoveries are often made in pairs? Meaning that two people, working completely independent of each other, often discover the same thing at roughly the same time.

It is a fact that is wild and perplexing. It has lead to various theories such as the idea that every brain is connected to every other brain through some sort of cosmic tapestry. Kind of weird, and out there, don't you think? I know. So, I won't get too much into it. Instead I will just give you one example.

Have you ever heard of Gottfried Liebniz? If you haven't, you're not alone. Not a lot of people known the name Liebniz. However, you most certainly know the name of his co-founder. Liebniz made a very important discovery at the same time as a man named Isaac Newton. So, what was the discovery? Liebniz and Newton, working independently at about the same time, each discovered a branch of mathematics known as calculus.

The only thing I will say, about the specifics of calculus, is that it the mathematical study of change. Those of you who have ever studied calculus know it contains two main branches: differentiation and integration. And this is where I can start to make this post apply to real life. The words “differentiate” and “integrate” are certainly words we're familiar with. They are essentially opposites. And yet they can apply to the same thing. So, in that way, what we are dealing with is something of a paradox.

Being different is important, especially in business. The world's leading expert on business strategy is a professor at the Harvard Business School. His name is Michael Porter. And what the professor says is that differentiation is the essence of strategy.

I think most of us already know this. If what you're selling is the same as everyone else, then the only place you can compete is on price. And that's not a good strategy. Competing on price is a recipe for getting clobbered. There is zero customer loyalty and you have to practically shoot yourself in the foot to survive.

It is much more wise to identify, and work on, your points of differentiation. That is to say, what makes you, your product, or your service different from everything else on the market? A very simple yet very complicated question.

Here's where it gets paradoxical (as if "simple yet complicated" wasn't paradoxical enough.) In order to integrate, you need to differentiate. On a personal level, to integrate means to have integrity. And, if you don't have integrity, you aren't going to last very long in the real world. So, as an individual, you do want to integrate. However, compared to everyone else in the market, you want to differentiate. Pretty straightforward, right?

Now it's time to ratchet up the difficulty. You need to integrate your offering with the market, while simultaneously, differentiating your offering from the market. Kind of a contradiction, isn't it? But, really, it's not.

In last week's post I said, “The future belongs to the gestalts.” And it's totally true. The definition of gestalt is, “A structure, configuration, or pattern of physical, biological, or psychological phenomena so integrated as to constitute a functional unit with properties not derivable by summation of its parts.” You get the parts through differentiation, and you get the gestalt through integration.

Since the time of Adam Smith we have hear of the concept of “Division of Labor.” The Industrial Revolution brought us factories and Taylor's Scientific Management. So, breaking things down, into their constituent components, is something people are pretty good at.

In fact, in high school I remember taking a car engine apart and having no idea how to put it back together. And I remember the teacher being very unhappy with me. Now, it was going to be his job to put the thing back together. Making cars is more about integration than it is about differentiation. Henry Ford divided his labor, along the assembly line, to more efficiently integrate an automobile. We must differentiate while simultaneously integrating.

As it turns, differentiation is the easier part. When studying calculus you learn differentiation first and integration second. There's a reason for that. Integration is harder. Picture Las Vegas. It took Steve Wynn a couple years to build his Wynn Hotel. But it only took a couple seconds to implode the Desert Inn, which had been standing on the same site. Building a skyscraper is integration. Imploding a building is differentiation. Both have value, but integration has more value. We know Wynn built the hotel. Any idea who tore down the Desert Inn? Of course not.

Differentiation is kind of like tearing things down. It's what the critic does. And I once heard it said, “They never built a statue for a critic.” Think about it, it's so true. Nobody remembers the critics. The real value is in building things up. The real value is in integration. So I encourage you, I suggest to you, work on your integration skills. Work on your gestalts. It's one of the things I'm doing with this blog. I'm not saying I'm good at it, but I am getting better. And I know I have critics out there who role their eyes at what I'm doing. But I just ignore them. I ignore them because I understand this simple lesson on calculus :)

Innovation in Professional Sports

Today we'll stretch to the corners of America to learn, or be reminded of, something pretty neat. I'm a southern California guy, so it's mandatory that I follow the Lakers (the basketball team) even though they're aren't many lakes in the area :) Last year the owner of the Lakers, Jerry Buss, passed away. Dr. Buss received his PhD in chemistry so, perhaps I'm doubly biased. Anyhow, Buss was also an extraordinary innovator. To learn a little about the innovative prowess of Dr. Buss, we'll go to Hanover, New Hampshire. In Hanover we find Vijay Govindarajan, a professor at Dartmouth College's Tuck School of Business.

Professor Govindarajan wrote a blog post about Jerry Buss and his innovative ways. Instead of trying to summarize or interpret, I've decided to simply repost the article, in its entirety. Here it is:

Innovators think and do things differently in order to achieve extraordinary success. They are found not just in the world of business, although they do have strong leadership qualities and excellent business sense as a common core. Our research indicates that whether they are CEOs, senior executives, sports team owners, or film directors, game changers who stand head and shoulders above the rest share a common set of qualities that we call the innovation mindset.

In a series of blog posts, we’ll introduce a few game changers and explore the common qualities that make them such effective innovators: they see and act on opportunities, use “and” thinking and resourcefulness, focus on outcomes, and act to “expand the pie.” Regardless of where they start, innovators persist till they successfully change the game.

Take, for example, Jerry Buss (1933-2013), the longtime LA Lakers owner who rose from an impoverished Depression-era childhood to the Basketball Hall of Fame and ultimately transformed the sport of basketball.

Innovators connect the dots differently and see opportunities that others don’t. They seize opportunities that others don’t dare to.

Buss launched his career in real estate with $1,000 in 1959—a venture that proved lucrative. Twenty years later, he purchased the Lakers, the Los Angeles Kings, and the Forum sports arena. In 1979, the Lakers, like the NBA, were struggling—even NBA playoff games aired after the event, outside primetime. There were plenty of sports enthusiasts for baseball and football, but basketball was a distant third.

Even under these challenging circumstances, instead of focusing on simply improving profitability, Buss saw a unique opportunity to build a team that would win the championships many times over. Even more importantly, Jerry Buss saw an opportunity to transform basketball from a sport into entertainment. He dubbed his team “Showtime,” inspired by the signature opening line each evening at the famous nightclub The Horn: “It’s showtime!” He had the backdrop of the perfect city to make his dream come true—LA and its entertainment industry. To quote Buss, “My dream really was to have the Lakers and Los Angeles identified as one and the same. When you think New York, you think Yankees. I wanted that to be the case here as well. That when you think L.A., you think Lakers.”

Pat Riley, who coached four of Buss’ 10 title teams, said it best: “Jerry Buss was more than just an owner. He was one of the great innovators that any sport has ever encountered. He was a true visionary, and it was obvious with the Lakers in the ’80s that ‘Showtime’ was more than just Magic Johnson and Kareem Abdul-Jabbar. It was really the vision of a man who saw something that connected with a community.” It is no exaggeration to say that Buss helped rescue the league from its late-1970 malaise. When Jerry Buss passed away on February 18, 2013, NBA commissioner David Stern said, “The NBA has lost a visionary owner whose influence on our league is incalculable and will be felt for decades to come.”

Innovators break through to new levels with “and” thinking.

Buss aimed for great players and great entertainment—a new combination.

Buss recruited the best talent, starting with the charismatic point guard Magic Johnson, and provided his players with the best trainers and the best equipment. Buss aggressively invested in his players, creating a legendary line up of star players such as Kareem Abdul-Jabbar, Shaquille O’Neal, and Kobe Bryant, and coaches such as Pat Riley and Phil Jackson. After Magic Johnson’s second season with the Lakers, Buss gave him an unprecedented contract for $25 million, then the largest contract for any athlete. “Anybody who makes an outlandish salary obviously attracts attention,” Buss explained. “That was what was behind my contract with Magic. I think it created a lot of attention for the Lakers.”

And Buss’s investment went beyond the parquet; when former Laker Walt Hazzard suffered a stroke in 1996, Buss kept Hazzard on the payroll, vowing that Hazzard would remain a Lakers employee for as long as Buss owned the team. “He stood by his word,” Hazzard’s son said. “When my dad passed away [in 2011], he was still an employee of the Lakers and our family is eternally grateful.”

Innovators use a mighty dose of resourcefulness to go through, over, under, and past obstacles. They leverage resources in groundbreaking ways to fulfill their big dreams.

To achieve his vision of great entertainment, Buss was resourceful, leveraging local Hollywood talent: live music and the Laker Girls—a group of cheerleading dancers, initially including Paula Abdul. Courtside seats that were priced at $15 when he bought the Lakers became the hottest tickets in Hollywood.

To recruit top basketball talent, Buss needed to raise more money. He was one of the first to sell naming rights; the Great Western Forum was the result of a major advertising agreement with Great Western Bank.

Innovators focus on outcomes. They don’t get caught in the activity trap. They don’t perform activities for their own sake but see them as instruments to achieve outcomes. Given their obsession with outcomes, the results of their work are significant.

Buss focused on outcomes—which, during his 30-year ownership, included 16 appearances in the finals and 10 NBA titles. In fact, the LA Lakers won the NBA Championship in Buss’s very first year of ownership. In addition, Lakers grew from $16 million in value at the time he bought them, to $1 billion by the end of his era.

Innovators combine their resourcefulness and outcomes-focus to expand the pie, by effectively converting non-consumers into consumers. In the process they transform their industry, community, country, and sometimes even the world.

In order to attract a crowd that would not normally attend a basketball game, he encouraged famous Hollywood stars to attend. Jack Nicholson has since become the face of the LA Lakers. Attendance and TV coverage skyrocketed; viewers wanted to see the stars on the front row just as much as they came to see Magic Johnson’s gravity-defying “no look passes” or Kareem Abdul-Jabbar’s “skyhooks.”

At a time when the major sporting events were shown on TV on pay-per-view basis, Buss co-foundedPrime Ticket TV network and started showing the LA Lakers games free on basic cable, which further expanded viewership. Advertisers took notice and another revenue stream opened up. Buss used the additional revenues from the expanded pie to get even better talent and even better coaches, and even better equipment to train them, which in turn meant more championships and more crowds—quite a virtuous cycle.

“I’ve worked hard and been lucky,” Buss said. “With the combination of the two, I’ve accomplished everything I ever set out to do.” We all owe a big thanks to Dr. Jerry Buss for the innovations that we now take for granted—he truly “changed the game.”

End of article.

I would like to bring up two key points to tie things together. Every business has two main functions; innovation and marketing. So, Govindarajan's post, being about innovation, is germane to each of us. For a refresher about the two functions of business read this post: The only reason your business exists

Also, in Govindarajan's post, the professor talks about “and” thinking. This is a really important concept but it puts us into the, sometimes difficult, realm of the paradox. To see what I'm talking about read this post: Embrace the Genius

The future belongs to the gestalts. And, hopefully, with this post, we're starting to tie together the various parts to create a clear, and complete, picture of work, emotions, and paradoxes. Have a bitchin' week!

Book Review: Your Guide to Investing

This is an overview of the book Rich Dad's Guide to Investing by Robert Kiyosaki

This is the third and final book in the Rich Dad trilogy.

Kiyosaki's bio: Mr. Kiyosaki is a fourth generation Japanese American who was born in Hilo, Hawaii in 1947. He graduated for from the US Merchant Marine Academy and served as a helicopter pilot in the Vietnam war. Robert is an investor and educator and founder of the Rich Dad company whose stated mission is to, “Elevate the financial well-being of humanity.”

Key point: If you want to be a rich and successful investor learn how to build businesses.

In this book, as to be expected, Kiyosaki gets into some more advanced topics.

The title of this book is, “Guide to Investing,” and yet it's about the importance of building businesses. For some, that might be a let down. But look at it this way, when you invest, what are you investing in? A business, of course. So business knowledge will translate to investing knowledge. Other recommended books on investing are What Works on Wall Street by James O'Shaughnessy and The Intelligent Investor by Benjamin Graham.

Basically there are two types of investors, those like George Soros and those like Warren Buffett. Soros is the shining example of technical investing. As Kiyosaki says, “The primary indicators the technical investor is concerned with are the mood of the market and the price of the stock.” Soros has made a lot of money so he's hard to argue with. However, his technique can quickly, and easily, devolve into gambling. This is what day traders do. They think they can anticipate the moves of the market. And it's a hell of a roller coaster ride. It's investing from the outside. Kiyosaki says, “Day trading is an extremely competitive S quadrant activity.”

This book is really about what is called fundamental investing. Warren Buffett is the best example of fundamental investing. Buffett thoroughly investigates the companies he invests in. Today, because he is dealing with such large sums of cash,  Warren mainly invests in companies with quality management and a durable competitive advantage. He uses a castle metaphor with the moat being the competitive advantage. Warren's one piece of advice, to his managers, is always, "Widen the moat." But back when Buffett was trading in smaller sums he searched for intrinsic value, things like the P/E ratio. Warren would dig through Moody's as well as read countless annual reports.  He likes to say that while other guys look through Playboy he prefers Standard and Poor's. Buffett can be said to invest from the inside.

As Kiyosaki says, the language of investing is numbers not words. So, it is necessary to have at least a basic understanding of accounting. Robert uses a very simply diagram, like the one below, to explain the basics.

The most important thing to understand is something called a statement of cash flow. That's the arrows. The boomerang looking thing, going through income and expense, is the cash flow from your job. It comes in as income and flows out through your expenses. The bottom arrow, pointing to the right, shows that liabilities cause the cash to flow out of your pocket. And the arrow on the far left, pointing upwards, shows that assets put money into your pocket as income.

Kiyosaki reminds us that money is only an idea, “Since money is only an idea, if your idea is that there is not enough money, then that is what your reality will be.” Robert is big on the importance of words. He says, “If people want to begin increasing their financial success, it begins with increasing their vocabulary in a certain subject.” In this case, we need to know words such as: asset, liability, cash flow, P/E ratios, etc.

There are three types of income: earned, passive and portfolio. Earned income is the income you earn at your job and it is, by far, the most highly taxed form of income. Passive income typically comes from real estate and businesses. And portfolio income, is generally derived from paper assets like stocks and bonds. Kiyosaki says, “Investing in the hopes of making more money so you can pay bills or buy a bigger house or a new car is a fool's investment plan. You invest for one reason: to acquire an asset that converts earned income into passive income or portfolio income.”

Robert's rich dad would say that 10% of the world's population owns 90% of its wealth And so, he would challenge Kiyosaki to find solutions to what he called the 90/10 Riddle. The riddle is this: How do you create an asset in the asset column without spending money to acquire it? There are, in fact, numerous solutions to the riddle. One of them is to build a business.

In building a business rich dad was guided by what he called the B-I Triangle, and here it is:

Rich dad said mission is most important so he always began with the mission. That's why it's makes up the base of the pyramid. He also said, "Business and investing are team sports.” He went on to say, “The problem with being in the E and S quadrants is that you play the game as an individual, playing against a team.” If you don't know the different quadrants, go here: The Cashflow Quadrant

Kiyosaki says that the purpose of a business is to buy assets. He often points to Ray Kroc, of McDonald's fame. Kroc would always maintain that his business was not hamburgers. His business was real estate. Indeed McDonald's is one of the largest owners of real estate in the world. Kiyosaki writes, “The more you practice building B-I Triangles, the easier it will be for you to create assets that buy other assets.”

In reality, B-I Triangles aren't very easy to build. They take a lot of learning and practice. In turn, Kiyosaki recommends network marketing. He views network marketing as an opportunity to practice building a B business.

I'll end with this. According to Kiyosaki, one of the main reasons people never venture out, and build a business of their own, is fear of making mistakes. In school we're taught to NOT make mistakes. Indeed, we're punished for making mistakes. Unfortunately, mistakes are the only way to learn. You can't learn to ride a bike by reading a book. Real world education is what Kiyosaki is all about. And it's the education that comes from trying and making mistakes. As his rich dad would say, “Some of the biggest failures I know are people who have never failed.”


What can you do with this information right now?

If you want to be rich, learn to build businesses. If you haven't already, review Rich Dad's Cashflow Quadrant. Rich people live in the B and I quadrants. According to Robert Kiyosaki and Donald Trump, the best option for most people, is to join a network marketing company. This way you can keep the job you have while learning Rich Dad's lesson on the side. To get into the I Quadrant you need three E's: education, experience, and excessive cash-flow. If you have questions, feel free to hit me up.