Episode #2: The Money Blueprint – Part 2 – Compounding, Opportunity Costs, and Thinking about Thinking

After establishing a foundation for how to think about money in the first episode, we go on to lay an foundation for how to think.

In Filters Against Folly, Garrett Hardin’s great book, he outlines three filters for making decisions. I found these tremendously helpful in making good investing decisions.

The three filters are: literacy, numeracy and ecolate.

  • Literacy is “What are the words?”
  • Numeracy is “What are the numbers?” As we get into value investing, you’ll see that’s big.
  • Ecolate is “…then, what?” As we think about business, we’ll see how big that is. Nothing exists in isolation. Everything is connected. There are ripple effects for any decision.

We discuss geometric progressions.

We discuss how amazing compounding is. Compounding is the eighth wonder of the world. Anybody could be a millionaire if they had enough time and discipline to let money compound.

Lastly, we cover opportunity costs, which relates to maximizing that compounding. We discussed opportunity costs as a way to organize decision making. You determine where you get the most return from your dollar.