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What I'm reading #9: Building blocks of wisdom

By Sam Instone - March 03, 2022

In the 15th century, a German goldsmith named Johannes Gutenberg created the printing press.

Revolutionising the distribution of information. 

Up until then, books were considered a rich person’s possession (they were created by hand, which made them in short supply and expensive).

Gutenberg enabled information to flow much more freely by reducing the process of printing down to its fundamental parts: movable type, paper, and ink.

Then, he combined this with a screw press, a device used by winemakers at the time, to create the printing press.

Gutenberg was the first person to consider the constituent parts of the process and adapt technology from an entirely different field, to make printing far more efficient.

He deconstructed and reconstructed.

This way of thinking, known as “first-principles thinking”, can help us understand the world better, as well as help us solve problems.

Six centuries later, Elon Musk, a visionary of our times, applied first principles to not only get over his fear of the dark but also design cost-effective rockets from scratch.

And not just Musk, some of the most brilliant minds of all time – Aristotle, Feynman, and Nikola Tesla – are known to have used first-principles thinking to solve difficult problems and create great work in their lifetime.

Aristotle in fact described first principles as “the first basis from which a thing is known.”

First principles 

This weekend I made a Star Wars Lego set with my son.

We deconstructed and reconstructed.

Individual Lego bricks are like the first principles.

They are reusable and you can start mixing them in ways you could not before, allowing you to think better.

Growing up, I had it drummed into me that the investment call that always produced the highest expected dimensions of return over time, was equities.

But I learnt very few first principles and my father’s generation seem to have speculated their way to wealth in the vacuum of information that came before the Internet.

What, then, may be the first principles of simple, inevitable wealth?

  1. Understand what your financial adviser can do for you and what he can’t?
  2. Be an owner, not a loaner?
  3. Understand what the real risk is and isn’t?
  4. What impact does our behaviour have on our wealth?
  5. Getting diversified, staying diversified, and steering clear of the big mistake?
  6. Optimism is the only realism?

We apply this thinking daily, particularly when we meet with the many top professionals who have been chewed up and spat out or wounded by the traditional system and vacuum of information that enables it.

Your thinking becomes clearer when you stop making assumptions and, as Simon Sinek would say, start with why”.

The trick is, like a child, to then keep asking questions until all the little bits make sense.


Further reading

What I'm reading #8: Never ignore opportunity costs

Is it worth having a financial plan?

How to leave a £1.7 million legacy for your children

3 lessons for those fearful of the markets