Warren Buffett Farewell Letter

 https://www.berkshirehathaway.com/news/nov1025.pdf

HONESTY, INTEGRITY, TRANSPARENCY

 

[Elon Musk] The biggest mistake in general I've made and tried to correct

 Great advice from Elon

What is Happiness?

How to Share With Just Friends

How to share with just friends.

Posted by Facebook on Friday, December 5, 2014

How to Depolarized Society by Simon Sinek

Difficult conversations are challenging for a reason; they require skill and hard work to effectively navigate. We have an opportunity to step up and systematically impart these skills to our people so they can flourish at work and also in their personal lives. 

How To Depolarize Society

Difficult conversations are challenging for a reason; they require skill and hard work to effectively navigate. We have an opportunity to step up and systematically impart these skills to our people so they can flourish at work and also in their personal lives.

Posted by Simon Sinek on Thursday, February 4, 2021

Japanese Buddhist Master reveals 21 rules of life

Powerful rules to cultivate acceptance are through continued practice in your actions and your attitude. The two things we actually have control over.

And these rules give you the necessary guidelines to do just that.

It might take months to rewire your brain, but it’s well worth it.

Check them out:

1) Accept everything just the way it is.

Acceptance is perhaps the most important attitude to overcome mental challenges in life.

It’s a state of mind. There’s no destination or goal with acceptance. It’s simply the process of exercising the mind to be tolerant of anything life throws at us.

Why is it powerful?

Because instead of fighting against negative emotions like anxiety and stress, you’re actually accepting them the way they are. You’re not bitter, and you’re not creating more negativity out of your negativity.

Through acceptance you pave the path for negative emotions like anxiety to become less powerful. You’re not fighting against them and making them worse.

But to be clear: Acceptance is not the following: It’s not indifference or apathy. It does not involve giving up or not trying. It’s simply about accepting things without judging them.

It is what it is. Whatever happens. It’s about being patient and allowing the natural flow of things to take place.

2) Do not seek pleasure for its own sake.

As humans, we’re unhappiest when we become dissatisfied with what we have, and decide that we want more.

When we seek pleasure for pleasure’s sake, we put ourselves in an endless loop of desiring that’s only temporarily satisfied when we experience that pleasure.

But feelings don’t last forever. And before you know it, you’ll back desire again.

This doesn’t mean you can’t have fun and enjoy pleasure when you experience it. It just means you won’t be constantly seeking pleasure for its own sake. You appreciate what you have in every moment, and sometimes that will be pleasurable emotions.

But you also won’t be unhappy when you aren’t experiencing pleasure.

3) Do not, under any circumstances, depend on a partial feeling.

Same as above, feelings don’t last forever. Emotions are transient. You won’t be happy all the time, and wanting to be so will only make you unhappy.

4) Think lightly of yourself and deeply of the world.

When you think of yourself too much, you amplify your ego and your insecurities.

Happy people are the ones who focus on helping others. There’s a beautiful Chinese Proverb which describes this perfectly:

“If you want happiness for an hour, take a nap. If you want happiness for a day, go fishing. If you want happiness for a year, inherit a fortune. If you want happiness for a lifetime, help somebody.”

In other words: Be humble, don’t take yourself too seriously and focus on helping others.

5) Be detached from desire your whole life long.

Buddhism says that desiring leads to suffering. Why? Because when you’re desiring, you’re dissatisfied with what you have right now.

And when you get what you want, this leads you down an endless loop of desiring.

If you can forget about the idea of wanting, you can learn to be comfortable and gratefulfor what you have right now, which is key to inner peace.

6) Do not regret what you have done.

Regret is a useless emotion, isn’t it? You can’t change what’s happened. Yes, you can learn from what happened, but that doesn’t involve experiencing regret.

I know that sometimes we can’t help but regret things in life, but it’s important not to dwell on it. It’s useless to do so.

7) Never be jealous.

Another useless emotion. It also means you’re insecure with yourself, because you’re envious of someone else.

Instead, look inside yourself and be grateful for who you are and what you have.

8) Never let yourself be saddened by separation.

It sucks to separate from someone you want to be with. But getting sad over it won’t help you or them.

Sometimes you just need to toughen up and appreciate what you have, not what you lose.

9) Resentment and complaint are appropriate neither for oneself nor others.

Again, complaining without action doesn’t help you achieve anything. It only serves to raise your toxic energy.

And don’t let what other people do affect you as well. You’re not in control of what they do. But you are in control of how you react to what they do.

10) Do not let yourself be guided by the feeling of lust or love.

This one’s probably a controversial one for many. For me, too. I think we can all agree that you don’t want to be guided by lust. It’s similar to chasing emotions that don’t last forever and will only give you temporary fulfilment.

Love, however, is a different story. I don’t know about you, but I think that love is one of the most important emotions to be guided by. Your family is everything, whoever they are, and your life is much more fulfilled when you do whatever you can for them.

11) In all things have no preferences.

Similar to desiring, by having preferences, you’re not happy with what you have right now. You’re dissatisfied and unable to enjoy the present moment.

So if you can, try not to prefer something over something else, especially if you can’t control it.

12) Be indifferent to where you live.

If you can change where you live, then by all means go ahead. And don’t stop looking for opportunities to do so.

But besides doing that, it’s more fulfilling to appreciate where you are right now, rather than wishing it were different.

13) Do not pursue the taste of good food.

Interesting one. Focus on eating to be healthy and for nourishment. Desiring delicious food can lead to addiction and attachment. This goes for alcohol and drugs, too.

14) Do not hold onto possessions you no longer need.

It’s easy to get cluttered with junk that you don’t need. But if it’s not benefiting your life, get rid of it. More space and clear thinking is what’s needed. Not more stuff.

15) Do not act following customary beliefs.

Follow your own common sense. Do what makes sense to your own values, not what other people think. Decide for yourself.

You know what’s right and wrong. You don’t need someone else to tell you.

16) Do not collect weapons or practice with weapons beyond what is useful.

A tribute to his swordsman time, but we can apply this for our lives, too. It’s better to be an expert in one thing, than okay at everything.

17) Do not fear death.

Extremely hard to do. But it’s something none of us will escape. We can either learn to accept that our own and our close one’s time will eventually come, or fight against it causing anxiety and sadness for the rest of our lives. The human body is fallible, after all.

18) Do not seek to possess either goods or fiefs for your old age.

What good will they do you when you’re gone? Only collect what is useful. Don’t waste your time.

19) Respect Buddha and the Gods without counting on their help.

Take responsibility for yourself. Don’t count on luck or god to pull you through. Tackle the endeavors you know are within your capabilities. Keep doing the right thing and everything else will fall into place.

20) You may abandon your own body but you must preserve your honor.

Don’t do anything that you won’t be able to live with for the rest of your life. Your actions define you, not your beliefs.

21) Never stray from the way.

Stay humble, do the right thing and always keep learning and growing.

1st TOTO President

Truly a great leader...

First TOTO President Kazuchika Okura
When Kazuchika Okura joined the Morimura Gumi, he discovered the amazing properties of ceramic ware in their key products. As a result, Kazuchika founded TOTO and NGK Insulators after being appointed the first President of Nippon Toki (current Noritake Co., Ltd.), which he founded together with his father, Magobe. Kazuchika built the kingdom of ceramics today by driving the founding of the specialty Japanese ceramics businesses.

Provision of high-quality products and customer satisfaction are important
Your goal should be to provide good products and satisfy the customer. Accomplish that, and profit and compensation will follow.
Many in this world chase after the shadow of profit, but to the end never capture the real thing.

Reflection at 85 - Koon Yew Yin

Very insightful thoughts from superinvestor, Koon Yew Yin

Today is my 85^th birthday. After having lived so long, I have learned quite a lot of things which I would like to share with you tonight. I believe this article can help people to live a happy and useful life.

Even each lover has his or her own secret. But I reveal all.

1.   Our ultimate aim in life must be happiness. Even if you are poor, you can be happy if you can develop your sense of contentment. I always feel satisfied with whatever I have.

2.   Everyone is born to do some work. Most people work for a living. Even if you born from a rich family, you need to do something to while away your time, otherwise life can be boring. Always do the work which you like even for less money. Working for fun is like a hobby. 

3.   There are many obstacles and challenges to overcome in life. Don’t be afraid if you made a mistake. Learn from your mistake so that you can improve. As you go along, you can always learn new things. You are born with 2 ears and 1 mouth. You must always listen more than you talk. You can also learn something new from opposing opinion. When you are not so sure, take a small step first.  

4.   Life is not fair, but it is still good. Never give up if you want to achieve your goal in making money to give your children a good education.

5.   Satisfying your taste bud has always been a great pleasure ever since you were born. But do not over eat or drink. To be healthy, you eat to live and not live to eat. Of course, you can over indulge occasionally to be happy. 

6.   No one can win an argument all the time. You can always find reasons to justify your argument. To avoid unhappiness, you don’t have to win every argument. If you continue to argue, you will lose a friend.

7.   Besides the holy bible, the best book to read is ‘How to win friends and influence people’ by Dale Carnegie. After reading it, you will know how to win friends and influence people to cooperate with you to achieve your goal easier. The first principle in management is to find a donkey to help do your work. When in doubt, just take a small step forward.

8.   Make peace with your past so it won’t mess up the present.

9.   Don’t compare your life to others because you don’t know what they have gone through.

 

10.   Get rid of anything that is not useful so that you are free to move forward.

 

11.  We are often faced with a myriad of choices. Though we may not always recognize their presence, we are inevitably faced with the responsibility of having to make a choice. There is no escaping this responsibility - after all, not deciding what to do or how to act in a given situation is a choice in itself. But why are the choices we make so important? If you want to be happy, you have to make a choice to be happy.

 

12.  When you are in great difficulty and you cannot find a solution, remember that time heals everything. Nothing except death is permanent, for time will change everything.   

13.  You cannot be always right. Be humble to admit your mistake.

14.  Forgiveness is the key to happiness. 

15.  Envy is a negative emotion. Accept what you already have, not what your friends have.

16.  It is better not to expect anything from your children to avoid disappointment. 

17.  Always believe the best is yet to come. Hoping for better days is positive thinking.  

18.  Always be honest and sincere. Treat people with kindness and help them in whatever way you can. If you can help people to gain happiness, you will also gain happiness. 

19.  To reduce stress, I always try to be happy by counting my blessings. I try not to meet too many people. I try to avoid big wedding dinners. 

20.  Don’t suffer from an exaggerated sense of injustice. We must be concerned about politics because it affects all of us in so many ways and impacts the future of our children. But you must bear in mind that you alone cannot change the situation or the flow of current affairs. After you have done what you can, leave it to fate and don’t be unhappy. 

21.  Don’t care too much what others think of you. Normally you will not feel happy to do something without your spouse’s approval, or that of friends and family. But you must not be afraid to exercise your own judgment in certain important matters, e.g. when to buy and when to sell shares. Everyone has his own opinion but who is right and who is wrong is a constant puzzle.

22.  Investing in the stock market is the easiest way to make money if you know how to select good stocks. After more than 50 years of experience, I thought I have seen every situation and nothing can surprise me any more until I found Hengyuan. Its share price rose from Rm 2.50 in the beginning of 2017 to close at Rm17.30 yesterday, a rise of 700% within 1 year.

My share selection golden rule:

I found it by using my share selection golden rule which cannot be found in any text book. Among all the criteria such as NTA, cash flow, return on equity, healthy accounts with cash in fix deposit, the most important is profit growth prospect which is the most powerful catalyst to move share price. When I see a company with good business showing a sudden jump in profit, I will start to buy it as long as its prospective P/E is less than 10. I will continue to buy more shares if it shows increasing profit. I will not sell until I see the company starts to report a reduced profit.   

23.  How I create more and more charity workers? I will feel happy if I can make someone happy. I have given more than 300 scholarships to help needy students to complete their tertiary education. All my scholarship recipients are not required to work for me or return the money I spent on them. But they must remember that when they were poor I helped them and when they have more money than they require, they should help other poor people. In this way, hopefully, there will be more and more people doing charity.

24.  Always remember that you cannot take with you any of your possessions when you die. I have written in my will that my executers will use all my remaining wealth to help poor students.

25.  How I can prolong my life? I had a hereditary familial hypercholesterolemia which means that my body produces a lot more cholesterol than ordinary people. 3 out of my 8 siblings have the same blood disease. My elder brother died before he reached the age of 50. My younger sister who went with me to London to have the same bypass operation in 1983, died about 10 years after the operation.

Why I am still alive? Here are my secrets:

My wife’s loving care and affection are most important. Physical and mental exercises are important. I walk about 30 minute every evening. I spend about 8 hours on the computer every day to exercise my brain to keep me mentally alert.

When I wake up in the morning, I drink 2 glasses of water. I drink more water than I really required. I eat half a pineapple every morning on an empty stomach and I do not eat anything before lunch.

I have an hour’s nap after lunch. I do not overeat. I drink 1 or 2 cups of coffee. I avoid sugar.

26. Most people are afraid to die. After I have lived a useful and happy long life with no regrets, I am not afraid to die.

The surprising thing Google learned about its employees

The seven top characteristics of success at Google are all soft skills: being a good coach; communicating and listening well; possessing insights into others (including others different values and points of view); having empathy toward and being supportive of one’s colleagues; being a good critical thinker and problem solver; and being able to make connections across complex ideas.

How Amazon founder Jeff Bezos went from the son of a teen mom to the world's richest person

..."As Bezos charged full force into the Wild West that was the Internet then, he was — and still is today — guided by a single belief: Do what is best for the customer."

..."Finally, he's obsessive about finding problems and fixing them.
"Taking real pride in operational excellence, so just doing things well, finding defects and working backwards — that is all the incremental improvement that in business, most successful companies are very good at this one. ... [Y]ou don't want to ever let defects flow downstream," Bezos says to Rose. "That is a key part of doing a good job in any business in my opinion.""

BERKSHIRE 101: An introduction to Warren Buffett's $400 billion empire

Very well written summary of how Warren Buffett and Charlie Munger grow this 'GIANT' (by Yahoo Finance)

Berkshire Hathaway (BRK-A) (BRK-B) was a struggling textile company when Warren Buffett first invested in it in 1962.

Today, it’s a $400 billion behemoth. In Buffett’s own words, it’s a “sprawling conglomerate, constantly trying to sprawl further.”

The companies in Berkshire’s portfolio vary greatly. But one thing ties them all together: Buffett says they’re about “maximizing long-term capital growth.”

Here’s a brief introduction to Berkshire Hathaway.

The insurance business is the backbone of the company

After it acquired National Indemnity in 1967, Berkshire relied on its insurance businesses to power much of its expansion.

As Berkshire has gotten bigger and diversified its businesses, its insurance operations have become a smaller contributor to earnings than in the past, currently making up 26% of total company earnings. But they remain an important part of the company’s access to a permanent capital base by generating what’s known as “float.”

“Float” is money collected up front that is not paid out until later. In Berkshire’s property & casualty (P&C) insurance businesses, premiums are collected up front, but claims are paid out often years or decades later, allowing the float to be used for investments.

Today, Berkshire’s insurance group consists of four segments: GEICO (auto insurance), General Re (reinsurance), BH Reinsurance Group (retroactive reinsurance through subsidiaries), and BH Primary (focused on commercial markets, led by National Indemnity Co).

The property and casualty insurance business has faced headwinds—including deteriorating pricing and margin compression. But 2016 posted solid performance, with GEICO in particular making a comeback. Last year, GEICO suffered from higher personal auto claims (as a result of more low gas prices and more driving), and this year it accelerated new business efforts.

Berkshire’s insurance float was only $1.6 billion in 1990, and sat at $91.6 billion as of 2016. It is now over $100 billion, including the $10 billion reinsurance deal with AIG (AIG).

Equity portfolio

Berkshire’s investment portfolio represents Buffett’s long-term conviction ideas.

At the end of 2016, about 60% of his equity portfolio was invested in five companies—Wells Fargo (WFC), Coca-Cola (KO), IBM (IBM), American Express (AXP) and Apple (AAPL), a position he initiated last year and built up even more recently

Buffett also made a big bet on airlines last year, diverging from his position in the past. He significantly increased his positions in Delta (DAL), United Airlines (UAL) and American Airlines (AAL) while adding a big stake in Southwest Air (LUV).

Shift to non-insurance businesses

Berkshire has evolved from its early years, when it was an insurance-driven company driven by outperformance on investments. It is now a large conglomerate that includes many non-insurance businesses.

The railroad business now comprises 22% of Berkshire earnings. Burlington Northern Santa Fe Railroad (BNSF), which Berkshire acquired in 2009 for $44 billion, is one of seven major railroads in North America and carries 17% of all inter-city freight. Berkshire has been investing heavily in this business.

Utilities businesses comprise 10% of Berkshire earnings. BH Energy owns four utilities servicing customers in 11 Western/Midwestern states, two electricity distribution companies in England, two interstate pipelines, a renewable energy business, and a residential real estate brokerage firm.

Berkshire’s manufacturing, service and retailing (MSR) operations, 35% of total earnings, include everything from candy to jets. Companies include food supply chain company McLane, manufacturing businesses (like specialty chemicals company Lubrizol, industrial components company Marmon, flooring company Shaw Industries, and paint and coatings company Benjamin Moore), service and retailing businesses (including NetJets, See’s Candies, Borsheim Jewelry Company, the Pampered Chef, and Oriental Trading Company), recently acquired battery maker Duracell, and aerospace components manufacturer Precision Castparts, which Berkshire bought in 2015 for $37 billion.

Its finance businesses, 8% of earnings, focus largely on the manufacturing and financing of homes and the leasing of transportation equipment. They include Clayton Homes, UTLX, XTRA, and other leasing and financing activities.

Acquisitions accounted for about 60% of Berkshire’s earnings growth in the past 20 years, according to Morgan Stanley.

As Morgan Stanley’s Kai Pan points out, Berkshire has a “managers as owners,” mentality, a decentralization that allows each unit to focus on long-term goals. Additionally, Pan highlights, each unit maintains an economic “moat” in its respective industry, separating it from competition to some degree.

More acquisitions are likely on the horizon for Berkshire, which has an estimated $60 billion in excess capital.

Valuation

Buffett’s preferred method for evaluating the attractiveness of investments and businesses is intrinsic value, which represents the sum of all of discounted cash flows that can be taken out of a business during its remaining life.  The investor Whitney Tilson sees the current intrinsic value at $300,000 per share, significantly above the recent share price of $247,520.

Book value is another approach used to value Berkshire. However, Buffett has noted that the metric has underrepresented Berkshire’s intrinsic value because of the number of operating businesses Berkshire has acquired, which are held on the books at cost.

A book value calculation does, however, provide a floor for investors. Berkshire has an open-ended share repurchase program that authorizes management to repurchase shares if the stock price drops below a price-to-book ratio of 1.2x.

Beneficiary of stimulus

As Morgan Stanley’s Kai Pan points out, Berkshire has large exposure to Industrials and Financials and thus will be a major beneficiary of the administration’s “pro-growth” policies and tax reform, if they pan out.

“Given Berkshire’s outsized exposure in Industrials and Financials, it is not surprising that BRK shares have rallied +22% post-election vs. +14% for the S&P 500,” Pan wrote on March 20. “A potentially lower US corporate tax rate would also aid earnings. A 20% tax rate could boost BRK earnings by ~14% vs. its current ~30% consolidated tax rate,” he added.

The bottom line: Berkshire’s business has transformed over the years, but remains focused on long-term return and the efficient use of capital.

Bill Gates, Warren Buffett And Oprah All Use The 5-Hour Rule-An hour a day (or five hours a week)

https://www.evernote.com/shard/s112/sh/22e1ab14-987f-4e18-bfd8-3050d4ff7a53/168992c2b93ac789b5bede5f4155a7c9
Top business leaders often spend five hours per week doing deliberate learning.
Many of these leaders, despite being extremely busy, set aside at least an hour a day (or five hours a week) over their entire career for activities that could be classified as deliberate practice or learning.

How the best leaders follow the 5-hour rule, they often fell into three buckets: reading, reflection, and experimentation.
1. Read
2. Reflect
3. Experiment

Pareto Principle, the 80/20 Rule

The 1 Percent Rule: Why a Few People Get Most of the Rewards
By James Clear    |    Continuous Improvement, Habits

Sometime in the late 1800s—nobody is quite sure exactly when—a man named Vilfredo Pareto was fussing about in his garden when he made a small but interesting discovery.

Pareto noticed that a tiny number of pea pods in his garden produced the majority of the peas.

Now, Pareto was a very mathematical fellow. He worked as an economist and one of his lasting legacies was turning economics into a science rooted in hard numbers and facts. Unlike many economists of the time, Pareto's papers and books were filled with equations. And the peas in his garden had set his mathematical brain in motion.

What if this unequal distribution was present in other areas of life as well?

The Pareto Principle
At the time, Pareto was studying wealth in various nations. As he was Italian, he began by analyzing the distribution of wealth in Italy. To his surprise, he discovered that approximately 80 percent of the land in Italy was owned by just 20 percent of the people. Similar to the pea pods in his garden, most of the resources were controlled by a minority of the players.

Pareto continued his analysis in other nations and a pattern began to emerge. For instance, after poring through the British income tax records, he noticed that approximately 30 percent of the population in Great Britain earned about 70 percent of the total income.

As he continued researching, Pareto found that the numbers were never quite the same, but the trend was remarkably consistent. The majority of rewards always seemed to accrue to a small percentage of people. This idea that a small number of things account for the majority of the results became known as the Pareto Principle or, more commonly, the 80/20 Rule.

Inequality, Everywhere
In the decades that followed, Pareto's work practically became gospel for economists. Once he opened the world's eyes to this idea, people started seeing it everywhere. And the 80/20 Rule is more prevalent now than ever before.

For example, through the 2015-2016 season in the National Basketball Association, 20 percent of franchises have won 75.3 percent of the championships. Furthermore, just two franchises—the Boston Celtics and the Los Angeles Lakers—have won nearly half of all the championships in NBA history. Like Pareto's pea pods, a few teams account for the majority of the rewards.

The numbers are even more extreme in soccer. While 77 different nations have competed in the World Cup, just three countries—Brazil, Germany, and Italy—have won 13 of the first 20 World Cup tournaments.

Examples of the Pareto Principle exist in everything from real estate to income inequality to tech startups. In the 1950s, three percent of Guatemalans owned 70 percent of the land in Guatemala. In 2013, 8.4 percent of the world population controlled 83.3 percent of the world's wealth. In 2015, one search engine, Google, received 64 percent of search queries.

Why does this happen? Why do a few people, teams, and organizations enjoy the bulk of the rewards in life? To answer this question, let's consider an example from nature.

The Power of Accumulative Advantage
The Amazon rainforest is one of the most diverse ecosystems on Earth. Scientists have cataloged approximately 16,000 different tree species in the Amazon. But despite this remarkable level of diversity, researchers have discovered that there are approximately 227 “hyperdominant” tree species that make up nearly half of the rainforest. Just 1.4 percent of tree species account for 50 percent of the trees in the Amazon.

But why?

Imagine two plants growing side by side. Each day they will compete for sunlight and soil. If one plant can grow just a little bit faster than the other, then it can stretch taller, catch more sunlight, and soak up more rain. The next day, this additional energy allows the plant to grow even more. This pattern continues until the stronger plant crowds the other out and takes the lion’s share of sunlight, soil, and nutrients.

From this advantageous position, the winning plant has a better ability to spread seeds and reproduce, which gives the species an even bigger footprint in the next generation. This process gets repeated again and again until the plants that are slightly better than the competition dominate the entire forest.

Scientists refer to this effect as “accumulative advantage.” What begins as a small advantage gets bigger over time. One plant only needs a slight edge in the beginning to crowd out the competition and take over the entire forest.

Winner-Take-All Effects
Something similar happens in our lives.

Like plants in the rainforest, humans are often competing for the same resources. Politicians compete for the same votes. Authors compete for the same spot at the top of the best-seller list. Athletes compete for the same gold medal. Companies compete for the same potential client. Television shows compete for the same hour of your attention.

The difference between these options can be razor thin, but the winners enjoy massively outsized rewards.

Imagine two women swimming in the Olympics. One of them might be 1/100th of a second faster than the other, but she gets all of the gold medal. Ten companies might pitch a potential client, but only one of them will win the project. You only need to be a little bit better than the competition to secure all of the reward. Or, perhaps you are applying for a new job. Two hundred candidates might compete for the same role, but being just slightly better than other candidates earns you the entire position.

Situations in which small differences in performance lead to outsized rewards are known as Winner-Take-All Effects.
These situations in which small differences in performance lead to outsized rewards are known as Winner-Take-All Effects. They typically occur in situations that involve relative comparison, where your performance relative to those around you is the determining factor in your success.

Not everything in life is a Winner-Take-All competition, but nearly every area of life is at least partially affected by limited resources. Any decision that involves using a limited resource like time or money will naturally result in a winner-take-all situation.

In situations like these, being just a little bit better than the competition can lead to outsized rewards because the winner takes all. You only win by one percent or one second or one dollar, but you capture one hundred percent of the victory. The advantage of being a little bit better is not a little bit more reward, but the entire reward. The winner gets one and the rest get zero.

Winner Take All Effects

Winner-Take-All Leads to Winner-Take-Most
Winner-Take-All Effects in individual competitions can lead to Winner-Take-Most Effects in the larger game of life.

From this advantageous position—with the gold medal in hand or with cash in the bank or from the chair of the Oval Office—the winner begins the process of accumulating advantages that make it easier for them to win the next time around. What began as a small margin is starting to trend toward the 80/20 Rule.

If one road is slightly more convenient than the other, then more people travel down it and more businesses are likely to build alongside it. As more businesses are built, people have additional reasons for using the road and so it gets even more traffic. Soon you end up with a saying like, “20 percent of the roads receive 80 percent of the traffic.”

If one business has a technology that is more innovative than another, then more people will buy their products. As the business makes more money, they can invest in additional technology, pay higher salaries, and hire better people. By the time the competition catches up, there are other reasons for customers to stick with the first business. Soon, one company dominates the industry.

If one author hits the best-seller list, then publishers will be more interested in their next book. When the second book comes out, the publisher will put more resources and marketing power behind it, which makes it easier to hit the best-seller list for a second time. Soon, you begin to understand why a few books sell millions of copies while the majority struggle to sell a few thousand copies.

The margin between good and great is narrower than it seems. What begins as a slight edge over the competition compounds with each additional contest.
The margin between good and great is narrower than it seems. What begins as a slight edge over the competition compounds with each additional contest. Winning one competition improves your odds of winning the next. Each additional cycle further cements the status of those at the top.

Over time, those that are slightly better end up with the majority of the rewards. Those that are slightly worse end up with next to nothing. This idea is sometimes referred to as The Matthew Effect, which references a passage in The Bible that says, “For all those who have, more will be given, and they will have an abundance; but from those who have nothing, even what they have will be taken away.”

Now, let's come back to the question I posed near the beginning of this article. Why do a few people, teams, and organizations enjoy the bulk of the rewards in life?

The 1 Percent Rule
Small differences in performance can lead to very unequal distributions when repeated over time. This is yet another reason why habits are so important. The people and organizations that can do the right things, more consistently are more likely to maintain a slight edge and accumulate disproportionate rewards over time.

You only need to be slightly better than your competition, but if you are able to maintain a slight edge today and tomorrow and the day after that, then you can repeat the process of winning by just a little bit over and over again. And thanks to Winner-Take-All Effects, each win delivers outsized rewards.

We can call this The 1 Percent Rule. The 1 Percent Rule states that over time the majority of the rewards in a given field will accumulate to the people, teams, and organizations that maintain a 1 percent advantage over the alternatives. You don't need to be twice as good to get twice the results. You just need to be slightly better.

The 1 Percent Rule is not merely a reference to the fact that small differences accumulate into significant advantages, but also to the idea that those who are one percent better rule their respective fields and industries. Thus, the process of accumulative advantage is the hidden engine that drives the 80/20 Rule.