Models

Author

Joe House
September 25, 2022

"All models are wrong, but some are useful"

-George Box, 1976

Statistics legend, George Box, said this about models in1976. But, what is a model really?

Model (noun): 

i. A representation of a person or thing, typically on a smaller scale.

ii. A system or thing used as an example to follow or imitate.

iii. A description or analogy used to help visualize something (ex; an atom) that cannot be directly observed.

PERSON: One of the most popular applications of a model is a "role model", or for those willing to make it possible; a mentor.  Check out this video by Patrick Bet-David highlighting the importance of mentorship. In this video PBD explains:

  1. How mentor can change your life

  2. The different levels of mentorship

  3. How to approach a mentor

Do you have a mentor?

Are you a mentor?

SYSTEM: Models matter when predictable results matter. Gary Keller, the founder of Keller Williams Realty is big on models. He's also generated incredible results through his model.

Listen to this podcast, Five Myths About Models to learn:

  1. Models are a shortcut to your best thinking

  2. Operating a models based business will attract others to join you

  3. The ideal length of a model that you can actually use

DESCRIPTION: The final definition of a model explored here is a description or analogy used to help visualize something (ex; an atom) that cannot be directly observed. In an industry filled with models, Howard Marks of Oaktree Capital explains in his September 2022 memo The Illusion of Knowledge, how macroeconomic forecasts are not really knowledge. Instead Marks focuses his model on what is happening today, and defining possible implications for the future.

Prefer to listen? Find the Podcast here. 

TIP: Keep it SImple

Keep your models simple! It’s easy to build a model with a wide range of variables and unlimited possible outcomes, but it's hard to use. Be disciplined about the model you build and simplify it so that it can be applied quickly to the hundreds of decisions you face every day.

Analyzing your business for macro risk? See advice from Bain Capital here on limiting your macro risk factors to 2 and building a robust analysis on outcomes from these two.

Stay Productive. 

Joe House