Practical Wisdom from "The Almanack of Naval Ravikant":Wealth
"The Almanack of Naval Ravikant" is a book that compiles the wisdom and insights of entrepreneur and investor Naval Ravikant. This book mainly talks about two topics, wealth and happiness. It offers practical advice on how to live a more fulfilling and purposeful life.
Through his own experiences and perspectives, Naval provides readers with valuable insights into topics like success, motivation, and personal growth, making the book a useful guide for anyone looking to improve their life and achieve their goals
I have benefited greatly from reading this book, and I want to write some important takeaways from this book. As this book was written in English, I want to give it a try to write it in English, too. too. Hoping the passage will be beneficial to you, this passage is about the first topic: Wealth
We have been pursuing wealth almost all our lives, and financial freedom seems to be the ultimate goal of everyone
But firstly，what's the definition of wealth? The book gives the definition of wealth as follows
Wealth is assets that earn while you sleep.
Wealth is the factory, the robots, cranking out things. Wealth is the computer program that’s running at night, serving other customers. Wealth is even money in the bank that is being reinvested into other assets, and into other businesses.
We should purse wealth, not money or status. Because money is how we transfer time and wealth, and status is your place in the social hierarchy.
You will get rich by giving society what it wants but does not yet know how to get at scale.
So the following will focus on some of the key factors and abilities the author believes are necessary to achieve financial freedom
You’re not going to get rich renting out your time. You must own equity—a piece of a business to gain your financial freedom.
If you are paid for renting out your time, you can make some money, but you’re not going to make the money that gives you financial freedom. You’re not going to have passive income where a business is earning for you while you are on vacation.
Everybody who really makes money at some point owns a piece of a product, a business, or some IP.
You have to work up to the point where you can own equity in a business. You could own equity as a small shareholder where you bought stock, or stock options if you work at a tech company. You could also own it as an owner where you started the company.
But usually, the real wealth is created by starting your own companies or even by investing. In an investment firm, they’re buying equity. These are the routes to wealth. It doesn’t come through the hours.
Specific knowledge is knowledge you cannot be trained for. If society can train you, it can train someone else and replace you.
The specific knowledge is sort of this weird combination of unique traits from your DNA, your unique upbringing, and your response to it. It’s almost baked into your personality and your identity. It is found much more by pursuing your innate talents, your genuine curiosity, and your passion. It’s not by going to school for whatever is the hottest job; it’s not by going into whatever field investors say is the hottest.
Some specific knowledge listed in the book are as follows
With all the specific knowledge above, we will focus on the sales skills.
If someone is a natural at sales, obviously they learned somewhere, but they didn’t learn it in a classroom setting. They learned probably in their childhood in the school yard, or they learned negotiating with their parents. Maybe some is a genetic component in the DNA
But you can improve sales skills. You can read Robert Cialdini, you can go to a sales training seminar, you can do door-to-door sales. It is brutal but will train you very quickly. Specific knowledge cannot be taught, but it can be learned.
Learn to sell. Learn to build. If you can do both, you will be unstoppable.
The most important skill for getting rich is becoming a perpetual learner.
It’s much more important today to be able to become an expert in a brand-new field in nine to twelve months than to have studied the “right” thing a long time ago
Archimedes once said, "Give me a lever long enough and a fulcrum on which to place it, and I shall move the world."
Fortunes also require leverage. Business leverage comes from capital, labor, and products with no marginal cost of replication (code and media).
Capital means money. To raise money, apply your specific knowledge with accountability and show resulting good judgment. For example, working is the most common way to do this
Labor means people working for you. It’s the oldest and most fought-over form of leverage. Labor leverage will impress your parents, but don’t waste your life chasing it.
I think we should always remember the leverage we can use
- Capital and labor are permissioned leverage. Everyone is chasing capital, but someone has to give it to you. Everyone is trying to lead, but someone has to follow you.
- Code and media are permissionless leverage. They’re the leverage behind the newly rich. You can create software and media that works for you while you sleep.
The most interesting and the most important form of leverage is the idea of products that have no marginal cost of replication. This is the new form of leverage. This was only invented in the last few hundred years. It started with the printing press. It accelerated with broadcast media, and now it’s really blown up with the internet and with coding. Now, you can multiply your efforts without involving other humans and without needing money from other humans.
Also, they are permissionless. They don’t require somebody else’s permission for you to use them or succeed. For labor leverage, somebody has to decide to follow you. For capital leverage, somebody has to give you money to invest or to turn into a product. Coding, writing books, recording podcasts, tweeting, YouTubing—these kinds of things are permissionless.
The book offers two useful advice, which can be applied to most people
- An army of robots is freely available—it’s just packed in data centers for heat and space efficiency. Use it.
- If you can’t code, write books and blogs, record videos and podcasts.
"Productize" has leverage. "Yourself" has accountability."Productize" has specific knowledge. "Yourself" also has specific knowledge in there.
Society will pay you for creating things it wants. But society doesn’t yet know how to create those things, because if it did, they wouldn’t need you. They would already be stamped out.
So if you want to be wealthy, you want to figure out which one of those things you can provide for society that it does not yet know how to get but it will want and providing it is natural to you, within your skill set, and within your capabilities.
Then, you have to figure out how to scale it because if you only build one, that’s not enough. You’ve got to build thousands, or hundreds of thousands, or millions, or billions of them so everybody can have one
So I think we can keep asking the question: Am I productizing it? Am I scaling it? Am I scaling with labor or with capital or with code or with media?
Long-Term Game and Compound Interest
Compound interest is a very powerful concept. Compound interest applies to more than just compounding capital.It can also be applied in business relationships, reputation and individual people working with.
Play iterated games. All the returns in life, whether in wealth, relationships, or knowledge, come from compound interest.
Prioritize and Focus
Spend more time making the big decisions. There are basically three really big decisions you make in your early life: where you live, who you’re with, and what you do.
We spend very little time deciding which relationship to get into. We spend so much time in a job, but we spend so little time deciding which job to get into. Choosing what city to live in can almost completely determine the trajectory of your life, but we spend so little time trying to figure out what city to live in.
If you’re going to live in a city for ten years, if you’re going to be in a job for five years, if you’re in a relationship for a decade, you should be spending one to two years deciding these things. These are highly dominating decisions. Those three decisions really matter.
Everybody wants to get rich immediately, but the world is an efficient place; immediate doesn’t work. You do have to put in the time. You do have to put in the hours, and so I think you have to put yourself in the position with the specific knowl- edge, with accountability, with leverage, with the authentic skill set you have, to be the best in the world at what you do.
You have to enjoy it and keep doing it, keep doing it, and keep doing it. Don’t keep track, and don’t keep count because if you do, you will run out of time.
Hard work is important. Without hard work, you’ll develop neither judgment nor leverage. But nowadays it is really overrated, how hard you work matters a lot less in the modern economy.
At the same time, judgment is underrated. The direction you’re heading in matters more than how fast you move, especially with leverage.
So how can we develop our judgment?
Navel believes that “Clear thinker” is a better compliment than “smart.”
This is a good point in the book, and I think it can be used in life in any circunstances
If someone is using a lot of fancy words and a lot of big concepts, they probably don’t know what they’re talking about
I think the smartest people can explain things to a child. If you can’t explain it to a child, then you don’t know it. It’s a common saying and it’s very true.
This is exactly what "The Feynman Learning Technique" is about. The really smart thinkers are clear thinkers. They understand the basics at a very, very fundamental level.
So we should understand the basics really well rather than memorize all kinds of complicated concepts we can’t stitch together and can’t rederive from the basics.
If you can’t rederive concepts from the basics as you need them, you’re lost. You’re just memorizing. And this is exactly what "First principle" is about
Make sure you’re dealing with reality when you’re making decisions, to achive this, we need to see reality
One thing clouding us from being able to see reality is we have preconceived notions of the way it should be, which will stop us from seeing the truth.
To see the truth, you have to get your ego out of the way because your ego doesn’t want to face the truth. The smaller you can make your ego, the less conditioned you can make your reactions, the less desires you can have about the outcome you want, the easier it will be to see the reality.
Our egos are constructed in our formative years—our first two decades. They get constructed by our environment, our parents, society. Then, we spend the rest of our life trying to make our ego happy, which is exactly the reason that ego will stop you from seeing the true.
To solve this problem, one important thing is to be able to uncondition yourself, to be able to take your habits apart and say, “Okay, this is a habit I probably picked up when I was a toddler trying to get my parent’s attention. Now I’ve reinforced it and reinforced it, and I call it a part of my identity. Does it still serve me? Does it make me happier? Does it make me healthier? Does it make me accomplish whatever I set out to accomplish?”
To see reality, we also need to focus on data and analysis, instead of feeling. Because what you feel tells you nothing about the facts, it merely tells you something about your estimate of the facts.
This book also gives another interesting advice about empty space
It’s actually really important to have empty space. If you don’t have a day or two every week in your calendar where you’re not always in meetings, and you’re not always busy, then you’re not going to be able to think.
I also encourage taking at least one day a week (preferably two, because if you budget two, you’ll end up with one) where you just have time to think.
Skills of Decision-Making: Mental Models
Judgment requires experience but can be built faster by learning foundational skills.
This book emphasizes that there is no skill called “business”. We should void business magazines and business classes. Instead, study microeconomics, game theory, psychology, persuasion, ethics, mathematics, and computers, which are the mental models the book recommends.
Because during decision-making, the brain is a memory prediction machine. A lousy way to do memory prediction is “X happened in the past, therefore X will happen in the future.” It’s too based on specific circumstances. What you want is principles. You want mental models.
Some mental models the book recommends and the key points of them are as follows
evolution: a lot of modern society can be explained through evolution
inversion: being successful is just about not making mistakes
complexity theory: the limits of our knowledge and the limits of our prediction capability
economics: understanding of supply-and-demand
principal-agent problem: if you want it done right, then you have to go yourself and do it
compound interest: in the intellectual domain, compound interest rules
basic math: arithmetic, probability, and statistics
balck swans: extreme probabilities
calculus: measure the change in small discrete or small continuous events
IF YOU CAN’T DECIDE, THE ANSWER IS NO.
This is a very rule in the book, when you're faced with a difficult choice, such as: Should I marry this person? Should I take this job? Should I buy this house? Should I move to this city?. etc
The reason listed in the book is
If you cannot decide, the answer is no. And the reason is, modern society is full of options. When you choose something, you get locked in for a long time. Starting a business may take ten years. You start a relationship that will be five years or maybe more. You move to a city for ten to twenty years. These are very, very long-lived decisions. It’s very, very important we only say yes when we are pretty certain
But I doubt that a little, cause life is always full of uncertainty. If we have to make decision when we are very certain, perhaps we can make no decision. I prefer the quotes in the book "West with the Night"
I have learned that if you must leave a place that you have lived in and loved and where all your yesteryears are buried deep, leave it any way except a slow way, leave it the fastest way you can. Never turn back and never believe that an hour you remember is a better hour because it is dead. Passed years seem safe ones, vanquished ones, while the future lives in a cloud, formidable from a distance.
- RUN UPHILL
When you have two choices to make, and they’re relatively equal choices, take the path more difficult and more painful in the short term.
What’s actually going on is one of these paths requires short-term pain. And the other path leads to pain further out in the future. Your brain is overvaluing the side with the short-term happi- ness and trying to avoid the one with short-term pain.
So we have to cancel the tendency out (it’s a powerful subconscious tendency) by leaning into the pain. As you know, most of the gains in life come from suffering in the short term so you can get paid in the long term
What are the most efficient ways to build new mental models?
Read a lot, just read. Reading science, math, and philosophy one hour per day will likely put you at the upper echelon of human success within seven years.
In summary, the first part of this book is about wealth, which mainly talks about the definition of wealth and how to build wealth
All the methods mentioned in this book about building wealth can be summarized into two words: Productize Yourself
"Productize" has leverage. "Yourself" has accountability."Productize" has specific knowledge. "Yourself" also has specific knowledge in there. You need to figure out which one of those things you can provide for society that it does not yet know how to get but it will want and providing it is natural to you, within your skill set, and within your capabilities. Then you have to figure out how to scale it
Another important point is about judgement, which is always underrated compared to hard work.
To build judgement, we need to think clearly and see reality, with some very useful mental models.