Friday, May 28th 2021

The Power of First Principles

Commentary

“Indeed, the single most powerful pattern I have noticed is that successful people find value in unexpected places, and they do this by thinking about business from first principles instead of formulas.” - Peter Thiel, Zero to One

“Thinking is all about the ability to look at complex situations and strip away things that don’t count - the ability to filter out situations and find what’s at their core.” - Douglas Hofstadter

In a world marked by often-needless complexity, we often find ourselves returning to First Principles thinking: the simple but transformative idea of breaking down a problem into its fundamental building blocks, examining the essential elements at hand, asking questions that demarcate facts from assumptions, and reconstructing a clear picture from the ground up. This mode of thinking is surprisingly rare in today’s convoluted, noise-ridden landscape. But there is power in sticking with the fundamentals that others have long forgotten.

When analyzing new companies, industries, and investment opportunities, our investment process is driven by deep research and deep understanding. Warren Buffet’s business partner Charlie Munger framed this philosophy best: “You must spend all of your time understanding, then doing is easy.” At Titan, our investment approach is built on focused understanding, furthered each day.

At the company level, First Principles thinking requires analyzing the core business through a few core perspectives:

  1. What kind of business has this company been in the past?
  2. What kind of business is this company today? How much is it worth at this moment?
  3. What do we think this business could potentially become?
  4. How do we think this business should perform at a baseline, under normal circumstances?

In our view, some of the greatest investments can be distilled down to two or three key drivers that play an outsized role in shaping the company’s future success. By building our understanding of companies and opportunities through this framework, we are able to intelligently identify which variables are likely to be most important to a given business’s future performance.

We believe the most successful investments result from the ability to filter out the noise, remain focused on the fundamentals, and accurately handicap the probabilities of anticipated outcomes. When static floods the channels and others needlessly strain to comprehend the noise, we tune into First Principles thinking for clarity and informed action.

Back to Research ↗

Learn with titan

Investment articles and resources

Become the smartest investor you've ever been through straightforward, easy-to-read investment articles.

What Is Technical Analysis & How Does It Work?


What Is Fundamental Analysis?


What Are Clean Energy ETFs and How Can You Invest in Them?


What Is Investment Risk? Definition & Types

Let's Get Started

Ready to become a client?

Create an account with us in two minutes.

Or scan to get the app

We're building the best investment platform, ever

Titan Global Capital Management USA, Inc ("Titan") is an investment adviser registered with the Securities and Exchange Commission (“SEC”). By using this website, you accept our Terms of Use and Privacy Policy. Titan’s investment advisory services are available only to residents of the United States in jurisdictions where Titan is registered. Nothing on this website should be considered an offer, solicitation of an offer, or advice to buy or sell securities. Past performance is no guarantee of future results. Any historical returns, expected returns [or probability projections] are hypothetical in nature and may not reflect actual future performance. Account holdings are for illustrative purposes only and are not investment recommendations. The content on this website is for informational purposes only and does not constitute a comprehensive description of Titan’s investment advisory services.

Refer to Titan's Program Brochure for more information. Certain investments are not suitable for all investors. Before investing, consider your investment objectives and Titan’s fees. The rate of return on investments can vary widely over time, especially for long term investments. Investment losses are possible, including the potential loss of all amounts invested. The introducing Broker Dealer is Titan Global Technologies LLC, a registered broker-dealer and member FINRA/SIPC. Brokerage services are provided to Titan Clients by Apex Clearing, an SEC registered broker-dealer and member FINRA/SIPC. For more information, see our disclosures. Contact: 508 LaGuardia Place NY, NY 10012. Information provided by Titan Support is for informational and general educational purposes only and is not investment or financial advice. Check the background of these firms on FINRA's BrokerCheck.

© Copyright 2022 Titan Global Capital Management, Inc. All Rights Reserved.