The 3 Mental Models That Cover 80% of Life’s Best Decisions

Life is, at its core, about decision-making.
Every day we make choices — big and small — and over time, the quality of those choices shapes the quality of our lives.

Investing has been my unexpected masterclass in decision-making.
The same thinking I use to decide Buy, Hold, or Sell? is the thinking I use to decide Say yes, say no, or wait? in life.

The beauty of investing is that it demands constant decisions and gives immediate feedback in the form of gains or losses. Over time, it becomes a thinking gym — strengthening not just what you know, but how you think.

From my years of investing, three mental models stand out as powerful enough to guide more than 90% of good decision-making in the market:

1. Opportunity Cost – Choose the best alternative, not just a good one.
2. Circle of Competence – Operate where your knowledge is deepest.
3. Compounding Effect – Let small, consistent wins grow into extraordinary results.

1. Compounding Effect — Consistency Beats Intensity

Definition: Small, consistent actions — repeated over time — create exponentially greater results than big, irregular efforts.

In Investing
Consider two investors:

After 10 years:
Investor A: +134% total return
Investor B: +211% total return

Investor A had big wins but also deep losses. Investor B moved steadily forward — and ended up ahead. The lesson is simple: consistency beats intensity. Stay in the game long enough for compounding to work.

In Parenting
When my daughter was little, I read to her for one hour every day — 30 minutes in English, 30 in Chinese.
Years later, she can now read Harry Potter in English by herself.

This didn’t happen overnight. It was the quiet result of daily attention, language practice, and confidence-building, compounded over years.

In Personal Growth
When I decided I wanted more independence and freedom, I didn’t try to transform my life overnight. I began with one habit: going to the gym daily.

Once that stuck, I added daily online English practice.
Then I moved my wake-up time gradually — from 6:30 to 6:25 to 6:20 — until I reached 4:30 a.m.

That early start unlocked time for a whole habit ecosystem:

• 15,000 steps a day
• Morning meditation
• Sleeping at 9:30 p.m.
• Quitting sugar
• Eating healthy
• One or two 16:8 fasts each week
• Reading daily

Even on my worst days, these habits work together to keep me moving forward.

The Takeaway
Whether in investing, parenting, or self-improvement, the rule is the same:
Small, consistent actions, multiplied by time, lead to extraordinary results.

“Go to bed smarter than when you woke up.” – Charlie Munger

You don’t need a life overhaul. Build a system that moves you forward 1% each day. Over time, progress becomes automatic — and growth inevitable.

2. Opportunity Cost — Every Yes Is a No to Something Else

Definition: The value of the best alternative you give up when you choose one option over another.

In Investing
Invest $100,000 in Stock A → 5% growth = $105,000.
Stock B grows 15% = $115,000.
Opportunity cost = $10,000 lost potential.

The same applies to time, focus, and energy. Every “yes” to one thing is a “no” to something else.

In Marriage
Staying in a marriage with cold conflict drains years into emotional suppression.
Leaving to build independence may bring short-term discomfort, but offers long-term freedom, self-respect, and alignment with my values.

In Career
Saying “yes” to a conventional job means steady income but less creative freedom.
Saying “yes” to being a creator means less security at first — but greater mastery, autonomy, and alignment over time.

Naval Ravikant’s Filter

“If you can’t decide, the answer is no.”

This simple rule protects your time and energy. It prevents overcommitment out of fear of missing out, and reserves your focus for your highest-return opportunities.

3. Circle of Competence — Play Where You Can Win

Definition: Focus on domains you understand deeply, and expand slowly into adjacent areas.

In Investing
I invest in companies whose products I use and understand.
I avoid sectors like biotech where I lack expertise.
I’m also gradually expanding my Circle of Competence by allocating 10–20% of my portfolio to high-growth stocks — but only when a truly great opportunity appears — while also streamlining my holdings from over 20 positions down to 6–8 high-conviction ones. This lets me benefit from exceptional opportunities without diluting my focus.

Being Who You Are
My circle of competence intersects with my specific knowledge in three areas:

1. Investing & Decision-Making — Mastery of compounding, opportunity cost, probabilistic thinking
2. Personal Growth & Systems Thinking — Living my own transformation and building a tested habit ecosystem
3. Writing & Storytelling — Turning life experiences into lessons that resonate

When I operate here, I move with clarity and confidence. Stepping outside risks wasted time and energy.

“The best way to escape competition … is to be authentic to yourself. If you are building and marketing something that’s an extension of who you are, no one can compete with you.” – Naval Ravikant

Expanding Safely

1. Anchor in Core Habits — Reading, writing, training, meditating, investing. These give myself physical, mental, and emotional stability.
2. Choose Adjacent Fields — From investing → business history. From writing → public speaking. From health → nutrition science.
3. Learn → Teach → Integrate — Study, share, then apply my insights.
4. Stack Skills — Combine abilities into something hard to copy. Example: investing + storytelling + emotional depth = “investing as life philosophy.”
5. Balance Slow & Fast Lanes — Deep skills that take years alongside lighter, short-term experiments.

Why It Works
Operating inside your circle lets you make decisions with conviction. Expanding only into adjacent areas strengthens both your existing skills and the new ones you acquire.

Why These 3 Cover 90% of Investing — and 80%+ of Life

1. Opportunity Cost — Avoids poor allocation entirely.
2. Circle of Competence — Prevents unforced errors.
3. Compounding Effect — Turns small wins into extraordinary ones.

Opportunity Cost decides where to play.
Circle of Competence ensures you can win.
Compounding Effect ensures you win big over time.

Together, they eliminate most high-cost mistakes and multiply the impact of every good decision — which is why they can cover about 90% of sound investing decisions.

In life: If you truly live by these three principles, they can realistically guide 80%+ of good decision-making. The remaining margin comes from domain-specific wisdom, emotional intelligence, and adaptability.

If you treat life like investing, these three models become your unshakable framework — keeping you focused, avoiding unnecessary risk, and turning small daily wins into extraordinary results.