The Intersection of Assets Under Management and Framework Thinking: Strategies for Success

Feranmi Olaseinde

Feranmi Olaseinde

Jan 05, 20243 min read

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The Intersection of Assets Under Management and Framework Thinking: Strategies for Success

Introduction:

In the world of finance, understanding the concept of Assets Under Management (AUM) is crucial for evaluating the performance and experience of companies. AUM refers to the market value of investments managed by an individual or entity on behalf of clients. While AUM is often associated with funds under discretionary management from individual investors, its significance extends beyond that. In this article, we will explore the definition, calculation, and example of AUM, and how it intersects with the concept of Framework Thinking.

Defining Assets Under Management (AUM):

When it comes to AUM, it represents the total value of investments that a person or entity manages for clients. It serves as a key metric for assessing a company's performance and expertise in handling investments. While AUM is commonly used in the context of funds under discretionary management from individual investors, it can be applied to various investment scenarios.

Calculating Assets Under Management (AUM):

The calculation of AUM involves determining the market value of the investments managed by an individual or entity. This calculation includes the value of all assets, such as stocks, bonds, real estate, and other investment vehicles, that the person or entity is responsible for. By summing up the market values of these assets, the AUM can be accurately calculated.

Example of Assets Under Management (AUM):

To better understand the concept of AUM, let's consider the following example. Company X manages investments for individual clients and has a diversified portfolio that includes stocks, bonds, and real estate. The market value of Company X's investments is $100 million. Therefore, their AUM would be $100 million.

Framework Thinking and the Power of Structures:

Framework Thinking, as advocated by Charlie Munger, emphasizes the importance of organizing knowledge into frameworks or structures. By doing so, individuals can rapidly recall and utilize information in high-pressure situations. The process of distilling complex concepts into their essence allows for quicker and more efficient thinking.

Creating Personal Frameworks:

One way to develop frameworks is by creating them yourself. Just as Picasso distilled the essence of his art from detailed drawings to abstract representations, individuals can distill their knowledge into key frameworks. These frameworks act as mental structures that aid in quick thinking and decision-making.

Steering, Not Following:

A crucial aspect of Framework Thinking is the ability to steer conversations and situations towards desired outcomes. Instead of passively following someone else's logic, individuals who employ framework thinking can take control and direct the conversation towards their intended topic or goal.

Reasoning from First Principles:

Another important aspect of framework thinking is reasoning from first principles. While reasoning by analogy may be mentally easier, approaching problems from first principles allows for deeper insights and a clearer understanding of the underlying mechanisms.

Actionable Advice:

  • 1. Build a Library of Frameworks: Invest time in creating a library of frameworks on topics that are important to you. This will enable you to have a ready arsenal of structures to draw upon in various situations.
  • 2. Connect Different Frameworks: Look for opportunities to connect different frameworks. By doing so, you can provide greater depth and insights, allowing for a more comprehensive understanding of complex topics.
  • 3. Practice Reasoning from First Principles: Challenge yourself to reason from first principles rather than relying solely on analogy-based thinking. This will enhance your problem-solving abilities and enable you to approach challenges with a fresh perspective.

In conclusion, understanding the concept of Assets Under Management (AUM) is crucial for evaluating the performance of companies in managing investments. Additionally, incorporating Framework Thinking into decision-making processes can greatly enhance one's ability to think quickly and effectively. By distilling knowledge into frameworks, steering conversations, and reasoning from first principles, individuals can navigate complex situations with ease. So, take the time to build your library of frameworks and connect them for greater depth and insights.

Resource:

  1. "Assets Under Management (AUM): Definition, Calculation, and Example", https://www.investopedia.com/terms/a/aum.asp (Glasp)
  2. "(12) How to Think Fast Before You Speak: Framework Thinking - YouTube", https://www.youtube.com/watch?v=lcyHC9HLTzc (Glasp)

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