Why You Should Stop Reading News and Consider the Equity Equation for Better Decision Making

Why You Should Stop Reading News and Consider the Equity Equation for Better Decision Making

In today's digital age, news consumption has become a widespread habit for many individuals. With the ease of access and constant updates, it seems like there's always something new to read or watch. However, the more news we consume, the more misinformed we become. The quality of news has decreased while the quantity has increased, making it difficult to find the signal in the noise.

In an era where page views drive revenue, news outlets prioritize controversy and share-ability over providing valuable information. Most of the news we encounter online is pointless and irrelevant to living a good life. It does not help us make better decisions or understand the world around us. Instead, it often leaves us misinformed, as we cherry-pick information and give it undue weight in our opinions.

When we step back from news consumption, we start to notice how misinformed those who avidly follow the news are. They rely on the printed opinions of others for validation instead of seeking feedback from reality. Without news in our lives, we become comfortable with saying "I don't know" more often, recognizing that thinking for ourselves is essential.

Stepping away from news consumption can be challenging. We fear silence and being alone with our thoughts. However, it is crucial to resist this fear and embrace the opportunity for independent thinking. If you feel the need to read the news, focus on the facts and data, rather than the opinions presented.

Now, let's shift our focus to the equity equation, which offers valuable insights into decision-making when it comes to giving up a percentage of your company. According to the equation, it is advisable to give up a certain percentage if what you receive in return improves your average outcome enough to make the remaining percentage more valuable than the entire company was before.

For instance, if you are considering taking money from a top VC firm, the equity equation suggests that it can be a beneficial deal if it makes your company worth more than 1/(1 - n), where n represents the fraction of the company you are giving up. The equation applies similarly when giving stock to employees, but in reverse. If a new employee is expected to increase the average outcome of the company, their worth can be determined by n = (i - 1)/i, where i represents the average outcome with their addition.

To put it into perspective, let's say you believe that a new employee will increase the average outcome of the entire company by 20%. Applying the equation, n = (1.2 - 1)/1.2, which equals 0.167. Therefore, you would break even if you trade 16.7% of the company for this employee.

It is important to note that stock is not the only cost when hiring someone. Salary and overhead also play a role, and to convert these costs into stock, it is advisable to multiply the annual rate by approximately 1.5. This emphasizes the significance of early employees accepting lower salaries as it directly impacts the stock they receive.

The equity equation highlights the importance of ensuring that any trade, whether it be giving up equity or hiring a new employee, increases the value of the remaining shares. If the trade does not result in a net gain, it should not be pursued.

In conclusion, reconsidering our news consumption habits and applying the equity equation can greatly impact our decision-making and overall quality of life. By reducing our exposure to news and focusing on valuable information, we can become better informed and make more thoughtful choices. Additionally, understanding the equity equation allows us to make informed decisions regarding giving up equity or hiring new team members.

Three actionable pieces of advice to take away from this article are:

1. Limit your news consumption and prioritize quality information over quantity.
2. Embrace independent thinking and be comfortable with saying "I don't know."
3. Consider the equity equation when making decisions about giving up equity or hiring new employees, ensuring that the trade increases the value of the remaining shares.

By implementing these practices, we can navigate the information overload and make more informed decisions in both our personal and professional lives.