Mental Models We Use to Make Better Investment Decisions

Intro:
At Non-Consensus Alpha, we’re not just students of the market—we’re students of decision-making. The frameworks we use to assess investments are rooted in logic, psychology, and pattern recognition.

Body:
Here are 5 mental models we use daily to evaluate risk, reward, and conviction:

1. Second-Order Thinking:
   We ask, “And then what?” Not just how news affects a stock today, but how the next layers of consequence play out.

2. Inversion:
   We solve problems by thinking in reverse. Want to succeed? Think about what leads to failure—and avoid it.

3. Circle of Competence:
   We stick to what we understand deeply. If we can’t explain a company’s model and revenue drivers in under 2 minutes, we pass.

4. Margin of Safety:
   We never rely on perfection. We build in buffers—on price, valuation, and execution—to weather surprises.

5. Bayesian Updating:
   When new data emerges, we adapt. We’re not married to any thesis. Flexibility is a feature, not a bug.

These aren’t just theoretical. They’ve helped us sidestep bubbles, spot value early, and avoid traps others fall into.

Takeaway:
Good investing is good thinking. And good thinking is repeatable when built on solid models.

CTA:
→ Want to learn our favorite mental models in more detail? Join our free investor education series.