2nd Order Effects
It's easy to think about the direct results of an action. But what happens as a result of those results?
Overview
One of the greatest traps teams fall into is believing they're doing the right things and not taking the time to validate assumptions. The chances of success increase dramatically when teams think past the obvious, immediate result of a decision.
Second Order Effects are also known as the Law of Unintended Consequences — something happening that was unintended. Like Inversion, thinking through the second (or third) order effects helps ensure nothing unintended or bad happens. And one of the fun parts is how smart it makes you look — it's as if you can see the future.
Thinking deeply about 2nd and 3rd order effects will greatly improve your chances of success.
If the tide shifts off Peru…
From "Methods of a Wall St. Master" by Vic Sperandeo, who opens talks with a question:
"If the tide shifts out off the coast of Peru, would you be a buyer or a seller of soybeans?"
When the tide shifts outward, the anchovies that feed in the shallows off Peru move further into the Pacific. The fishermen, whose primary market is the Japanese who feed anchovies to cattle, lose yield. Anchovy supply dries up, so the Japanese start feeding cattle with soybean products. Demand for soybeans goes up, and so does the price.
Therefore, if the tide shifts out off the coast of Peru, you should be a buyer of soybeans.