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Mental models and advise from Charles Munger

  • 1.  Mental models and advise from Charles Munger

    Posted 15-05-2024 10:56

    Good morning community!

    I thought about people who inspire us. Who are those investors - geniuses? So I looked into it. Here's what I'd like to share.

    On January 1, 2024 Charles Munger would have turned 100 years old. Here's what he said: "Attain fluency on the big multidisciplinary ideas of the world and use the regularly. Once you have the ideas, practice them!" 

    Charles Munger, right-hand adviser to Warren Buffett, the richest man on the planet, is known for his unparalleled clear thinking and near-failure-proof track record. 

    · Charlie Munger, vice chairman of Berkshire Hathaway and Warren Buffett's longtime friend and business partner. Worth: USD 2.26 billion, Forbes

    · An Omaha native, Munger left the University of Michigan to become an Army meteorologist during World War II.

    · He later earned a degree from Harvard Law School and met Buffett at a dinner party in 1959. He joined Berkshire Hathaway in the 1970s.

    · At the time of his death, Munger served on Berkshire's board as well as the boards of newspaper publisher Daily Journal Corp. and retailer Costco.

    · Like Buffett, he was known as a pragmatic investor and an active philanthropist who lived relatively frugally and gave millions to universities.

    How did he reign his thinking to help build a $3 trillion business in Berkshire Hathaway? The answer is "mental models," or analytical rules-of-thumb pulled from disciplines outside of investing, ranging from physics to evolutionary biology. Munger defined mental models as frameworks or cognitive tools that help us understand and interpret the world. His approach involves continuously expanding his mental toolkit by acquiring insights from diverse fields of knowledge.

    These mental models, that he applied to investments, are drawn from various disciplines, such as psychology, mathematics, physics, and biology and they serve as thinking devices to aid in problem-solving and decision-making.

    Read more on five examples of Munger's mental models here. The article summarises these mental models:

    • Invert, always invert
    • learning from errors of others
    • Circle of competence
    • Lollapalooza effect
    • Probability and decision trees

    80 to 90 models have helped Charles Munger develop, in Warren BuFett's words, "the best 30-second mind in the world. He goes from A to Z in one move. He sees the essence of everything before you even finish the sentence."

    Charles Munger liked to quote Charles Darwin: Even people who aren't geniuses can outthink the rest of mankind if they develop certain thinking habits.

    Do you have experience of practicing these models and applying them to your investment decisions? Would be great to hear from you.



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    Aya Pariy
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