Charlie Munger uses a latticework of mental models to make more rational and effective decisions. (Shane Parrish’s summary compilation of the various mental models on the Farnam Street blog is an excellent resource to build up one’s latticework.1) As the Chinese proverb goes, “I forget what I hear; I remember what I see; I know what I do.” Because the best way to learn something is by practicing it, we must routinely apply the mental models to different situations in our daily lives. One of Munger’s favorite authors is Herbert Simon, who gave him the idea of mental models. Simon wrote in his autobiography, Models of My Life:
The decision maker of experience has at his disposal a checklist of things to watch out for before finally accepting a decision….
If one could open the lid, so to speak, and see what was in the head of the experienced decision maker, one would find that he had at his disposal repertoires of possible actions; that he had checklists of things to think about before he acted; and that he had mechanisms in his mind to evoke these, and bring these to his conscious attention when the situations for decisions arose [emphasis added].2
In his book, Charlie Munger: The Complete Investor, Tren Griffin lays out Munger’s path to worldly wisdom:
Munger has adopted an approach to business and life that he refers to as worldly wisdom. Munger believes that by using a range of different models from many different disciplines—psychology, history, mathematics, physics, philosophy, biology, and so on—a person can use the combined output of the synthesis to produce something that has more value than the sum of its parts. Robert Hagstrom wrote a wonderful book on worldly wisdom entitled Investing: The Last Liberal Art, in which he states that “each discipline entwines with, and in the process strengthens, every other. From each discipline the thoughtful person draws significant mental models, the key ideas that combine to produce a cohesive understanding. Those who cultivate this broad view are well on their way to achieving worldly wisdom.”3
Munger chose the latticework model to convey this idea of interconnectedness. We need more than a deep understanding of just one discipline—we need a working knowledge of many disciplines and an understanding of how they interact with each other.
Worldly Wisdom
In Munger’s view, it is better to be worldly wise than to spend lots of time working with a single model that is precisely wrong. A multiple-model approach that is only approximately right will produce a far better outcome in anything that involves people or a social system.
—Tren Griffin
Munger would be what the Greek poet Archilochus called a fox.
Some 2,700 years ago, Archilochus wrote, “The fox knows many things, but the hedgehog knows one big thing.” In the 1950s, philosopher Isaiah Berlin used that sentence as the basis for his essay “The Hedgehog and the Fox.” In it, Berlin divides great thinkers into two categories: hedgehogs, who have one big overarching perspective on the world, and foxes, who have many different viewpoints. That essay, over time, has become a foundational part of thinking about the distinction between specialists and generalists.
Generalizing specialists have a core competency that they know a lot about. At the same time, they are always learning and have a working knowledge of other areas. Although a generalist has roughly the same knowledge for multiple areas, a generalizing specialist has one deep area of expertise and a few shallow ones. We have the option of developing a core competency while also building a base of interdisciplinary knowledge.
When Munger was asked at the 2017 Daily Journal Corporation meeting whether one should become a polymath or a specialist, his answer surprised a lot of people. Many people in the audience expected the answer to be obvious—of course he would recommend that people become generalists. But this is not what Munger said.
I don’t think operating over many disciplines, as I do, is a good idea for most people. I think it’s fun, that’s why I’ve done it. And I’m better at it than most people would be, and I don’t think I’m good at being the very best at handling differential equations. So, it’s been a wonderful path for me, but I think the correct path for everybody else is to specialize and get very good at something that society rewards, and then to get very efficient at doing it. But even if you do that, I think you should spend 10 to 20 percent of your time [on] trying to know all the big ideas in all the other disciplines [emphasis added].4
In Munger’s comments, we find the underlying approach most likely to yield exponential results: specialize most of the time, but spend some time understanding the broader ideas of the world. That is how one attains worldly wisdom.
This approach isn’t what most organizations and educational institutions advocate. Branching out into other disciplines outside one’s core is not what generally is taught in academia. It is a project we have to undertake ourselves, by reading a wide range of books, experimenting with different subject areas, and drawing ideas from them. A true education should cultivate, above all, a sense of enjoyment about the process of thinking things through.
Munger talked about the importance of cultivating a broad-based general awareness during his 1995 speech at Harvard University: “Man’s imperfect, limited-capacity brain easily drifts into working with what’s easily available to it, and the brain can’t use what it can’t remember or what it is blocked from recognizing because it’s heavily influenced by one or more psychological tendencies bearing strongly on it.”5
Where do we get to learn these models from? We let history be our guide. If one way to ensure that we make poor decisions is to use a small sample size, we can reason that we should seek the biggest sample sizes we can.
What crosses most of history? Peter Kaufman, CEO of Glenair, board member of the Daily Journal Corporation, and editor of Poor Charlie’s Almanack, has shared the answer in his “three-bucket” framework:
Every statistician knows that a large, relevant sample size is their best friend. What are the three largest, most relevant sample sizes for identifying universal principles? Bucket number one is inorganic systems, which are 13.7 billion years in size. It’s all the laws of math and physics, the entire physical universe. Bucket number two is organic systems, 3.5 billion years of biology on Earth. And bucket number three is human history, you can pick your own number, I picked 20,000 years of recorded human behavior. Those are the three largest sample sizes we can access and the most relevant.6
If we are to improve our learning, we should focus on things that change slowly. Kaufman’s approach provides a framework of general laws that have stood the test of time—invariant, unchanging lenses that we can use to focus and arrive at workable answers. A foundational principle that aligns with the world and is applicable across the geologic time scale of human, organic, and inorganic history is compounding. Compounding is one of the most powerful forces in the world. In fact, it is the only power law in the universe that exists with a variable in its exponent. The power law of compounding not only is applicable to investing but also, and more important, can be applied to continued learning. The fastest way to simplify things is to spot the symmetries, or invariances—that is, the fundamental properties that do not change from one object under study to another. Munger explains:
The models that come from hard science and engineering are the most reliable models on this Earth. And engineering quality control—at least the guts of it that matters to you and me and people who are not professional engineers—is very much based on the elementary mathematics of Fermat and Pascal…
And, of course, the engineering idea of a backup system is a very powerful idea. The engineering idea of breakpoints—that’s a very powerful model, too. The notion of a critical mass—that comes out of physics—is a very powerful model.7
But learning the big ideas from the key disciplines is not enough. We need to understand how these ideas interact and combine with each other, because this is what leads to “lollapalooza effects.” Munger explains:
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