Charlie Munger, is probably best known as the Vice Chairman of Berkshire Hathaway, Inc and long term business partner of Warren Buffett.
Aside from his extremely successful business career as an investor and his various philanthropic ventures, Charlie Munger is also well known for his thinking skills and especially for his emphasis on developing multiple mental models to cut through complexity and make good judgement calls and good decisions.
He is incredibly well read and has studied many disciplines other than business such as psychology, history, biology physics and economics.
Like all of us, Charlie Munger has had his share of personal setbacks, an early divorce in era when divorce carried enormous social stigma, severe financial setbacks, the death of his son at the age of 9, cataracts when he was 52 followed by failed surgery which led to blindness in his left eye and the removal of that eye.
His insights on life in general and business in particular are extremely perceptive, and frequently correct with an uncommon consistency.
In this article we are going to be looking at some of the core principles of his thinking skills so that we can adopt them and incorporate these principles into our toolkit of thinking skills as we learn how to think more effectively.
“It is remarkable how much long-term advantage people like us have gotten by trying to be consistently not stupid, instead of trying to be very intelligent.”
How to think effectively? According to Charlie Munger:
“...developing the habit of mastering the multiple models which underlie reality is the best thing you can do.”
Munger is referring here to mental models.
Two broad categories of mental models that are particularly useful are those that help us understand how :
[1] The world works and thus to predict the future.
[2] Our mental processes can lead us astray via cognitive biases.
Our world is multi-dimensional and our problems are complex. Most problems cannot be solved using one model alone, thus it follows that the more models you have in the toolkit, the better equipped you will be to solve your problems because you can look at the problem from a variety of perspectives and increase the odds that you will come to a better solution.
Understand and apply: Mental Models
Understand the power of building a: Latticework of Mental Models
Charlie Munger on: How To Prioritise Learning Mental Models
The learning and applying of models is not enough, we also need to understand how they interact and combine, and most notably when autocatalysis or [as Charlie Munger calls it] the lollapalooza effect occurs.
The lollapalooza effect occurs when two or more forces are all operating in the same direction and often you don’t get just simple addition but rather you get a nuclear explosion once you reach a certain point of interaction between those forces such as a breakpoint or critical-mass is reached.
In the field of psychology the phenomenon wherein different biases layer and interlock with one another is the "Lollapalooza effect." It occurs when multiple different tendencies and mental models combine to act in the same direction. This makes them especially powerful drivers of behavior, and can lead to both positive and negative results.
The lollapalooza effect can cause huge negative effects but it can also cause massively positive trade-offs. So, understanding the interconnectedness of the models is critical.
Munger stated that while psychologists have been good at identifying individual biases, they are less good at figuring out how they interact and manifest in the real world, because it is difficult to run controlled experiments in that environment. At the 2017 Daily Journal annual meeting, he said:
"The psychology people couldn't do experiments that were four or five things happening at once because it got too complicated for them and they couldn't publish. So they were ignoring the most important thing in their own profession. And of course the other thing that was important was to synthesize psychology with all else. And the trouble with the psychology profession is that they don't know anything about 'all else.'"
For further reading:
Lollapalooza EffectThe Lollapalooza effect: What are the mental models for success?
Latticework of Mental Models: Lollapalooza Effect
In 1996, Charlie Munger gave a talk titled "Practical Thought about Practical Thought". He started the speech by outlining five simple notions that help him quickly solve problems:
1. Simplify"… it is usually best to simplify problems by deciding big 'no-brainer' questions first..."
2. Numerical Fluency
"Without numerical fluency, in the part of life most of us inhabit, you are like a one-legged man in an ass-kicking contest."
3. Invert
"Inverting the problem won’t always solve it, but it will help you avoid trouble. Call it the avoiding stupidity filter.
… it is not enough to think problems through forward. You must also think in reverse..."
4. Study The Basics
You need to understand the big nuggets of wisdom in the three buckets of useful knowledge.
Munger believes in using these regularly and in combination:
"You
must think in a multidisciplinary manner...You must routinely use all
the easy-to-learn concepts from the freshman course in every basic
subject. Where elementary ideas will serve, your problem solving must
not be limited, as academia and many business bureaucracies are limited,
by extreme balkanization into disciplines and subdisciplines, with
strong taboos against any venture outside assigned territory..."
5. Lollapalooza Effects
And you need to watch out for when really big ideas combine.
"… really big effects, lollapalooza effects, will often
come only from large combinations of factors..."
1. The Forces at Play
The key to the first step is: knowing what you know and what you don’t know.
To paraphrase Donald Rumsfelt: There are the "known knowns", the "known unknowns" and then there are far more troubling "unknown unknowns".
Charlie Munger says:
"You need to understand your circle of competence.
If you know what you don’t know, you might still have to make a decision, but your approaches for making that decision will change.
For example, if you’re forced to make a decision in an area that you know is well outside your circle of competence, one tool you can use is inversion.
While there are millions of factors that go into decisions, there will always be a few variables and factors that will carry the bulk of the weight.
To make consistently good decisions, you need to develop a deep fluency in the area in which you are making decisions, and you need to pull in the big ideas from multiple disciplines to make sure you’re exercising good judgment."
2. The Psychological Factors
There are many causes of human misjudgment, most of these are unconscious to us. Please see "Standard Causes of Human Misjudgment" above.
Further reading: The Munger Two Step Process
This mini-documentary tells the story of Charlie Munger's life and how he went through the great depression, made millions in real estate, and how he helped Warren Buffett build Berkshire Hathaway.
"So there’s an iron rule that just as you want to start getting worldly wisdom by asking why, why, why; in communicating with other people about everything, you want to include why, why, why. Even if it’s obvious, it’s wise to stick in the why."
Return from "Charlie Munger" to: How To Think
Just Because You Have A Spectacular Failure Doesn’t Mean The Game Is Over. The thought that you could fail can really slow you down. But the problem is not the failure, the problem is your relationshi…
Are You Lost In Transition? To be in an alien North African city, late in the evening, in the dark, completely lost in transition from the main market square back to the obscure location of our Riad…
Do You Believe What You See Or Do You See What You Believe? Like the characters in "The Matrix" we are fooled by the illusion that what we see is how things really are. Why? Because this is the mind's…
What Impact Will You Leave In The Lives Of Others? If you knew you were going to die tonight and you were given a few minutes to reflect before that happened, what would you say was the meaning of yo…
If You Want Others To Be Happy, Practice Compassion. If You Want To Be Happy, Practice Compassion. Compassion is derived from the Latin words "com pati" meaning to suffer with. It has been defined as…
The Power Of Expectation Of An Outcome Regardless Of The Lack Of Any Substance To That Expectation. Traditionally, the placebo effect occurs when false, or dummy, treatments of inert substances [that…
This Is What Will Happen After You Take It.
"This is your last chance," rebel leader Morpheus tells Neo, holding a coloured pill in each hand. “You take the blue pill, the story ends, you wake up in y…
This Has To Be One Of The Best Ways For Living The Best Life You Can Possibly Live. An online search on life hacks will invariably provide you with multiple links to ways of increasing your productivi…
The Blessing And The Curse Of Impermanence. There is a story of a king who sought wisdom. Eventually he heard of a man living in a remote part of the kingdom who had a reputation for great wisdom. The…
The Stories That We Tell Ourselves Are A Matter Of Choice. The stories we tell ourselves form the backcloth and the tapestry of our lives. These narratives shape and define our sense of self and how a…
Trust Is A Choice And It Creates Your Reality. Nothing in life is permanent and nothing lasts forever. Every relationship ends in tears. Somebody leaves or somebody dies. This is how things are. This…
Finding This Hidden Value Is The Key To A Huge Upside. Most of us spend our lives working to linear rules where there is an equal relationship between effort and result. Work hard you get a result. Wo…
How To Be There When Preparation Meets Opportunity. The growth mindset holds the core belief that your intelligence and personality is something you can develop and that you can expand and grow. The p…
If you can't think of the right thing to say, say nothing.
The concepts we employ, the categorizations we apply and the words we choose and use to articulate a direct experience put us in a double bi…
To Believe Or Not To Believe - That Is The Question. Nothing has inflicted more suffering on humanity than its beliefs and dogmas. The religious and cultural beliefs that sanction and allow or impose…
How To Stay Far From The Madding Crowd. Herd mentality describes how we make decisions based on what everyone else is thinking and doing. It is also known as a mob or crowd mentality. We follow the he…
We Suffer Every Time We Believe A Thought That Argues With What Is. When your mind is perfectly clear, what is, is what you want. If you want reality to be different than it is, you might as well try…
Slack Is The Capacity To Effect Change And The Resource To Deal With The Unexpected. Many organizations are obsessed with efficiency and try to ensure that every resource is fully utilized to its full…
Less and less do you need to force things, until you arrive at non-action. We are brought up to believe that we get what we want in life as a result of what we do, by the actions that we take, that ha…
Is It Helping You Or Hindering You? Your point of focus is the central point of your attention. Your point of focus is a binary choice and the result of that choice is critical to your happiness, your…
To accomplish any success in life, you must identify accurately what it is that you hunger for, thirst for and long for. The purpose of this article is to look at the foundation of the secret for succ…
Discover The Joy Of A Quiet Mind Can you stop thinking? According to Zen Buddhist priest Shunmyo Masuno the art of not thinking about anything is not easy to achieve. Even practising monks find it dif…
What Is Holding You Back From Pursuing Your Dreams? Your self confidence is based on ability. Your self confidence is all about your level of trust, faith and belief in your abilities [your power] and…
Learning how to overcome fear and perform powerfully is a skill that we all need to acquire as fear of failure affects most of us at some point in our lives. Whilst it is natural to feel a level of fe…
You are creating hell on earth when you are too subsumed within your underlying and deeply embedded negative energetic states. To counter your dissatisfactions and misery you initially go unconscious…
How you mentally characterize a situation has a profound impact on how you respond to it emotionally. There is a direct causal link between how you think about a situation, the words you use to articu…
What good is a universe without somebody around to look at it? What Conclusions Can We Draw About Living In A Participatory Universe? The inescapable conclusion is that the world and the universe (wit…
The journey home to the energy of life does not consist in arriving at a new destination it is a coming home to one’s self. [1] How are you feeling, what is your dominant emotion right now? [2] Where…
You have to be willing to suffer today in order to reap enormous rewards tomorrow. The long game is so hard to play because it involves taking a series of very small steps, that people rarely see, per…
How To Build Self Esteem In my early life and until my early twenties I suffered from a deep inferiority complex and low self esteem. Forty years later and, said in sincerity and with humility, I have…