Charlie Munger - Mental Models

Mr. Munger, Vice Chairman of Berkshire Hathaway, gave two speeches entitled “A
Lesson on Elementary, Worldly Wisdom as it Relates to Investment Management &
Business” and "Business: What Lawyers Should Know" to students attending the
University of Southern California School of Business and Stanford Law School that have
been widely heralded as classic speeches on investing. I will cover what Mr. Munger
discussed in relation to developing a network of models to use when determining
solutions to problems. I believe this information is critical to develop the proper mindset
towards investing.

This model system is based on the idea that investors must make decisions using
multiple models from different disciplines. The traditional teaching method of one
discipline per class is not the way to gain worldly wisdom, and may even place an
investor at a disadvantage. The ideal set of models combines key ideas and thoughts
from many different disciplines. The individual investor must take this combination of
information from multiple disciplines and develop their own mental models to use when
processing information to reach conclusions.

My thought in presenting this article to the reader is to provide the models Mr. Munger
mentioned in his speeches along with relevant discussion on each model. I hope you
find the material as interesting as I did.

The idea of developing a network of mental models is based on the concept that everyone should
approach problem-solving from many difference perspectives. The traditional teaching method
used in the typical American classroom revolves around the idea that topics should be learned in
isolation from other topics. This inhibits students from learning that ideas from multiple
disciplines can be used with great success when trying to solve problems. Focus investors should
develop their own systems of mental models to help them make better investment decisions.