### Thoughts

A fantastic book with an immense amount of wisdom. If you wish to learn the mental models of one of the greatest thinkers of our time, this is the book for you.

# Cover → Chapter One

Values for which Charlie has become known:

• Lifelong learning
• Intellectual curiosity
• Sobriety
• Avoidance of envy and resentment
• Reliability
• Learning from the mistakes of others
• Perseverance
• Objectivity
• Willingness to test one's own beliefs
• Any many more...

"In my whole life, I have known no wise people (over a broad subject matter area) who didn't read all the time — none, zero. You'd be amazed at how much Warren reads — and at how much I read. My children laugh at me. They think I'm a book with a couple of legs sticking out." — Charlie Munger

Charlie was a voracious reader, even in his younger years.

"I had a brief immersion in elementary physics, prompted entirely by the unusual incentives provided by WWII. This immersion greatly improved my wisdom. What occurred as that I was given more models, so I was less like 'that an with a hammer'" — Charlie Munger

Munger majored in mathematics for its logic and reason. He liked physics for its method of solving problems. He considers it helpful in framing the problems of life.

"He has often stated that anyone who wants to be successful should study physics because it concepts and formulas so beautifully demonstrates the power of sound theory."

When Warren Buffett was asked other character traits contributed to the success of Munger (other than being rational), he answered honesty, integrity, and always doing more than his share and not complaining about the other person does.

"That sounds funny, making friends among 'the eminent dead,' but if you go through life making friends with the eminent dead who had the right ideas, I think it will work better for you in life and work better in education. It's way better than just giving the basic concepts."

"Cicero, learned man that he was, believed in self-improvement so long as breath lasts"

# Chapter Two — The Munger Approach to Life, Learning, and Decision Making

"Take a simple idea and take it seriously" — Munger

This chapter is not a 'how to'. Munger's approach is too complex. It's more of a 'this is how he seems to do it'. Learn from it what you can.

## Munger's "Multiple Mental Models" Approach to Business Analysis and Assessment

"You must know the big ideas in the big disciplines and use the routinely — all of them, not just a few. Most people are trained in one model — economics, for example — and try to solve all problems in one way. You know the old saying: 'To the man with a hammer, the world looks like a nail.' This is a dumb way of handling problems."

His mental models borrow from and neatly stitch together the analytical tools, methods, and formulas from disciplines such as history, psychology, physiology, mathematics, engineering, biology, physics, chemistry, statistics, economics, and so on.

"Just as multiple factors shape almost every system, multiple models from a variety of disciplines, applied with fluency, are needed to understand that system."

"Faced with the choice between changing one's mind and proving there is no need to do so, almost everyone gets busy on the proof." — John Kenneth Galbraith

Charlie almost has an eagerness to identify and acknowledge his own mistakes and learn from them. He goes as far as to say that if you don't kill one of your 'best-loved ideas' one year, then that year is probably wasted.

Charlie sees one's ideas and approaches as tools. When a better one comes along, you should switch the old one for it.

Some of his mental models:

• Redundancy/backup system model from engineering
• Compound interest model from mathematics
• The breakpoint/tipping-moment/autocatalysis models from physics and chemistry
• The modern Darwinian synthesis model from biology
• The cognitive misjudgment models from psychology

He estimates that he has around 100 of them.

One should do what they can to learn as many mental models that they can. Even if your professors will not teach you.

### Social-Proof Tendency

As said earlier in the book: "monkey see, monkey do". We automatically think and do what we observes to be thought and done around us.

### Contrast-Misreaction Tendency

"Because the nervous system of man does not naturally measure in absolute scientific units, it must instead rely on something simpler. The eyes have a solution that limits their programming needs: the contrast in what is seen is registered. And as in sight, so does it go, largely, in the other senses. Moreover, as perception goes, so goes cognition. The result is man's Contrast-Misreaction Tendency."

For example, buying something expensive just because it is cheaper than the other (expensive) options. This is a typical tendency for salesmen to exploit.

Another example: a salesman deliberately showing a customer three awful houses at ridiculously high prices. Then a merely bad house at a price only moderately too high. Easy sale.

Artificial sales, too. Jacking up prices such that your 'discount' (original price) seems incredibly low. What a deal.

### Stress-Influence Tendency

Sudden stress causes a rush of adrenaline, prompting faster and more extreme reaction.

### Availability-Misweighing Tendency

"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 is heavily influenced by one or more psychological tendencies bearing strongly on it,"

Main antidote is using checklists.

"The great algorithm to remember in dealing with this tendency is simple: An idea or a fact is not worth more merely because it is easily available to you."

### Use-It-or-Lose-It Tendency

Skills are there as long as you continually practice them. The same goes for almost anything in life. Knowledge, relationships, muscle, etc.

"Throughout his life, a wise man engages in practice of all his useful, rarely used skills, many of them outside his discipline, as a sort of duty to his better self. If he reduces the number of skills he practices and, therefore, the number of skills he retains, he will naturally drift into error from man with a hammer tendency. His learning capacity will also shrink as he creates gaps in the latticework of theory he needs as a framework for understanding new experience. It is also essential for a thinking man to assemble his skills into a checklist that he routinely uses. Any other mode of operation will cause him to miss much that is important."

You can maintain only with daily practice.

Just don't.

### Senescene-Misinfluence Tendency

When you age, you deteriorate. That's the nature of things.

"Continuous thinking and learning, done with joy, can somewhat help delay what is inevitable."

### Authority-Misinfluency Tendency

Men follow leaders. Only few men lead. But the problem is when the leader is wrong, or when the leader's ideas don't get through properly and are misunderstood.

"Man, as a social animal who has the gift of language, is born to prattle and to pour out twaddle that does much damage when serious work is being attempted. Some people produce copious amounts of twaddle and others very little."

### Reason-Respecting Tendency

When given a reason for something (even if it does not make sense), we're likely to accept it. For example, when asking someone for a favor, you are much more likely to have them comply if you give them a reason.

# Charlie Munger's Recommended Books

• Deep Simplicity: Bringing Order to Chaos and Complexity — John Gribbin
• F.I.A.S.C.O.: The Inside Story of a Wall Street Trader — Frank Partnoy
• Ice Age — John & Mary Gribbin
• How the Scots Invented the Modern World: The True Story of How Western Europe's Poorest Nation Created Our World & Everything in It — Arthur Herman
• Models of My Life — Herbert. A. Simon
• A Matter of Degrees: What Temperature Reveals About the Past and Future of Our Species, Planet, and Universe — Gino Segre
• Andrew Carnegie — Joseph Frazier Wall
• Guns, Germs, and Steel — Jared M. Diamond
• The Third Chimpanzee: The Evolution and Future of the Human Animal — Jared M. Diamond
• Influence: The Psychology of Persuasion — Robert B. Cialdini
• The Autobiography of Benjamin Franklin — Benjamin Franklin
• Living Within Limits: Ecology, Economics, and Population Taboos — Garrett Hardin
• The Selfish Gene — Richard Dawkins
• Titan: The Life of John D. Rockefeller, Sr. — Ron Chernow
• The Wealth and Poverty of Nations: Why Some Are So Rich and Some So Poor — David S. Landes
• The Warren Buffett Portfolio: Mastering the Power of the Focus Investment Strategy — Robert G. Hagstrom
• Genome: The Autobiography of a Species in 23 Chapters — Matt Ridley
• Getting to Yes: Negotiating Agreement Without Giving In — Roger Fisher, William Ury, and Bruce Patton
• Three Scientists and Their Gods: Looking for Meaning in an Age of Information — Robert Wright
• Only the Paranoid Survive — Andy Grove

## And from the editor..

• Les Schwab: Pride in Performance — Les Schwab
• Men and Rubber: The Story of Business — Harvey S. Firestone
• Men to Match My Mountains: The Opening of the Far West — Irving Stone