Mental Models

mental models.jpg

Complete the following by substituting for x and y:

Munger is to Buffett
as x is to y …

If you’re like me – a few months ago, that question would have created two responses – a nonplussed look and an icy recollection of aptitude or reasoning tests.

What happened to me that now means I could now complete it (Merchant is to Ivory, Allen is to Gates, Ben is to Jerry etc.) was as usual a coincidence. I had been thinking that I had too many RSS feeds – still under my psychological break point of 200 but too many. Whilst whittling them down to a respectable hundred it occurred to me that I choose to read people who largely think like me or at least have viewpoints that I share. (Yes – a blinding flash of the obvious).

Secondly, for some reason I cant even remember I was reading about Charlie Munger (the equally successful, wealthy and bufferish ‘partner’ of Warren Buffett – the incredibly rich and respected stock investor) on Wikipedia and it said:

“Munger’s worldly wisdom consists of a set of mental models framed as a latticework to help solve critical business problems. According to Munger, only 80 or 90 important models will carry about 90% of the freight in making you a worldly-wise person.”That in turn led me to another site and another quote:

“According to Warren Buffett, his business partner, Charlie Munger has ‘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’ (Forbes, January 22, 1996).”

and ‘Think Mental Models

Wall St (meltdown central recently) pundits of whatever kidney, were not high on my list of rss feeds but as someone who aspires to be a billionaire, worldly wise AND have a mind that can see the essence of everything before the person describing it finishes their sentence, I was sold.

Not literally – I didn’t buy the available pdf.

I don’t begrudge the $4.95 for Mr Dean Isaji who has done an excellent job of compiling and collating all the content on the site but because as I was about to click ‘buy’, I had a quick look through my pdf folder which currently has over 50 items ranging from interesting ebooks to whitepapers and printed articles and realised that quite a high percentage of them I have never fully read.

Chances were going to be that I would skim read it, think “ooh that’s really useful and interesting and deserves some time to go through”…

Instead I decided to replicate his structure, read and type up (yes as in notes) what was available, adding and filling-in the gaps he left (quite rightly to encourage purchase of the pdf) using Wikipedia and searching for the many books and articles he references. In this way, I hoped to both ensure some of it went into my head, but also that it would actually have greater value than had I paid five bucks for it.

Using lunchtimes, evenings and weekends, it took me about 2 months I would guess – there are 117 models in total, (I’ve added a couple more) across 5 categories. Some of them challenge the definition of model but to be fair the sections are called ‘Patterns’. I feel that thinking pattern is more accurate.

I followed the structure down to the very useful format for each “model” – each item has a mnemonic photograph followed by a summary, usually including an external reference or several. I haven’t yet worked out how to summarise them further for revision and recall – even at 10 seconds each its going to take close to 20 minutes so I guess it boils down to a set of pictures…

Although I’m not yet a billionaire, overall it was a really useful exercise and successful:

I now understand more fully some financial and economic models/ideas/terms although the thinking and behaviour models were equally interesting.
I sourced some great books and people which I will summarise in another entry.
I value the work I put into it and the document I created (not for sale!)

I may well look again at what is there and whether it truly justifies being a big idea from its appropriate discipline. The process of recognising patterns is very much a second part of the process.

Overall – having the value of interdisciplinary thinking validated is probably the greatest result – its obviously a process that takes time but drawing significant models and key ideas from a range of disciplines, against which to array your experience/thoughts leads not only to better investing but better understanding and decision making in general.

Will post an update in a month or two about whether anything came of it – probably from my yacht.


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