Work
A Lesson on Elementary, Worldly Wisdom As It Relates To Investment Management & Business
Charlie Munger · Passages from the same work, in order.
The Latticework of Mental Models
What is elementary, worldly wisdom? Well, the first rule is that you can't really know anything if you just remember isolated facts and try and bang…
Isolated facts become usable only when arranged on a latticework of theory.
Cognition · Learning · Decision · Modern investor letters
The Edge of Competence
And Warren and I don't feel like we have any great advantage in the high-tech sector. In fact, we feel like we're at a big disadvantage in trying…
Berkshire avoids high tech out of an honest assessment of its competence, not disdain.
Investing · Decision · Character · Modern investor letters
Multiple Models and the Hammer
What are the models? Well, the first rule is that you've got to have multiple models—because if you just have one or two that you're using, the…
Using only one or two models makes you distort reality to fit them.
Cognition · Decision · Learning · Modern investor letters
Models from Many Disciplines
And the models have to come from multiple disciplines—because all the wisdom of the world is not to be found in one little academic department.
Worldly wisdom requires models drawn from many disciplines, not one department.
Learning · Cognition · Philosophy · Modern investor letters
Accounting Is Only an Approximation
But you have to know enough about it to understand its limitations—because although accounting is the starting place, it's only a crude approximation.
Accounting is the starting point of analysis, but only a crude approximation.
Investing · Cognition · Decision · Modern investor letters
Competition in the Airline Business
Competition was so intense that, once it was unleashed by deregulation, it ravaged shareholder wealth in the airline business.
Intense competition in a commodity industry can destroy shareholder wealth.
Investing · Growth · Human nature · Modern investor letters
The Circle of Competence
Every person is going to have a circle of competence. And it's going to be very hard to advance that circle.
Everyone has a circle of competence, and expanding it is hard.
Investing · Character · Decision · Modern investor letters
Incentives Drive Behavior
So what makes sense for the investor is different from what makes sense for the manager. And, as usual in human affairs, what determines the behavior…
Investor and manager interests diverge; incentives drive behavior.
Human nature · Leadership · Decision · Modern investor letters