The Profile Dossier: Charlie Munger, the Master of Mental Models

As a complement to the regular Sunday newsletter, the Profile Dossier is a comprehensive deep-dive on a prominent individual. The dossier editions are only available to paying subscribers.

Legendary investor Charlie Munger believes that the avoidance of stupidity is more important than the pursuit of excellence. “You have a moral duty to make yourself as un-ignorant and un-stupid as you can,” he says.

Munger, often referred to as Warren Buffett’s right-hand man, is the vice chairman of Berkshire Hathaway. He’s known for his sharp, multidisciplinary approach that he uses to solve complex problems.

To avoid ignorance and stupidity, Munger is famous for knitting together ideas from a variety of disciplines to create what he calls a “latticework of mental models.” Mental models refer to the frameworks that help us simplify and understand the world. They also help us clarify our thinking and make better decisions. (I’ve written previously about a mental model called Hanlon’s Razor.)

“You’ve got to have models in your head,” Munger says. “You may have noticed students who just try to remember and pound back what is remembered. Well, they fail in school and in life. You’ve got to hang experience on a latticework of models in your head.”

Most people think and learn in a linear manner. Munger, on the other hand, is a proponent of the cross-pollination of ideas, which creates a mental toolbox of shortcuts that improve your decision-making.

In the dossier below, we take a look inside Munger’s mind and learn how to apply mental models to make better decisions in investing, relationships, and life.

On attaining wisdom: It took me months to read Peter Bevelin’s book, Seeking Wisdom: From Darwin to Munger, but it’s now full of highlights and notes. Seeking Wisdom is essentially a bible of mental models that aim to make us more rational actors in the game of life. Its sections focus on what factors influence our thinking, the psychology of mis-judgements, and the keys to mental clarity.

On how to live a good life: Munger’s 1986 speech “How to Guarantee a Life of Misery” has been dubbed “one of the greatest speeches ever given.” He lays out five "prescriptions for sure misery." They include 1) ingesting chemicals in an effort to alter mood or perception; 2) envy and resentment; 3) unreliability; 4) letting life get you down; and 5) not learning from past mistakes.

On the psychology of human mis-judgement: In this speech, Munger deconstructs all the various ways we distort reality. He lists 24 ways, which include psychological denial, Pavlovian association, and bias from jealousy. He talks about how you can apply behavioral economics to business and life.

On developing his investment philosophy: In this podcast episode, we learn about how Munger deploys his capital. Author Tren Griffin wrote the book, Charlie Munger: The Complete Investor, so he offers some insights into Munger’s investment philosophy and outlook on risk. Here’s how the legendary investor manages to keep his emotions out of his investments and operates within his circle of competence.

On his philosophy for life: Munger’s Commencement Address at the University of Southern California is a treasure trove of wisdom. He recounts the core set of ideas that have helped him rise in his career. “Deliver to the world what you would buy if you were on the other end,” he says. “So never forget, when you’re a lawyer, that you may be rewarded for selling this stuff but you don’t have to buy.” He reminds us that external reinforcement is not always the key to a good life.

On coping with hard times: Munger grew up during The Great Depression, and he saw how his family dealt with the aftermath of the economic crisis. “It sounds awful, but they weren’t all that unhappy,” he says. “You can cope pretty well because you get used to it. That’s the nice thing about the human condition.” In this conversation, he recounts all the lessons he learned during his upbringing, and it’s especially fascinating as we live through one of the most spectacular economic shocks of our time.

On developing a latticework of mental models: One of Munger’s tips for living a great life is that we should all become collectors of mental models that serve us. These models can be collected from a multitude of disciplines like math, computer science, psychology, biology, and physics. In this conversation, he shares several, including his original insight that he dubbed, “The Lollapalooza Effect.”

Be a survivor, not a victim: Munger’s marriage failed at age 29, he lost a child to cancer, and a horrific cataract surgery left him with pain so severe that he eventually had his eye removed. “Life will have terrible blows in it … horrible blows, unfair blows,” he says. In those situations, he remembers the words of Epictetus, who said that every missed chance in life was an opportunity to behave well and learn something constructive.

Know the edge of your competence: When Munger was younger, he continuously kept struggling to overcome his own arrogance. Over the years, he’s learned a valuable lesson: No one is infallible, and you need to operate within the subject areas you know best. “Humility means you know the edge of your own competence,” he says. “You are a disaster if you don’t know where the edge lies.” He and Warren Buffett often joke that they’d rather deal with someone who has an IQ of 130 who thinks it’s a 125 than a guy with an IQ of 185 that thinks it’s a 200. He adds, “That second guy will kill you!”

Learn from those who came before you: Marcus Cicero is famous for saying that the man who doesn’t know what happened before he was born goes through life like a child. “That is a very correct idea,” Munger says. Originality is derived from the learnings of the mistakes and successes of the people who came before us. “There once was a man who assiduously mastered the work of his best predecessors,” Munger says. “Eventually his own original work attracted wide attention and he said of that work: ‘If I have seen a little farther than other men, it is because I stood on the shoulders of giants.’” That man was Isaac Newton.

Use inversion to solve your problems: Inspired by the German mathematician Carl Gustav Jacob Jacobi, Munger says, “Invert, always invert.” Most of us attempt to solve our problems one way — forward. But Munger recommends using inversion to show us that there is benefit to approaching the problem from the opposite end. Here’s how the mental model works: You flip the problem around and think backward. For example, rather than asking, “What new behaviors can I take on to ensure I have a successful marriage,” it might be more useful to ask, “What behaviors could ruin my marriage?” Avoiding the most common behaviors that lead to divorce may be more helpful than trying to figure out the ingredients for a successful partnership.

Keep your emotions under control: Your intelligence won’t make you a great investor if you have little emotional control. Munger has said that an even temperament is more important than a big brain. "You need to keep raw irrational emotion under control,” he says. “You need patience and discipline and an ability to take losses and adversity without going crazy. You need an ability to not be driven crazy by extreme success." Adopt a long-term focus, stay patient, and avoid taking action impulsively. “It’s waiting that helps you as an investor, and a lot of people just can’t stand to wait,” he says.

Beware of extreme ideology: In a time where the world feels extremely polarized, it’s never been easier to fall into groupthink and drift into deeply-rooted ideology. Munger has an “iron prescription” to make sure he doesn’t become a slave to his beliefs. “I’m not entitled to have an opinion on this subject unless I can state the arguments against my position better than the people do who are supporting it,” he says. “I think only when I reach that stage am I qualified to speak.” It would behoove many of us to do the same.

Cultivate a life of deserved trust: Munger believes that the highest form a civilization can reach is a seamless web of deserved trust. There isn’t a ton of control, strict rules, or paranoia. “Not much procedure,” he says, “just totally reliable people correctly trusting one another. That’s the way an operating room works at the Mayo Clinic.” What you want in your life, he says, is to build a web of deserved trust among reliable people. “And so if your proposed marriage contract has 47 pages, my suggestion is you not enter,” he says.

“In my whole life, I have known no wise people who didn't read all the time — none, zero.”

“Being smart and doing something that no one has done before are two different things.”

“Take one simple idea, and take it seriously.”

“To get what you want, you have to deserve what you want. The world is not yet a crazy enough place to reward a whole bunch of undeserving people.”

“How to find a good spouse? The best single way is to deserve a good spouse.”

“Acquire worldly wisdom and adjust your behavior accordingly. If your new behavior gives you a little temporary unpopularity with your peer group…then to hell with them.”

“A majority of life’s errors are caused by forgetting what one is really trying to do.”

“Mimicking the herd invites regression to the mean.”

“The best thing a human being can do is to help another human being know more.”

“You must force yourself to consider opposing arguments. Especially when they challenge your best loved ideas.”

“People calculate too much and think too little.”

“Like Warren, I had a considerable passion to get rich, not because I wanted Ferraris – I wanted the independence. I desperately wanted it.”

"Three rules for a career: 1) Don't sell anything you wouldn't buy yourself; 2) Don't work for anyone you don't respect and admire; and 3) Work only with people you enjoy."

“The iron rule of nature is: you get what you reward for. If you want ants to come, you put sugar on the floor.”