“Talking about breaking mind-sets, or creativity, or even just openness to new information is really talking about spinning new links and new paths through the web of memory. New ideas result from association of old elements in new combinations. Previously remote elements of thought suddenly become associated in a new and useful combination. When the linkage is made, the light dawns. This ability to bring previously unrelated information and ideas together in meaningful ways is what marks the open-minded, imaginative, creative artist”
The application of different mental models and multidisciplinary thinking can provide an edge by opening up investment insights that others haven’t considered and hence are yet to be reflected in a security’s price.
“If you have the patience and if you have the interest to really dig deep, then what you’re going to find is if it’s commonly held information or known information, you may come up with insights that others have not. This is what Charlie Munger talks about the latticework of mental models. You look at things through a different lens to try to see what can be different” Mohnish Pabrai
“You have to be naturally interested and curious about everything – any kind of businesses, politics, science, technology, humanities, history, poetry, literature, everything really effects your business. It will help you. And then occasionally you will find a few insights out of those studies that will give you tremendous opportunities that other people couldn’t think of” Li Lu
It’s one of the reasons the Investment Masters spend more time thinking about businesses in preference to building huge spreadsheet models. The most important thing is to identify the key factorsthat are going to drive the business in the future and establish where a business will be over the medium to long term as opposed to next quarter’s earnings.
“The best way to think about investments is to be in a room with no one else and just think. And if that doesn‘t work, nothing else is going to work.” Warren Buffett
The ultimate investments arise when a multitude of big ideas combine to create what Charlie Munger refers to as ‘Lollapalooza Effects’. Consider a business such as Facebook which has benefited from the combination of a multitude of factors: winner-takes-all, network effects, economies-of-scale, human psychology [classical conditioning [pavlov], reciprocation, virtual empathy, habit/addiction etc], tailwinds from increased internet penetration/improved global bandwidth to name just a few.
“Investment decisions are more likely to be correct when ideas from other disciplines lead to the same conclusions. That is the top most payoff – broader understanding makes us better investors… True learning and lasting success come to those who make the effort to first build a latticework of mental models and then learn to think in an associative, multi-disciplinary manner” Robert Hagstrom
“In a system of multiple models across multiple disciplines, I should add as an extra rule that you should be very wary of heavy ideology” Charlie Munger
“Minds are like parachutes. They only function when they are open” Richards Heuer
Munger: Let us look at the field of investing. Before the stock market crash of 1929, there was no structure and logic for investing in stocks. Benjamin Graham’s two major works, Security Analysis and The Intelligent Investor created an intellectual framework for sound investment. His framework had two key ideas (1) Mr Market (2) Margin of Safety. Even today Buffett and I […]
What Li Lu learned from Charlie Munger “When Charlie thinks, he always Starts by inverting. To understand how to be happy in life, Charlie will study how to make life miserable. To examine how businesses become big, strong and successful, Charlie first studies who businesses decline and fall. When most people care only about how […]
“I read scientific biography as a permanent, lifelong habit. That has given me insight into how the scientific achievements have occurred. The most interesting man to me is Einstein. Einstein came very close to dying in total obscurity. If it had not been for his friends, his pals with whom he discussed physics he never would have gotten […]