Charlie Munger:

Latticework of Mental Models

EPISODE 139

Charlie Munger is one of the greatest investors of all time. Plenty of people have called him a “learning machine.” The phrase ‘Latticework of Mental Models’ (buy on Amazon) comes from Berkshire-Hathaway’s Charles Munger, who spent most of his life working out ways to, for lack of a better term, think better.

Munger has come to the conclusion that in order to make better decisions in business and in life, you must find and understand the core principles from all disciplines.

You have to learn all the big ideas in the key disciplines in a way that they’re in a mental latticework in your head and you automatically use them for the rest of your life. – Charlie Munger

This is what he calls Elementary Worldly Wisdom, and using his system of Mental Models can help you succeed in almost any endeavour.

SHOW OUTLINE

INTRO

(From Charlie Munger’s 2007 USC Law Commencement Speech)

How lifetime learning and wisdom acquisition is essential

Become a learning machine (3m18)

Swedish Investor introduces us to Charlie Munger's mind

Thinking tools (1m14)

AGILE MINDSET

What’s Charlie’s secret to learning new skills and behaviours

Learn the method of learning (2m14)

Swedish Investor introduces us to Charlie’s worldly wisdom and the need for multiple mental tools

Swiss army knife (1m51)

THINKING DIFFERENT

If the standard human condition is ignorance and stupidity, make sure to think different

Uncommon sense (1m34)

Swedish Investor and the value of ‘why’

The world’s most intelligent question (1m45)

OUTRO

Charlie Munger and Warren Buffett discuss their most effective method to minimise mistakes

Learn from others people's mistakes because life is short (3m31)

CLIP CREDITS

https://www.youtube.com/watch?v=ZuHHmVX8a00&ab_channel=InvestingWisdom

READING

Charlie Munger: The Complete Investor

TRANSCRIPT

Hello and welcome to the moonshots podcast. It's episode 139. I'm your cohost, Mike Parsons. And as always, I'm joined by the man with the plan, the man with the models of the day. Mr. Mark Pearson. Freeland, good morning, mark. Hey, good morning, Mike. What an exciting day we've got ahead of ourselves as we continue this mental model series.

I know we are like knee deep in mental model mayhem. Mark, where are we? And where are we going? We're going to find a light through the the mad forest of mental models (buy on Amazon). As we surround ourselves with all these different frameworks, we're going to go to the man who has the light and the shining torch to cut us through this forest.

It's Mr. Charlie Munger and wow. Mike, what an individual who's seen so much success in so much activity throughout his 97 years. Yes. I would say [00:01:00] he clearly qualifies as a living legend. He is none other than the console URI, the Robin to the Batman. He is none other than Warren Buffett's business partner.

They run Berkshire Hathaway. And if none of that rings any bells, mark, I think we can put this into a little bit of context. Tell us about Berkshire Hathaway. They are just an enormous spread of companies, actually, Mike. Let me, let me hit you with some stats. With some data, Berkshire Hathaway have a market value of over 620 billion us dollars, and they wholly own as well as have significant stakes in some of the largest and most well-known household brands in the world.

You would just a couple of Mike and see tell me if you've heard of any of these. So some of the wholly owned companies that they have include Geico, [00:02:00] Duracell, cavalier homes, some of the companies they have significant stakes in, or perhaps even more well-known, Apple. IBM, American express, Southwest airlines, United airlines.

I mean, this is a company that has huge. You know, fingers in all of the different pies of some of the most well-known brands in the world. Amazing stuff. And what's crazy to think is that Munger together with Warren buffet built Berkshire Hathaway from nothing. And I think what is even more amazing.

Yes. The companies that they wholly own, there's like over 300,000 employees, but. You think about it? Earthly Hathaway $624 billion, 14th largest company worldwide by revenue. How many people are in their head office or how my I'm not going to lie to our listeners, [00:03:00] but we could probably get all of the employees of Berkshire Hathaway into one room for dinner.

The latest number that we could find it was 25 individuals, including Mr. Charlie Munger. So we just need to put that in a little bit of context. They'd built this from scratch. 14th, biggest company by revenue and in the head office, they do all of this with just a whopping 25 employees. This is someone that we can learn from I'm sure in order to achieve this, there are some mental models.

Mike, what do you, ah, there's gotta be mental models, you know, much like with Albert Einstein that we covered in show 137 Shane Parrish last week, Mike, in 1 38, we're gradually building this lattice work of mental models. And Charlie Munger has a few to share with us today as well. He does indeed. So get set.

We have done such a spread so far. We have done the classic, you know, the king of the hill. [00:04:00] Albert Einstein and learned his mental models. We've gone to the latest and sort of the pioneering work of Shane Parrish, where he's brought it all together and he's mental models guide he's toolbox. And today we go to the living legend of Charlie Munger, him self.

And if you want to make great decisions, it's all about mental models and mental models is something you need to acquire. And we have got some great advice from Mungo himself, where he's giving us CS law, commencement speech. And he's going to talk about what we need to think about what is essential for our lifetime of learning.

It's not something you do just to advance in life. Wisdom. Acquisition is a moral duty and, and as a corollary to that proposition, which is very important, it means that you're hooked for lifetime. [00:05:00] And without lifetime learning, you'll people are not going to do very well. You are not going to get very far in life based on what you already know.

You're going to advance in life by what you're going to learn after you leave here. If you take Berkshire Hathaway, which is certainly one of the best regarded corporations in the world, and it may have the best invest longterm investment record in the entire history of civilization, the skill that got Berkshire through one decade would not have sufficed to get it through the next decade with the achievements made without Warren buffet, being a learning machine Fantana was learning machine.

The record would have been absolutely impossible. The same as true at lower walks of life. I constantly see. People rise in [00:06:00] life who were not the smartest, sometimes not even the most intelligent, but they are learning machines. They go to bed every night, a little wiser than they were when they got up.

And boy, does that habit help, particularly when you have a long run ahead of you

Alfred north Whitehead said at one time that the rapid advance of civilization came only when man invented the method of invention. And of course he was referring to the huge growth in GB, GDP, per capita and all the other good things that we now take for granted, which happened just started a few hundred years ago.

And when, before that all was stable, And so if, if civilization can [00:07:00] progress, the only one in advance, the methadone mentioned you can progress only when you learn the method of learning. I was very lucky. I came to law school, having learned the method of learning and and nothing has served me better in my long life than continuous learning.

And if you take Warren buffet, if you watched him with a time clock, I would say half of all, the time that he spends is just sitting on his ass and reading, and a big chunk of the rest of the time is spent talking. One-on-one either on the telephone or personally with highly gifted people whom he trusts and who trusts you.

Other words, it looks quite academic, all this worldly success. I mean, my water clip to get us [00:08:00] started with Mr. Charlie Munger, recounting some of the tips and advice that he's used within Berkshire Hathaway, as well as Mr. Warren buffet. I mean, one big idea is, is revealed to me here, Mike, and that's the idea or the realization that you won't get through decade two with the same thinking that you used in decade one, you have to learn that and change.

And I think that's a really a penny drop moment for me, because without, I imagine just going straight out of school and trying to live the rest of your life, using the same things that you learned in school, You're going to always reach a certain point and never be able to go beyond that, like a plateau, right?

Like a plateau it's saying. Yeah. And I think this is a really valuable call-out and lesson that Munger is sharing with us straightaway without having the ability to learn and to improve your maybe [00:09:00] horizons or, or just change the way that you think about things. You're always going to reach that plateau pretty, pretty darn fast.

And that's, that's a great first lesson, isn't it? Yeah. You can't, you know sit on your laurels, right? You have to continually reinvent yourself. And what was interesting, he was pointing out is the lessons of one decade would not work in the following decade. And he should know because I'm wired have been at Berkshire for five decades.

So I think when we talk about legacy and talk about longevity of the work and the contribution that you make. I think what he makes a very powerful argument for is continuous learning. You have to have a voracious appetite for the new be curious. Right. And I think what you just it's pointed out. My that's why you've got to keep learning, because if you get stale, you know, you're going to find that the tool set [00:10:00] isn't that you have the way you think will become outdated.

It eventually will no longer work. I mean, I'm going to show my age here, but I grew up as a kid with no internet. Right. And so radically, what was we have seen is executives like myself that learnt traditional media Knology and business rules have had to relearn everything because internet has changed everything about how we live and work.

We always have these moments of things around us that change the context, think about the invention of the telephone, the jumbo jet, et cetera, et cetera. These are all massive. The iPhone. I mean that is, there's a huge thing about what AI machine learning's going to do. These are going to change paradigm.

Let's get practical. Mark. Another reason to learn is we're now all deeply entrenched in hybrid ways of working, or [00:11:00] maybe for some fully remote working, which was unthinkable even five years ago and thinkable. Yep, totally unthinkable and totally for some businesses they were unprepared, right. They, they didn't think it would ever happen, so they didn't want to learn how to roll it out internally or learn about new systems and processes and tools to make it happen.

So everybody was kind of caught off guard because I think they were using the same lessons that they'd operated under for the last decade. Yes. So I want you to think what we have with Charlie manga is somebody who has seen so many different eras chapters in the way in which we work and their company, what Warren buffet and Charlie have built in Berkshire.

Hathaway is something that has outperformed year on year, decade. Upon decade. That's what we can learn in this show. So mark I'm fired [00:12:00] up. I just want to know what's next in our adventure into the world of Charlie manga. Well, before we start learning from Charlie and understanding some of the models that he uses to not only learn, but also to think different, we've got a quick introduction from Swedish investor talking about Charlie's mind, and this clip's great at revealing some of the approaches that Charlie has as we consider mental models.

So this next clip we're going to hear from Mike is Swedish investor talking about Charlie's thinking tools, an advertisement for a company called Warner and Swayze used to say the company that needs a new machine tool and hasn't bought it is already paying for it. Charlie Munger, the vice chairman of Berkshire Hathaway, and one of the most successful investors in the world says that this applies to thinking tools.

The man who is in need of a new thinking tool, but hasn't yet a quiet, it is already paying for it. It's it's extraordinary [00:13:00] how resistant some people are learning. Anything Buffett has said the following about Charlie Munger Jolie has the best 32nd mind in the world. He goes from eight to Zed in one move.

He sees the essence of everything before you can even finish the sentence. How does he do it through observing reality and running it against his mental models? These mental models have helped monger to conquer the stock market, but they're so diverse that they have applications within many other areas, too.

For example, they have allowed Munger to be a successful chairman at a large hospital, and they have allowed him to overcome devastating personal losses. So there you go. It is learning at the heart, but it is being ready to deploy a whole suite of mental models to whatever problem comes up [00:14:00] to me. This is the next step.

Once you say, all right, we've got to have mental models, right? You've got to think properly. You've got to think about thinking. So then an event happens and then you actually have a tool set in front of you and like which tool is appropriate for the task whilst this might sound simple to say, once you realize what's on offer mark so many different options and models, I mean, it's very exciting, but it's also, it's quite cathartic to realize, well, you know, chances are people in the, I have thought about most problems that have happened.

There's probably a go-to way to think about it. You've just got to have the right a model for the right moment and that's going to be something. Would have been consistent for Albert Einstein, Shane Parrish, as we heard last week, as well as Charlie Munger. How do I know which tool is, is right for me? And the only way I think that you're going to be able to distinguish and [00:15:00] determine which one's right, is to follow the Charlie Munger approach, which is to become a learning machine, to adapt your business, as well as your approach to problems decade by decade or a situation by situation and trial, different thinking frameworks and think, okay, well, if I am trying to solve this particular problem, let's, let's go through my catalog, my mental catalog of different approaches and see which one might work.

And I think you can only do that once you've built up, like Charlie would say a repertoire of thinking tools that then enable him to choose the right one when he gets to that point. Yeah. And this for some fun. Yeah. I've made a little index of some of my favorite mental models, mark. I mean, we can't fit all the mental models into this series.

I mean, there's going to be a four show series, ma we've done Einstein, we've done Shane Parrish, you know, [00:16:00] we're jamming on Charlie manga. We're going to do Peter Hollands, but I've just got, this is how many options there are for us to think better. And so I'm just going to give you a list of some of my favorite, okay.

Circle of competence, circle of influence, inversion, full action attribution era Hanlon's razor. Opportunity costs, Pareto principle, preference, attachment redundancy, margin of safety, first principles, thought experiments, second level thinking, and the list goes on. These are all different models we can use for different problems.

I mean, how cool is that like literally any problem we're encountering that it's very likely that the answer lays in that list that I just read out. I mean, these are the, probably the top 20 or so most common ones. So hopefully I, as 50, [00:17:00] 60% of problems will probably be answered by thinking along these lines.

I mean, that is pretty cool. Isn't it? I think that's the aha moment. As we dug into these mental models and listeners, you can go back to our Einstein show show 1 37. Do you want to hear more about thought experiments, probabilistic thinking Ockham's razor. You can go into the Shane Parrish episode for circle of competence, first principles, second order thinking and inversion.

I mean, Mike Wolf, we've covered a handful already, but I think without, yeah, being able to dig into each of these and without hearing from these individuals, such as Charlie Munger, who have utilized these mental frameworks in their approach to problem solving, it's very easy for us to fall into the trap of just thinking, well, I'll figure it out.

I'll think of my calf. I'll make it up as I go along as opposed to taking a step back and a pause. And instead of jumping onto the fire, I'm thinking, okay, well maybe there is something out there that can help. [00:18:00] Maybe there is a situation that somebody else has faced that is somewhat similar to mine. And what did they learn?

And this idea of learning from the mental models or the mistakes you could say of other people and being inspired by somebody like Einstein, who going out very focused in a physics and mathematical way that's quite unique or niche compared to what you and I might do, but the fact that we can still take those mental model frameworks and utilize them in our work, in our worlds, which are much more technologically unique versus Einstein and still benefit from.

I mean, it's just pretty confronting when you, when you think, why not utilize a lot of this thinking in my day-to-day practice, you know, you don't want to waste it. They don't exist. Yes. And the good news mark, just as we're both in, or have this massive inventory of mental models that we might choose to use, here's the good news. [00:19:00]

I know somewhere that will guide us through it all. And it's moonshots.io, mark, I think. Is that just not the place to go if you want to get to the bottom? Not only of thinking better, but improving yourself and leading others, I can think of no better place than moonshot study. Yeah. Pop along listeners two moonshots that I you can find all of our series on mental models and thinking better.

You can go through our back catalog of 139 shows. Mike. Woo. That's a lot of learning, isn't it? That's good. Yeah. Learning there. And it's not just, you know, as announcing shows, is it mark? There's a whole lot more than that. There's so many utensils and tools to help us all learn out loud together. We've got transcripts, we've got frameworks, we've got reading lists, show notes for all of our shows, 139 shows.

And Mike is even [00:20:00] a special area for those who want to go that extra mile with their learning and become subscribers. Don't they? And you look, we want you to become a member because by you becoming a member of the moonshots podcast, you give us the ability to. Build things like the mobile app that we're working on, you give us the ability to pay for all the hosting and production.

And it's a way for us to contribute more to you. Our listeners, it's a way for us to build something that will stand the test of time, just like Berkshire Hathaway. So we really encourage you to go over to moonshots.io, click on the members button, jump in, become a member. We've got a special thing. Thank you, mark.

We've got a couple of members. Who've become patrons and members of moonshots. Who, who are those lucky self-learners those moons shelters, our three listeners of the week and [00:21:00] special shout ads go to miss Jess kneels and Mr. Bob or three Patriana or three of our patrons who we want to give special shout outs.

Yeah, really appreciate your support. Your support of us is going to help us build this mobile app to deploy more, shows more goodies. And as a member, ma can we, we, we can't forget this. You get access to our exclusive moonshot master series, where we recently did a deep dive, a 90 minute deep dive into motivation, where there was all of the tools and the experts we hand pick the very best thinking, inspiration and tools for you to learn how to keep getting motivated.

It's a bit like mental models. You've got to keep working on your learning and. Learning, you've got to keep working on your motivation. And the next one we're working on is going to be on first principles thinking, which is a really powerful mental model showcased [00:22:00] by Peter teal and a little innovator called Elon Musk.

That's the next moonshot master series. You can get that if you become a member, it's strictly members only. So jump over to moonshots.io and give us some love. Be part of the team, become a moonshot and. Man, we got a few shout outs over the last day or two, I think we should you know, give a few shout outs to a couple of listeners who were saying some very nice things and sharing their love for improving themselves.

Yeah. A special shout out to Jessica Cox who got in touch with us and left a very, very kind of a note. We're so glad that you started listening and we really appreciate the fact that you're finding so much value in the discussions that we're having. Not only between myself and Mike listeners, we're having discussions with you guys as well.

And we love hearing from you when you get in touch with us, as well as Mike, not only via email and via moonshots.io, but on [00:23:00] LinkedIn and a special shout out to Julian and Ronnie who recently gave us a little bit of love and had a discussion amongst themselves and their followers on the moonshot podcast.

And Mike, that was a special mention from Ronnie where he's refining his mental models. And that just seems like the person. Segue back into our show on Charlie Munger. Yeah. I mean, he's in the right place at the right time. Shout out to you, Ronnie. Thanks for all your support. Let's pick up again with Mr.

Charlie manga and let's learn about the method of learning Charles H from New York. He actually quotes a speech that you gave a commencement address. You gave in 2007 at USC law school. I'll paraphrase here. You wrote our, you said so if a civilization can progress only when it invents the method of invention, you can only progress when you learn the method of learning.

I was very lucky. I came to law school, having learned the method of [00:24:00] learning and nothing has served me better in my long life. Then continuous learning. Charles H would like to know what's Charlie's method of learning.

Oh, I think I had the right temperament. I don't know when people gave me a good idea. Like it was a good idea. I quickly mastered it and started using it and used it the rest of my life. And you would say, you say that everybody does that in their education, but I don't think everybody does. It's such a simple idea.

And of course, without the method of learning, you're like a one legged man in an ass kicking contest. It's just not going to work very well. Take Jerry. I think the daily journal would have hundreds of millions of Margaritaville securities. Now, if Jerry didn't know how to learn something new, he didn't know one damn thing about the daily journal and we made him head of it, but he knew how to learn.

He didn't know, of course that's a useful thing. And by the way, I think it's hard to [00:25:00] teach. I think it's just some extent you either have it or you do.

Jerry Chang would like to know. And Jerry Chang would like to know why are some people in capable of learning new ideas and behaviors?

Well, it's partly culture, but I was just born into cork. Some people have a natural trend toward good judgment and other people do just make their life is just a series of mistakes over and over again. I mean, Mike, this is telling me temperament, it's telling me attitude, it's teaching me. You've got to have the element of practice.

Not only can you read something or learn from another individual, but to actually compartmentalize it and to use it or apply it. That's how, you know, whether you've understood it correctly. Right. You know, if it's going to work in your particular problem, [00:26:00] this idea of practicing and the mental models, I think is a really key shout-out from Charlie.

Yeah. I think we've made the case, obviously, you know, learning the method of learning, thinking about thinking is essential. If you want to create, you know, mungus success and Berkshire Hathaway, if you want to. Emulate the likes of Elon Massey. Gotta have you're thinking together. What I think, you know, you talked to earlier on one of the clips about the penny dropping for me is like, you've got to apply it, right?

You can't just, it's like, if you're watching YouTube all the time about how to work out, but you actually never have a go at working out you never going to grow, but you know, be very practical. Let's say you get some gym workout on YouTube and then you watch it and then you go to apply it. And then you're like, well, hang on, pause.

How did they do that? Rewind? And then you try and you try. It's only, then that you're really getting it right. Just watching YouTube. You gotta, you gotta practice that [00:27:00] workout. And often it can take weeks and months to learn something new and to make it a habit. What he's telling us is. Continuous learning has to be applied learning and he made a little reference in that clip to the hardest thing is to teach.

And there's this great wisdom that if you want to learn something, you should teach something. So my question for you, mark, is how, how, where do you go to when you want to learn something new, when you want to learn how to think differently, where do you go? Well, glad you asked Mike, because I think this requires a little bit of reflection, doesn't it?

And I think in order to learn correctly, you need to understand the best way for you as an individual to learn, because we all learn in different ways. Sometimes it's quite easy for an individual. And I went to school with these people. They just have to sit in a classroom. They could be scribbling on the desk, but somehow they just retain [00:28:00] everything that they hear.

Did you, did you have anybody or were you one of those. No, I was far from one of those people. I did not engage enough. I did not retain enough. And I didn't really soak myself out until well after high school, but yeah, you've got to apply it. Right. You've really got to have it. Exactly. That's exactly how, how our myself I needed to learn.

I needed to put things into action. I needed to understand maybe a bit about photosynthesis through experimentation. So seeing how it might work or at least watching something or someone demonstrate how it works by really breaking it down into a kind of molecular level. That's how I would learn. And then building on that, maybe doing it myself.

And I, I think that this is quite consistent with how I've learned new skills through my career as well. Somebody breaks it down. Maybe it's through a video format, [00:29:00] maybe it's through an online course, or maybe it's through. A big old whiteboard and somebody just drawing something up by then compartmentalizing that, understanding how it works and then physically repeating it myself.

That's how I personally learn. I mean, there's many other ways that you can learn from others. You can interact with them. You can just read online, you can perhaps go out and see somebody talk or watch something. And like a, like a USC commencement law speech from Charlie Munger. For example, I think for me, this is all about putting into practice and that's where Charlie's really calling it out as one.

Yeah. Yeah. So one of the, one of the things I do it's similar to you mark. Like I'm, I'm going out there. I'm trying to apply it. I love to read, but where I. Find the best thing where the aha moment for me is when I'm writing [00:30:00] it down and then trying to write examples of applying it and using it in my work.

And you know, if I don't write it down and apply it, I think I've retained maybe 10% of the idea. That's all. So until, you know, you say to me, like someone comes to me and talks about building a product. I still, to this day deliberately use models like the lean hypothesis, design thinking tools such as a user journey, user personas to keep coming back to these tools to apply to a problem.

And what are. What I really want to implore to you and to our audience, mark is if you write it down, if you publish a blog post on it, share your learnings, whatever it takes, [00:31:00] make a video, share it with your colleagues. If you transform what someone says to you or what you listened to read, if you write it down, repackage it, and then put it back out in the world.

This for me was the big aha about how I learn. So under that process, I will retain more than 80% of the idea. However, if I just, for example, what your YouTube video, give me a week. I've retained less than 10% of the idea. So until I apply in that process where I write it down, decode it, repackage it, put it back together, and then put it back out in the world.

If I don't do that by working with others, by reading, thinking it through experimenting, you know, trying, and maybe I mess it up. Who cares if I don't do that, then I'm not learning. Does that. How does that make sense? So how would you say if you need to get to an 80 plus retention rate on the idea [00:32:00] to learn a model, an idea, or way of thinking, is it similar for you?

For where does it, does it get a bit different? I think I'm definitely, yeah. A scribbler as well. I'll write lots of notes as we're conducting our podcast, even listeners will be pleased to hear that I've got lots of notes in front of me right now, and I'll do that in my career. Anything that I'm trying to learn or retain or, or reflect later.

And what I would do is I'll write it down and maybe I'll share those notes or maybe I'll just hold them. But by verbalizing them by almost kind of like reading a script, I suppose maybe we were learning to put on a play mic. Maybe you and I will do some kind of theater performance when, when lockdown eases by presenting it to somebody else or voicing it out loud.

That that helps me. It's it's almost the con come France or, you know, the movement from it being [00:33:00] written down, coming through my ear. As well, it's a whole multi stimulus. Yes, that helps me learn. Yeah, we've got to kick it, shake it, roll around in it, use it, dress it up and really be in it. I, you know, you just reminded me of another thing, example I have.

Okay. So I read books, summaries a lot. So I get in my newsfeed, a lot of books, summaries, and whenever I see something that appeals to me, I might read the book summary. Let's say, I look at in a month, I look at perhaps, I don't know, 10 books, summaries, maybe one of these or two of these. I will listen to the audio book, but here's, what's really interesting.

So I'm running and I'm listening to a book at the moment. I'm listening to Kaizen, which is a book about this Japanese philosophy of continuous self-image. And what I do [00:34:00] is when. The author I want to say it's Robert Mora. If I can remember it correctly. So let's say he's talking about something.

There are these six ways to do continuous learning. And I heard this on Saturday, so a few days ago, and I was like, oh my gosh, she just did this great breakdown of the six parts of continuous self-improvement. So while I'm running, I would usually do one of two things. I do a voice note to myself that I pick up later and I'll tell you what I do with it.

But in this case, it was so good that as I ran by the river, I opened up my phone. I kept running. It sounds a bit ridiculous. It's totally safe. No one got harmed in this. And I went into my Kindle app while jogging rather slowly found the segment and highlighted the segment. Cause it was so big for me.

It was so profound. And then wait for. So I went and [00:35:00] highlighted that thing, put my phone back in and kept running the following day. I, when I was sitting down to do some journaling, I went back and got these six items out of my Kindle highlights. And I wrote about them because they were so important to me.

It was really clicked with how I'm thinking at the moment. I was like, yeah, that's fantastic. Now here's the thing. How many times mark, do you read a book or listen to a book and go, oh wow. That's a good thought. Does that happen much? It happens a lot. Right? Like the author is saying something and you're like, yes.

Right. But what I've learned about myself is a week later, if I haven't done that process, I just described to you a week later, if you asked me what were the good things in the book about Kaizen? I'd go hang on. There was a thing I can't remember exactly, but it was kind of this, but now. If you asked me that question, [00:36:00] what's good.

Well, I can say in chapter two, he mentions the six key practices of continuous learning, asking small questions, having small thoughts, et cetera, et cetera. The point is because I went and highlighted it and then wrote about it in my journal, that act has transformed how much I've retained. I'd instantly gone from 10 to 80% recall because I learned the method and this is figuring out how you do it, what I'm suggesting to you and to all of our listeners, figure out how you can digest it.

This is not a casual couch. Sport learning is an active. And you've really got to jump in and find whatever practice you need to learn, but don't just be sitting on the couch and let all this good thinking, go pass you. I think for me, that's so essential in adopting this. Isn't it mark. I like that a reference about learning.

It's not a [00:37:00] casual, casual couch. Was that the terminal? You don't do it on that couch. You'd get out on the field and you play right. You got to do it. Yeah, that's exactly it. That's exactly it. And as we reflect on these different metamodels Mike and these elements of learning, I mean, the truth is everybody's going to have that different approach.

And likewise, everybody's going to have different mental tools that they can apply in their day-to-day life. And this next clip, Mike from Swedish invested breaks down another piece of Charlie's wisdom and how you need all these different tools for life's a plethora of situations. And this next clip we're gonna hear about is how to become a Swiss army knife.

If you're going to learn how to drive a car, you understand that it isn't enough to only learn how to use the accelerator. In fact, only learning how to use the accelerator when driving a car, pretty much guarantees that you will hurt yourself and others. You need to learn about multiple things, how to use the steering wheel, the brakes, the rear view [00:38:00] mirror, the gear shift, how to interpret road signs, how to Hong Kong people, when they do stupid things that you would never do because you're an above average driver, et cetera.

Now, the world is of course, a lot more complex than a car. If you want to become a successful thinker in such a world, you need to learn about many different ideas. Charlie Munger calls this worldly wisdom. He estimates that he's got about 100 mental models in his head, which are useless. No need to get overwhelmed though, because he also says that you don't have to know everything.

A few of the really big ideas carry most of the fright by definition. This is going to be a game which you play with multiple techniques and multiple models. And a lot of experience is very helpful. There's another analogy to the man with a hammer. Every problem looks like a nail. The man with the hammer is [00:39:00] paying for his ignorance because he will torture reality to fit the only model that he knows about.

And of course, this is a stupid way of behaving because it is not the world itself that will change. It's the man with the hammer who will fall on his face. You'd rather be like the man with a Swiss army knife. The man with a Swiss army knife realizes that different problems require different tools and he's equipped and ready for applying the best tool for the given situation.

Yeah, different problems, different solutions. You can't just think of the world as you being a hammer and everything. So now mine, well I think this is the next big thing, right? So we've, we've understood the importance of learning. We've understood the importance of having the ability to learn, how to learn, how to think, how to think.

But now what we're getting from Charlie monger's work is the essence of it is [00:40:00] you got to have a multiple set of models so that you can apply the right model in the right time. That's why I've got this big list. I haven't quite worked out, which are my favorite ones, but I think this journey just keeps evolving.

Like you got it. I think about thinking you've got to continuously learn, but now it's about deploying the right model at the right time. And to just to remind you. We had Ockham's razor from Einstein we had from Shane Parrish, inversion, first principles, second order thinking, circle of competence.

And now we're building the case that you've got to have all of these. You've got to be familiar with these. You've got to know when to deploy them. I think the job here, the call to action here is working out. What kind of models work best for you in your work in your life? I think this [00:41:00] is a very.

Interesting. And a little bit challenging of a question. What do you think, mark? Yeah, I, I think I now appreciate and understand the need for mental models. I think that analogy we just heard with the Swiss army knife versus the man with the hammer is a really good one. Don't torture reality by trying to make reality fit around.

You remember that you can adapt easier than the problem or the situation, you know, by using different mental models. And I think Mike though, we have stumbled upon the potential problem. Isn't it? How do you know which one to apply? And I suspect the answer that Albert Einstein, Shane Parrish, and maybe even Charlie manga would tell us is to apply it and see, to experiment and test it.

That's right. And I think that in general, The way to think about it is that there are mental models. If you have [00:42:00] to make a decision, like, do we go left or right. Then there's like, okay, we've got a problem. How do we fix it? And then the other one is like, how do we design like a new system and systems thinking and systems design is something that we've talked about before, but that's loosely the three buckets.

So let me ask you this question in your line of work, do you tend to have to think more about problem-solving decision-making or systems thinking? I think it's going to be more of the former actually. I think it's all about trying to, and one of the great mental models that we've covered on the show that really stood out to me was the idea of.

So starting with the end result and trying to work backwards and thinking, okay, well, what obstacles my we run into? Okay. Is it going to be dependencies? Is it going to be challenges from teams or time zones or whatever it might be, and trying to [00:43:00] systematically work through those backwards in order to find the right way of working on it now?

Gotcha. What you're saying, the answer you're giving is you're saying you're largely in the problem solving category most of your work. I think so. Yeah. Okay. So now what's interesting is, so you've said inversion sorry. Which one did you say again? And version? Yeah. Say version. Gosh. I'm I'm already like jumping off to these other models.

What am I doing? So invalid. So this is all about, you know, solving a problem from a different point of view. Very, very powerful. So let's just say that for you and for our listeners, maybe a lot of your work is in the problem solving area. And I would say that this is, this is perhaps one of the more popular areas of mental models.

The other thing you can do is look at them, those principles, and we're going to do a whole master series on first principles. That's breaking down complexity. Very complex situations into very fundamental, [00:44:00] simple basic elements or truths. That's first principles. Now, mark, another thing that might be interesting for you is this idea of it's code and wait for it Ishikawa diagram.

And that's how you just get to the source of a problem or what some might call getting to the root causes. So you map the problem and then go backwards of that saying, well, why did that happen? And you list all the contributing factors. So you're not even actually in solution territory yet in order to make you know, some headway you're actually going deep into what is the problem and why yes.

I'm aware or semi-familiar with the Ishikawa diagram. Cause it's, it looks a little bit like. Doesn't it. I at least, and it can look like whatever works if you're getting whatever works, but these are, these are all problem solving models. Now just quickly. Let's just give some [00:45:00] examples of decision-making now for him.

For me, what's really interesting. If you look at someone in the financial markets that someone, someone who's making investments be it professionally or personally there's some really interesting decisions. So you models you can use, you might have what we call second order thinking where you go more into the consequences of, okay, so I think I should do this, but what would actually happen?

What would be the consequence of me doing that? So second order thinking now another big decision that we all have to make is how we spend our time right now. Something I've mentioned a lot on this show is a mental game. For decision-making about how you spend your time, which is called the Eisenhower matrix.

Do you remember the Eisenhower matrix mark? I do. Mike we've, we've discussed a couple of times probably back in our, I want to say maybe the, even the habit forming [00:46:00] series that we were digging into, wasn't it exams, how to decide what to schedule and watch to focus on. Yes. And so the heart of this mental model is weighing up the importancy versus the urgency of an activity.

And I really encourage you and all of our lessons doubled triple, quadruple, dive into Eisenhower matrix, weighing up importance versus urgency. It's a fantastic model to use, and that is kind of loosely classified as a decision making mental model. What we talked about earlier was more about problem solving.

So the issue, Carver diagram in version and so forth, and just lastly. If you're trying to create something new, if you're trying to create a new system, you can use all sorts of interesting ways to think that through you can use connection circles, iceberg model, which is classically you have up on the top, what you can see, but below are some of the root courses or abstractions.

[00:47:00]You have feedback loops, like there's some really cool stuff there that you can use, and you can really focus on, you know, the idea of parts versus the whole. That's another great systems once a day. You've got it, mark. I mean, we could literally just go on for hours and mapping all the different models, but here's what we all need to know.

There's essentially a category of three. You are generally applying a model for either problem-solving decision-making or designing a new system, like already there, that is such a breakthrough. And I mean, I've only spent a few years with this body of work and I love this because for me it is the capacity to think clearer.

And I think when we think clearer, we make better decisions where we walk away from wishful thinking and we just make wise good decisions. We build good products, we solve complex problem problems by making things simple. I mean, it feels good even talking. Yeah. I mean, [00:48:00] you've already helped me compartmentalize and maybe even film.

Some of the mental models that we've discussed in the show so far as well as the much wider ones that we've referenced and spoken about and understanding how to choose the right one, depending on the certain situation decision-making versus problem solving. And son that's already helping me. And hopefully our listeners determine which model to try and choose and experiment with in a certain situation in life.

Fantastic stuff. Now, we still got some some advice from Charlie manga. We've got the chance to think about thinking to build our Swiss army knife of mental models. Where do we continue this journey? Well, similar Mike, to where you were just taking us with really thinking about things in a different way and applying some of these models into actuality.

This next clip we've got from Mr. Charlie Munger is all about considering our human condition and instead applying a little [00:49:00] uncommon sense. The topic I'd like to talk about briefly is common sense, which isn't common. Yes, let's see.

And what people mean when they say a man has common sense is uncommon sense. And usually they don't mean that the man has a narrow little activity. He's good at like knitting sweaters. And he sticks to that. What they mean is a man that can operate over a pretty broad range of, of human territory without making any big boners.

And that is a very important thing to be, be good at it. And the question is how you get it. I was very lucky in my own life because every place I looked at the pinnacle, there was a guy that was better than I was. And my father's best friends was a great surgeon of the basket mechanical. And I knew what this man did with [00:50:00] his mechanical abilities and inventing all these spreaders and things.

He used to do his operation, but I would never be as good as he was. And everywhere I looked there was somebody like that. And that was all this falling out there am. I suddenly realized, like if I just avoid all the falling, you know, maybe I can get live bad age without having to be really good at anything.

And I kept doing that all my life and it worked so well that I, I enjoy sharing it with people like you. Yeah. You know, this is really interesting for me, man, because it's almost like if you keep in mind that humans are. On average, going to make some silly mistakes in decisions or solving problems because they haven't thought about it properly.

It's like it's like a warning sign. My keep in mind, like humans can make some pretty silly decisions. [00:51:00] So you need to step back and think different before just jumping in there because the odds are humans. Won't do such a great job on their thinking, right? Yeah. This, this is a model that I think has benefited in Charlie because it contextualizes the fact that mistakes do happen.

And instead of following what other people, or maybe his competitors or people out in the wide world would say, oh, just, just use your common sense. Just do this. And then. Following common sense is uncommon. And in doing so, applying uncommon sense is common sense because everything is so unknown. You know, it's a, it's a kind of self repeating cycle, isn't it?

Yeah. It really is. And I think what you see now is a bit of a pattern emerging is almost, if you want to think better, you need to ask better questions. You need to step back and really ask, okay, what is the best way to think about [00:52:00] this before you just launch it and think about it? Wouldn't you say?

Isn't that like the metal learning here? Yeah. The metal end bang is exactly that. So try and in order to help yourself learn in order to help apply. These different models and these different frameworks to problem solving decision-making leadership challenges. Applying that uncommon sense approach is how you can think about things differently.

And that's really what we're trying to go down into in this mental model series. Mike, we want to apply different thinking. So we don't reach that plateau. And we were talking about it earlier in the show. And it's so funny because I think by nature in the first half of my career, I was so rash and zesty and speedy and wanted to be like dynamic.

But isn't it funny how just pausing a moment to think first about how you're going to approach something before you jump in, how great is it to hear someone of Charlie mungus status and [00:53:00] accomplishments is crying out to us? Ask better questions, become a learning machine. Find your method of learning.

All right. Build your Swiss army knife. And there is a pinnacle question, mark, at the highest order of him giving us advice. I'm thinking better. I think we better share this with the listeners. What do you think that's right. This next clip, Mike and all about thinking differently and applying these models into our life is going back to that most important and intelligent questions.

We've got the Swiss Swedish investor telling us now, Charlie monger's most intelligent question. We all have a built-in curiosity in us. When we were younger, we kept asking life's most important question. Why, why are the dinosaurs gone? Why do people get sick? What does Pete have more toys than me? Of course what he's saying there, when he talks about why that's the most important question of all, and it doesn't apply [00:54:00] just to investment, it applies to the whole human experience.

You want to get smart? The question you got to keep asking is why, why, why, why? Perhaps we were too often told because mommy and daddy say, so understanding, be damned, just stop bothering me. But it is a terribly important question. Try to get that kids cost a mind back, try to figure out why things are happening or why they are not happening because over time such information will help you grasp reality better within statistics.

People sometimes throw out the so-called outliers. There are assaults that you didn't expect to get, and that divert a lot from the rest of the. What you want to do, if you want to understand reality is probably the exact opposite of that. Study the outliers and ask why, how did they end up here? Why did Warren buffet become the richest investor of all time?

Why was my uncle forced to file for personal bankruptcy? [00:55:00] Why is Coke probably the most consumed product in the world? Why was Enron able to cook its financial books and fooled the investing community for so long? The idea of picking some extreme example and asking my favorite question, which is what in hell is going on here.

That is the way to wisdom in this world. Y a Y O Y mark. I can tell you from personal experience. I do think why is such a powerful question? It might remind you that Toyota has this philosophy of ask why five times and you'll get to the root cause of any problem. I believe this is so, so good because if you really ask why, and then ask it again and again, you inevitably get to the heart of the matter don't you it's simple, but if done correctly, it's profound.

Isn't it? Well, Albert Einstein called it out in our show on him [00:56:00]in number 1 37 as well. This idea of persistence and sustained thinking. He always famously said, it's not that I'm so smart. It's that? I just stay with problems longer. Stay with the problem longer and keep on asking why much, like you have Toyota, for example, how many times do they ask?

Why is it seven? They ask it five. I mean, how many times do you Einstein asked why? Well, he famously would spend 95% of the time on the problem and only 5% on the solution. So I think he spent a lot of time asking Charlie Munger. His favorite question of why did in the end, listen to bring us home on this rip roaring gen rip roaring adventure into a lattice work of mental models.

They're thinking of Charlie manga. They're thinking about thinking it would only be appropriate. Seeing his Berkshire Hathaway, how the way it is powerful as in a case of a timeless, great company that he is joined by Mr. Warren Buffett. And we can listen [00:57:00] to Charlie Munger. Talking about why life is too short.

What are the most effective techniques you've used to minimize the mistakes we made mistakes we'll make more mistakes. We do. We think not so much. We think in terms of not exposing ourselves to any mistakes that could really hurt our ability to play tomorrow. And so we are always thinking about, you know, worst case situations and there are, on the other hand, we have a natural instinct to do things big, both of us.

So we have to think about whether we're doing anything really big. They've got to have really terrible consequences and, and I would say this, but Hey, I don't worry much about mistakes. I mean, The idea of learning from mistakes. The next mistake is [00:58:00] something different. I mean, so I, I, I do not sit around and think about my mistakes and think about things I'm going to do differently in the future.

Anything of the sort, I would say that the, you may get some advantage. I think I've learned something, the ears I, haven't learned more about a basic investment philosophy. I got that when I was 19 and I said, well, I think I've learned more about it people over the years, and I'll make mistakes with people that's inevitable, but I think I'll make more good judges.

It's about people I'll recognize the extraordinary ones better than I would have 40 or 50 years ago. So I, I think that improves, but I don't think it improves by certainly any college. Sitting around and focusing on what mistake that I make with that person or this person had. I just don't operate that way.

Charlie Warren, I [00:59:00] would argue that what you've done and what I've done to a lesser extent is to learn a lot from other people's mistakes. That is really a much more pleasant way to learn hard lessons. And we have really worked at that over the years, partly because we find it so interesting, the great variety of human mistakes and their causes.

And I think this constant study of other people's disasters and other people's errors has helped us enormously. Don't you? Oh yeah. Well, that's true. In terms of reading of financial, I've always been absolutely soar when reading about disasters. And there's no question. I mean, when you look at the folly of human.

And I focused on the folly in the financial area. There's all kinds of volley elsewhere, but, but just the financial area, we'll give you plenty of material if you'd like to be a follower of folly. And [01:00:00] I do think that understanding, and that's what gave us some advantage over these people. And that IQ is about 180.

You could do things with math that we couldn't do. They just, they really just didn't have an understanding of how human beings behave and what happens. 2008 was a good example of that too. So are we we haven't been a student of other people's other people's folly and it served us well. The man Mr.

Charlie Munger, as well as his co-partner in crime. Mr. Warren Buffett, who Mike, we actually did an episode 44 as well. The two of them coming together to close out the show is really the perfect summation of learning, of applying different models. But also this idea of following the mistakes or disasters, I guess you [01:01:00] could call it or the folly of others so that you can continually learn.

I mean, how powerful is that? Yeah, it's, it's, it's almost there the active inversion where you say, if I know what I need to do to be successful, what do I want to avoid? You know, if I was going to be unsuccessful, what would be the worst things that could happen? You know, your company ran out of money, the product would suck.

There would be like, you can literally learn from the mistakes of others. And I think that's, you know, If there's got to be close to one of the highest values here on the moonshots podcasts that we see across all of the superstars, that they seem to embrace failure and ask themselves, what did I learn about it?

If they did it or what we see from Charlie Munger, he's looking at others going, oh, they did that bad move. Make sure note to self. We won't do that. And you can see how that they're often talking about so-called competence. The reason that he [01:02:00] didn't invest in some companies is because they didn't understand them.

So they weren't prepared to risk their money, where a lot of other people make foolish investments that hurt them. These guys stick to what they know they learn from other's mistakes. And that's why, I mean, you want a crazy stat. Like if you think about what these guys have achieved, so if you. 99 through to 2020.

So over that 20 year period, their company outperformed the stock market 12 out of the 20 years, and nobody else is close to them. They know what they know. They keep learning new models for new decades and new times, and they are great students. What did, what did a buffet call it? I are followers of fire.

I mean what an amazing achievement to be the S and P 500. Wow. They just run another level. So maybe Mike, we can leave [01:03:00] today's show absorbing this information from Charlie Munger and maybe we can, with our small team of moons shelters, get to the, get to the numbers of birth, what Hathaway have achieved over their lifetime as well?

I think so now we covered a lot of ground today. What, what's the, what's the standout for you? What's going to get a little bit more consideration and research from UMass. Yeah. I think it's really about this Swiss army knife approach. So don't try and fit life's problems around my experience, the knowledge that I have, don't try and hammer in the problem with a, with a hammer approach.

And instead. How else might I be able to solve this? What else can I learn to make this problem? That little bit easier, a little bit more efficient to go and solve that Swiss army knife approach from Charlie mongers is what's sticking out for me. Mike, what about yourself? I just wanted to ask, so you think the [01:04:00] conversation where we were talking about the different types of models, like there's models for decision-making models for problem solving, is that the kind of, oh wow.

I've got like a whole toolbox. That's exactly it. Thinking about the toolbox that I can carry around in my head and access filter, go through compartmentalize and consider the situation I've got right now. Okay. I need to make a tough decision. How am I going to do that? Let me look at my repertoire of models that I have.

That might be well-suited for problem solving. Now I'll dive in. Yeah. And is it, it's a crazy that thought because I've had a similar aha. Because I was just intuitively for most of my life, trying to solve problems with the logic that I had, whether it be good or bad or otherwise, I just jumped in and thought, and isn't it crazy when you think, oh, I can think about thinking, well, am I solving a problem or making a decision, or am I designing a system here?

What am I actually trying to do? How, how best should I think about this? Isn't that a crazy moment? [01:05:00] Yeah, the, the, the aha moment of thinking, why would I only utilize the knowledge I've learned in a set period of time and try and apply it against all of life's problems. And instead think every day, every minute, 1% better.

These are things that I can learn. These are things that I can utilize in my toolbox to go and set about challenging those, those problems. It just makes so much sense. Doesn't it? Mike? It does, but it's sometimes a bit scary. Right? How long have I lived my life? Not thinking about mental models. If I was, if I was tough on myself, I would probably say the majority.

So. But I'm glad the mental model series has set me on the right path. It really, really I've got the same feeling about it. So mark, thank you to you and thank you to you. Our listeners, all of the moonshot, us who are out there learning out loud with mark and myself, trying to be the best version of yourselves.

[01:06:00] Welcome to the family and a special welcome to our members who signed up via Patrion. You are deep in this journey with us. And today the journey was with Charlie Munger, from Berkshire Hathaway, a man who's dedicated our lifetime to learning and to acquiring wisdom. He made the case that it's essential.

He helped us understand that we need to become a learning machine. And we have to think about the thinking we have to learn about the learning we have to have. Of learning. So we can build a Swiss army knife of mental models. And with that, we'll go out in a very uncommon way. And we will understand that it is uncommon sense that will help us overcome ignorance and stupidity.

And the biggest weapon of the mole is the most intelligent question you can ever ask why. And if you ask why you too can go out and be the best version of yourself, maybe by Charlie manga, you'll be Batman and Robin with your Warren [01:07:00] buffet because together we can be better and together we can all become the best versions of ourselves.

We can learn from the mistakes of others and put our best foot forward. All right. That's it for the moonshots wrap