Mental Models: Part 1

There once was a construction company named Warner & Swasey. They offered great equipment but they also shared a certain advertisement: “The company that needs a new machine tool, and hasn’t bought it, is already paying for it.”

If you speak to Charlie Munger, the vice chairman of Berkshire Hathaway, and one of the most successful investors in the world, he will tell you that the same applies to thinking tools. In other words, if you’re in need of a new thinking tool, but haven’t yet acquired it, you’re already paying for it.

? So, let’s all save some costs today. Let’s discuss some of the mental models Charlie uses. These are methods which he has talked about publicly and are mainly relevant to investing. That being said, they are so diverse that they have applications within many other areas too. For example, Munger was also a successful Chairman at a large hospital… a busy man indeed!

? Swiss Army Knife Approach 

The first mental model is also a kind of justification as to why we need mental models in the first place. Consider 3 analogies:

1. Driving a car. Do you drive a car? If so, you likely (and hopefully) know that you can’t just learn how to use the accelerator. You’ll most likely hurt yourself and others. Before you become a successful driver, you’ll need to learn how to use the breaks, steering wheel and mirrors to mention a few things.
2. A man with a hammer. “I suppose it is tempting, if the only tool you have is a hammer, to treat everything as if it were a nail” – Maslow’s Hammer (1966). Someone who only knows how to use one tool will pay for his ignorance because he will torture reality to fit the only model that he knows about!
3. A man with a swiss army knife. This man has different tools and is equipped and ready for applying the best tool for the given situation.

Navigating your life through mental models is like learning to drive a car. There’s a lot of things you’ll need to know in order to be successful. Munger estimates he’s got about 100 mental models in his head that he uses regularly. However, he does caveat that “a few of the really big ideas carry most of the freight”. Failure to use mental models is like going through life with only a hammer and thinking every problem is a nail. You can guarantee that the world won’t change to suit your preferences, so it’s up to you to change your mindset. You’ll need to go from the hammer to the swiss army knife through your own willpower and initiative.

This may seem obvious but actually “the man with the hammer syndrome” is extremely common. How often in corporations does the marketing department not care enough about the quality of the product? Or how often are people too afraid or ignorant to cross boundaries and pick up important ideas from other fields?

✅ The first step is to understand the importance of mental models and the necessity of a range of methods and tools to assess and respond to various situations.

? Make Friends With The Eminent Dead

“I would say you are not restricted to living people when picking your mentors. Some of the very best people are dead.” – Charlie Munger

Most of the people who walked this earth are already dead. To really convey the point, consider this statistic: a total of 117 billion homo sapiens are estimated to have walked the earth. Fortunately, a few of the most intelligent ones are still with us in their written words. It therefore comes as no surprise that Charlie Munger enjoys reading a lot.

Reading is an essential part of gaining worldly wisdom. Although, we should caveat it is not the only method. Perhaps it was in the past but nowadays we have videos, podcasts and a range of other mediums. The point is just to consume a lot of information.

You should always strive to master the best things that other people have already figured out. Charlie Munger takes this one step further, he says that you should even make friends with the people that you are trying to learn from. What we mean here is don’t just read their content: figure out their background, hobbies, where they came from, their routines… It’s helpful to learn as much as possible about your mentors. One person Charlie chose to make his friend was Benjamin Franklin, who was one of America’s founding fathers. In fact, his book titled Poor Charlie’s Almanack comes from Franklin’s yearly booklet called Poor Richard’s Almanack, where he wrote under a pseudonym.

✅ Pick your mentors wisely (both alive and dead). Consume as much content from them as possible. So much so, that it is like you have befriended them!