Charlie Munger spent almost 90 years implementing mental models into his thinking.
When he encounters a problem, he uses these models to attack it from different perspectives.
That way, he avoids biases that otherwise would influence his decision-making.
Here are 4 of them ๐๐ผ
When he encounters a problem, he uses these models to attack it from different perspectives.
That way, he avoids biases that otherwise would influence his decision-making.
Here are 4 of them ๐๐ผ
1. Secondary & Tertiary Effects
Every action is followed by a reaction.
But there are indirect consequences that happen unintentionally.
Being aware of this fact won't make you see all these consequences upfront.
But itโll make you more sensitive to hasty decisions.
Every action is followed by a reaction.
But there are indirect consequences that happen unintentionally.
Being aware of this fact won't make you see all these consequences upfront.
But itโll make you more sensitive to hasty decisions.
Consider companies competing for prices.
Company A decides to sell their products for a discount.
Expected reaction: More customers
Makes sense, butโฆ
Competition will simply adjust prices.
Company A and its competitors will end up with fewer profits and the same customers.
Company A decides to sell their products for a discount.
Expected reaction: More customers
Makes sense, butโฆ
Competition will simply adjust prices.
Company A and its competitors will end up with fewer profits and the same customers.
2. Manage Expectations
Our expectations decide whether we live a happy or an unhappy life.
You can have an extraordinary job and salary, meaningful relationships and still perceive your life a failure.
The right balance between expectations and reality is crucial.
Our expectations decide whether we live a happy or an unhappy life.
You can have an extraordinary job and salary, meaningful relationships and still perceive your life a failure.
The right balance between expectations and reality is crucial.
Too high expectations will also make you tend to riskier decisions.
If you expect your money to double every year, you have to participate in crazy speculation.
Which will (very) likely result in a total loss instead of doubles.
If you expect your money to double every year, you have to participate in crazy speculation.
Which will (very) likely result in a total loss instead of doubles.
3. The Iron Prescription
One thing many people donโt know about Munger, are the tragedies that he experienced in life.
His 9-year-old son Teddy died of blood cancer.
Munger himself became blind on his left eye after a failed surgery.
One thing many people donโt know about Munger, are the tragedies that he experienced in life.
His 9-year-old son Teddy died of blood cancer.
Munger himself became blind on his left eye after a failed surgery.
When he thought he would become completely blind, he didnโt despair, instead, he learned how to read braille.
โYou should never, when facing some unbelievable tragedy, let one tragedy increase to two or three through your failure of will.โ
- Charlie Munger
โYou should never, when facing some unbelievable tragedy, let one tragedy increase to two or three through your failure of will.โ
- Charlie Munger
4. Specialization
โIn nature and in business, specialization is key.
Just as in an ecosystem, people who narrowly specialize can get terribly good at occupying some little niche.โ - Charlie Munger
Competition vastly decreases in small niches.
โIn nature and in business, specialization is key.
Just as in an ecosystem, people who narrowly specialize can get terribly good at occupying some little niche.โ - Charlie Munger
Competition vastly decreases in small niches.
Even Walmart started as a niche company.
Its niche was small cities and communities where big retailers didnโt go.
Now, Walmart is the biggest retailer in the world.
Starting in a small niche without competition can be a tremendous head start.
Its niche was small cities and communities where big retailers didnโt go.
Now, Walmart is the biggest retailer in the world.
Starting in a small niche without competition can be a tremendous head start.
This was Part 5 of the Weekly Series.
If you donโt want to miss out on the next Episode or other Threads on Investing and Human Psychology, consider following me @MnkeDaniel
You would also help me enormously by Retweeting and Liking this Thread.
Thanks for Reading!
If you donโt want to miss out on the next Episode or other Threads on Investing and Human Psychology, consider following me @MnkeDaniel
You would also help me enormously by Retweeting and Liking this Thread.
Thanks for Reading!
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