Too often in life, I come across crippling cases of people thinking in very simple terms, going through life auto-piloted to first level thinking. Howard Marks, the legendary junk bond investor, talks about first level thinking and second level thinking in his book The Most Important Thing: Uncommon Sense for the Thoughtful Investor. Too many people seem to lack the mental models necessary to interpret reality. Wait. Let me back up: what are mental models? I tend to get in the habit of reading benders, getting totally intoxicated and consumed with binging on my neverending pile of books, reports, and articles. Coming back from the 2015 Berkshire Hathaway annual meeting, I finally got my hands on Poor Charlie’s Almanack and a few other Munger books (Seeking Wisdom and Damn Right). While not the originator of any of the 100 or so major ideas spanning multiple disciplines, Charlie Munger synthesized the importance of a multi-discipline approach to life by becoming fluent in these major ideas, or mental models, and hanging these mental models in a latticework in his mind in order to avoid the man with a hammer syndrome. What is the man with a hammer syndrome?
One of the questions asked at the 2015 Berkshire Hathaway Annual Meeting was in regards to what the secret investing formula Warren Buffett and Charlie Munger utilized to achieve such tremendous success over their careers. If you read that giant write up on our road trip to Omaha for the annual meeting, you would know that the answer that was given by Charlie Munger was that there was no specific formula. However, I was recently perusing Poor Charlie’s Almanack and Munger actually provided a specific formula! It’s such a no brainer. I really think Charlie outdid himself with this tremendous formula. Take a look. It will change your life.