Charlie Munger’s Principle: Improve Your Life by Multidisciplinary Approach
Charlie Munger is not only one of the greatest investors but also one of the best polymaths of the 20th century. His approach to making decisions, not only business but also personal, is unique. Following the rules that Munger applies will allow us to improve the quality of our lives through a clearer thought process.
This post is a set of Charlie Munger's rules, a kind of guide on how to holistically improve the quality of life through a multidisciplinary approach.
So if you've ever wondered how to make smarter decisions and how to remove the noise that distracts us from logical thinking in stressful situations, this blog post will be of help to you. I hope you get that Lollapalooza effect: “As personified by Charlie Munger, the critical mass obtained via a combination of concentration, curiosity, perseverance, and self-criticism, applied through a prism of multidisciplinary mental models.”
On the road to a better understanding of life, all thanks to the wit, wisdom, speeches, and writings of Charlie Munger.
source: Poor Charlie's Almanack: The Essential Wit and Wisdom of Charles T. Munger
1. Ground Rule - Create a Lollapalooza Effect
“If you skillfully follow the multidisciplinary path, you will never wish to come back. It would be like cutting off your hands” - Charles T. Munger
Charlie Munger believes that people make mistakes in the decision-making process because they do not have a multidisciplinary approach. Mostly, they are specialized in one area and try to solve all problems with one model. For example, people who are very good at, let’s say physics, use physics models in every aspect of life. And that doesn't get anywhere.
So, ideally, you want to have several models that you can use simultaneously. They stack up and lead you in one direction until you get the Lollapalooza effect when the models come together and you experience a dazzling “Bingo” moment. Charlie Munger compares this phenomenon to a critical mass in physics, where you get a nuclear explosion if you get to a certain point of mass.
You are probably wondering how to get this effect. Unfortunately, there is no simple answer, nor a quick solution. But you can speed up this lifetime process. The most effective way to do that is by studying:
the pattern of human behavior,
business systems,
a myriad of other scientific disciplines, such as chemistry, physics, economics, psychology, or business.
Munger is in a favor of the view that soft science should imitate the fundamental ethos of hard science (“fundamental four-discipline combination of math, physics, chemistry, and engineering). They are better suited to build on their basis user-friendly multidisciplinary system.
On top of that, it would be perfect if you could apply patience, discipline, and objectivity among the most fundamental guiding principles. Discipline and patience seem to be the most crucial factors of Charlie’s investment successes. He is well-known for his powerful quote: “sit on your ass investing”.
If you want to learn more about fundamental mental models, I highly recommend reading my previous article and a whole “Farnam Street” blog.
“So if your professors won’t give you an appropriate multidisciplinary approach, if each wants to overuse his own model and underuse the important models in other disciplines, you can correct that folly yourself”
2. Always Invert and Sum up. Checklist-style
Charlie Munger is known for building his decision-making system based on rough algorithms. His algorithms work by running down significant factors until you get the "Boom" moment when the answer occurs. Charles T. Munger said that these answers are not going to come to people who don't learn these problem-solving methods. That's why it is so important to operating within a system consisting of mental models and checklists.
Two of the most important mental models that Charlie Munger has mastered to the fullest are Inversion and Compound Interest. He always used them before taking up any business investment.
"Understanding both the power of compound interest and the difficulty of getting it is the heart and soul of understanding a lot of things"
Besides these models, over the many years of investing, he developed his principles checklist, which he used to make decisions about whether to invest or refrain from investing. This is the list of factors worthy of consideration: Risk - All investments evaluations should begin by measuring risk, especially reputational
Independence - “Only in fairy tailes are emperors told they are naked”
Preparation - “The only way to win is to work, work, work, work, and hope to have a few insights”
Intellectual humility - Acknowledging what you don’t know is the dawning of wisdom
Analytic rigor - Use of the scientific method and effective checklists minimizes errors and omissions
Allocation - proper allocation of capital is an investor's number one job
Patience - resist the natural human bias to act
Decisiveness - When proper circumstances present themselves
Change - Live with change and accept unremovable complexity
Focus - keep things simple and remember what you set out to do
As you can see, Charlie’s high performance doesn’t come from a magic pill. It comes from what he calls a “constant search for better methods of thought”. He built his system based on a checklist style as a coherent philosophy.
“But if you’ve got a full list of tools and go through them in your mind, checklist-style, you will find a lot of answers that you won’t find any other way “
Charlie has created what he called “checklist routines” in order to maximize correct thinking. Don’t count on a magic moment instead build a solid foundation and think of what principles your ideal system would consist of.
Also, be aware that the models we are using also have limitations, but it will be better for you to find out about this in Map – Territory Problem.
3. “Pilot training” - train the multidisciplinary synthesis
Charlie Munger on Reunion of Harvard Law School Class stated that our education is far too multidisciplinary. And the academic approach to problem-solving suffered from a lack of a multidisciplinary perspective. “Broadscale's problems, by definition, cross many academic disciplines”. One of the proposals to extend this narrow-road model of education is pilot training. Munger said:
“Yes, I am suggesting today that mighty Harvard would do better if it thought more about pilot training”
A pilot is a person who needs to be educated on many levels, I mean that the mere ability to fly, or more precisely to control an airplane, is insufficient. A pilot is a person who has to operate based on a certain system. In addition to technical skills, he also needs an appropriate mental attitude and a healthy approach to risk and stress management. On top of that knowledge of the atmospheric conditions, as well as their variability, is also appreciated or even required, which means a pilot is a person who must prove a high ability to adapt to changing circumstances. Charlie also intended to use "checklist routines" that will be mandatory for him.
“He maintain practice based-fluency, including considerable power of synthesis at boundaries between disciplines.”
It is worth noting that we will not be able to learn all the skills due to the multitude of talents and time constraints. Therefore, it is worth considering what is the essence of the multidisciplinary approach.
Firstly, focus on big ideas in big disciplines, they are the essence of given areas and contribute the most to our multidisciplinary development.
Secondly, using the information from the second chapter “Invert and Sum up”, means that you should think by inversion and through the use of “checklists”.
Skillful use of multidisciplinary with an essence-oriented approach allows you to avoid what Munger calls the “man-with-a-hammer tendency”, that to a man with a hammer, every problem looks like a nail. And there’s no such thing as a one-size-fits-all solution in a complex world.
For more insights, I encourage you to follow me on Twitter and join our community on Discord!
Summary:
Search for the essence, Big Ideas in Big Discipline. When you combine these essential models from different disciplines, you’ll experience this magic moment - the Lollapalooza effect.
Build a checklist-style system supported by key mental models. And remember you don't always have to make brilliant decisions, sometimes the bare minimum is enough, which is avoiding crucial mistakes. “All I want to know is where I’m going to die so I’ll never go there”.
Think about becoming a pilot - the art of synthesis. Technical skills alone or soft skills alone are insufficient.
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