Tag Archives: Charlie Munger

Ice Age by John and Mary Gribbin

Summary
  1. “As we mentioned earlier, given the present day geography of our planet—the distribution of the continents and oceans—the natural state of the Earth is in a full Ice Age. Koppen was correct in highlighting the importance of summer warmth in influencing the advance and retreat of the ice in the Northern Hemisphere. But, in a sense, he, too, got the argument backwards. It isn’t so much that Ice Ages occur when the astronomical influences conspire to produce particularly cool summers; rather, what matters is that Interglacials only occur when the astronomical influences conspire to produce unusually warm summers, encouraging the ice to retreat. Without all three of the astronomical rhythms working in step in this way, the Earth stays in a deep freeze. And that is why the actual pattern of climate over the past few million years has been one of long Ice Ages (in fact, a single long Ice Epoch) interrupted by short-lived Interglacials, like the one we are living in now…Without the astronomical rhythms of the Ice Ages, we would probably still be tree-apes. It was the repeated drying out and recovery of the East African forests that pushed our ancestors out on to the plains, forced them to become more versatile, encouraged them to walk upright rather than climbing on branches, and, almost as an afterthought, made us intelligent. Fully modern humans, Homo sapiens sapiens, emerged during the previous Interglacial to our own, by about 100,000 years ago, and had just one more Ice Age to endure before they began to build civilization. We are the product of the latest Ice Epoch, in a way that Agassiz, Croll and Milankovitch could never have guessed, and that realization is the ultimate triumph of the theory of Ice Ages.”
Key Takeaways
  1. “Our perspective (the entire history of human civilization) embraces only a short-lived, temporary retreat of the ice, an Interglacial. The succession of relatively long-lived Ice Ages and relatively short-lived Interglacials is now known as an Ice Epoch, and lasts for several million years…We think that it is normal to have ice at both poles of our planet. After all, there has been ice there for longer than there has been human civilization. But in the long history of the Earth, polar ice caps are rare, and having two polar ice caps at the same time may be unique. Indeed, it may be the presence of those polar ice caps which has made us human. And although we associate weather with the movement of masses of air around the globe, with high pressure systems bringing settled, dry conditions and low pressure systems bringing wind and rain or snow, as far as climate is concerned great ocean currents are much more important.”
  2. The changes resulting from Arctic warming would be bigger than you might expect at first sight, and would in many ways be unpredictable, because of the effect of positive feedback. Today, the shiny white surface of the ice covering the Arctic Ocean reflects away incoming solar energy, and helps to keep the polar region cool. Once the ice starts to melt, however, it exposes dark water, which absorbs the incoming solar energy and warms the region still further. If the world cooled for any reason, the feedback would operate in reverse, with dark ocean being covered by shiny ice that reflects away incoming solar energy and helps to keep things cold. But you can’t have half the north polar icecap; the feedbacks make it an all or nothing choice.
  3. This fact alone tells you that our distance from the Sun is not the cause of the seasons; in the Northern Hemisphere, we have summer when we are furthest from the Sun. But maybe the elliptical orbit produces other, more subtle effects on climate.
  4. In order to understand a given law, I was generally obliged to make myself acquainted with the preceding law or condition on which it depended. I remember well that, before I could make headway in physical astronomy… I had to go back and study the laws of motion and the fundamental principles of mechanics. In like manner I studied pneumatics, hydrostatics, light, heat, electricity and magnetism. I obtained assistance from no one.
  5. The environment suited him down to the ground. ‘I have never been in any place so congenial to me as that institution,’ he wrote. ‘My salary was small, it is true, little more than sufficient to enable me to subsist; but this was compensated by advantages for me of another kind.’ He meant the library, and the peace and quiet, allowing him to give rein to his ‘strong and almost irresistible propensity towards study’.
  6. The change in eccentricity is measured in terms of the distance between the two foci of the ellipse, as a percentage of the long axis of the ellipse. For a perfect circle, the two foci merge to become one, with no distance between them, so the eccentricity is zero. Today, the eccentricity of the Earth’s orbit is about 1 per cent, but Leverrier showed that at its most extreme the Earth’s orbit has an eccentricity of roughly 6 per cent. Because Leverrier’s calculations showed that the Earth’s orbit was in a more highly eccentric state 100,000 years ago, while for the past 10,000 years or so it has been in a low eccentricity state, and since the world is warmer now than it was in the past, Croll speculated that some effect associated with high eccentricity must be responsible for Ice Ages.
  7. Leverrier’s calculations had already shown that whatever kind of orbit the Earth is in at any particular epoch, the amount of heat received from the Sun over the course of an entire year stays the same; but Croll followed up the idea that it might be the way the heat is distributed between the seasons which matters, since this is undoubtedly affected by the eccentricity. When the orbital eccentricity is low, and the orbit is circular, the amount of heat received by the whole planet from the Sun each week is the same throughout the year; but when the orbit is more elliptical, with high eccentricity, the Earth receives more heat in a week at one end of its orbit, closest to the Sun, and correspondingly less heat in a week at the other end of its orbit, farthest from the Sun. Depending on which hemisphere you live in, this may mean that when the orbit is more eccentric there is more difference between the seasons, with cold winters when the Earth is farthest from the Sun and hot summers when it is closest to the Sun; or (in the other hemisphere) it may mean that the eccentricity effect smooths out the difference between the seasons, keeping summers cool and winters mild.
  8. Croll argued that what was needed to build an Ice Age was a series of very cold winters, so that there would be more snowfall, building up white snowfields and ice sheets which would reflect away the summer heat from the Sun to keep the hemisphere cool. He was one of the first scientists to develop the idea of feedback in any context, and although it happens that he got the detail of this influence backwards, his model would be important historically for that reason alone.
  9. Croll was one of the first people to appreciate the major influence of the great ocean currents on climate, and was the first person to work out the link between the trade winds (essentially driven by convection in the atmosphere stirred up by the Sun heating the surface of the Earth) and the flow of these currents, pushed by the winds. He reasoned that the change in the balance of heat between the hemispheres when one polar region cooled would increase the strength of the trade winds, blowing from the hotter part of the world to the colder region in an attempt to even out the temperature, and also change their direction somewhat. This would change the pattern of the ocean currents. In particular, he noted that a relatively small shift in the westward flowing current of the equatorial Atlantic Ocean could make it flow either northward past the bulge of Brazil and up past North America, or southward past the bulge of Brazil, and down past South America. The potential climatic consequences of such a shift, which could be triggered by a relatively small outside influence, are clear from the Prologue. Once again, Croll was at the forefront of thinking about feedbacks, and the way in which they can magnify small initial disturbances.
  10. Finally, in Climate and Time he pointed out that there is yet a third astronomical influence on climate, which really ought to be taken into account. The tilt of the Earth’s axis (the amount it leans out of the vertical) also varies as time passes,
  11. In his own words, he was ‘under the spell of infinity’. Milankovitch was based in Belgrade for the rest of his working life, and within two years he had found the problem that would occupy him for the next thirty years—but always, strictly speaking as a hobby, worked on at home, alongside his day job as a teacher and engineer.
  12. Milankovitch reckoned that he started out on the task, when he was thirty-two years old, at exactly the right time: Had I been somewhat younger I would not have possessed the necessary knowledge and experience… Had I been older I would not have had enough of that self-confidence that only youth can offer.
  13. Coffee (black) was served by Milankovitch’s wife promptly at ten o’clock, and occupied just ten minutes before it was back to work. Lunch at one was followed by a short siesta and a cigar, then more calculations until six, when work ceased for the day. A stroll before dinner, which was a leisurely meal taken at eight, where the family discussed the topics of the day, was followed by an early night, with bed at ten providing time to read (never anything related to work) for an hour before settling down, usually to think for a considerable time before sleeping. I was always intrigued by his method of work—never rushing nor delegating anything, including even drawing and translating into French or German. He always made thorough preparations by outlining relevant points before precisely detailing the body of the article, then rewriting prior to typing the final copy himself. A simple reply to any correspondence would be treated in the same personal manner.
    1. NOTE: cool study schedule
  14. It was while watching the fighting that he suddenly had a flash of insight which showed him the way around the mathematical logjam that had been holding him up. It was a classic example of the way the answer to a problem you have been struggling with can pop into your head once you stop looking for the solution.
  15. But it was Koppen who pointed out that it is always cold enough for snow to fall in the Arctic in winter, even today, and that the reason that the Northern Hemisphere is not in the grip of a full Ice Age at present is because the ‘extra’ snow melts away again in summer. He reasoned that the way to encourage the ice to spread would be to have a reduction in summer warmth, because then less of the winter snowfall would melt. If less snow melted in summer than fell in winter, the ice sheets would grow—and once they had started to grow, the feedback effect of the way the ice and snow reflect away incoming solar energy would enhance the process.
  16. The best place to find out what the climate of the Earth was like in the past is at the bottom of the deep ocean. Different kinds of sea creatures flourish under different climates, and in particular at different ocean temperatures. Layer by layer, the mud of the sea bed builds up, and each layer contains the remains of the creatures best suited to the climate at the time that layer was being laid down. The solution was to drop hollow steel pipes vertically into the sea bed, so that their weight would drive them into the mud. When the pipes were hauled back on board ship, the mud inside the pipe could be extracted as a cylindrical core, with its layered structure intact. Unfortunately, because of the resistance of the water, which stops the pipes building up any great speed as they fall, this kind of ‘gravity coring’ can only extract cores about a metre long—the pipes just won’t penetrate any deeper into the ooze. This was better than nothing, and provided the first evidence, in the 1930s, for three distinct layers in this top metre of mud in cores from the tropical Atlantic—two layers containing remains corresponding to warm conditions like those in the region today, sandwiching a layer containing remains corresponding to a colder climate.
  17. The obvious candidate for that something else was the way water gets locked up in great ice sheets during an Ice Age. When water evaporates, it is easier for the lighter molecules to escape into the air, so the water left behind tends to have a higher proportion of oxygen-18; much of the evaporated water, relatively rich in oxygen-16 compared with the water left behind (exactly how rich also depends on the temperature), falls as snow during an Ice Age, and gets locked up as ice instead of being recycled back into the sea. So the proportion of oxygen-18 available in the oceans is higher during an Ice Age, even before you take account of the way the proportion of oxygen-18 in their shells is enhanced by the way plankton take up the water.
  18. The isotope technique, it was now clear, gave you, in effect, a measure of the global average temperature, no matter where in the oceans the core had been drilled. But they still needed a way to date accurately the temperature fluctuations that were now clearly apparent in the cores covering the entire Pleistocene Epoch.
  19. When more water is locked up in ice, the sea level falls; but when the ice sheets melt, sea level rises.
  20. Kukla had not invented this technique, although he was one of the first people to apply it to the study of past climates. It depended upon the discovery that the Earth’s magnetic field is not constant, but sometimes (seemingly at random) reverses itself entirely, first fading away to nothing and then building up again in the opposite sense, so that what is now the North magnetic pole becomes the South magnetic pole, and vice versa. The details of exactly how and why this happens are still not known, but it is clearly a result of the way the Earth’s magnetic field is generated, by swirling currents of fluid, electrically-conducting, iron-rich material in the deep interior of our planet.
  21. When reversals happen, they take place in less than 10,000 years (perhaps much less), so they show up sharply in the geological record; but once a particular orientation of the field is established, it may last for millions of years, or only for a few tens of thousands of years. The most recent reversal happened about 780,000 years ago, but the Earth’s magnetic field is weakening at the moment, so we may be living through the early stages of the next reversal.
  22. Since the temperature at the bottom of the sea hardly changes, even during the switch from an Ice Age to an Interglacial, this was the definitive proof that the main influence on the oxygen isotope composition was indeed the advance and retreat of the ice sheets on land, and that the isotopes were recording the pulsebeat of global climate change.
  23. It is concluded that changes in the Earth’s orbital geometry are the fundamental cause of Quaternary ice ages. A model of future climate based on the observed orbital-climate relationships… predicts that the long-term trend over the next several thousand years is towards extensive northern-hemisphere glaciation.
  24. They depend simply on the amount of heat which is required to turn ice at 0°C into water at the same temperature—the latent heat of fusion, which is (in the units used by Mason) 80 calories for every gram of ice melted. Since one calorie is defined as the amount of heat needed to raise the temperature of one gram of water by one degree Celsius, this means that the heat required to melt one gram of water at the freezing point is enough to heat that same gram of liquid water all the way from 0°C to 80°C. When you are melting glaciers, that adds up to a lot of heat, which is why Mason started the calculation expecting to prove that the change in heat balance of the Northern Hemisphere caused by the astronomical rhythms would not be sufficient for the task. A similar process operates in reverse when water vapour condenses into liquid or water freezes into ice. In each case, latent heat is given out by the water, rather than being taken up. When the vapour condenses into water at the same temperature, 595 calories of heat are released for each gram involved; so when the vapour goes all the way to the solid form and falls as snow, it liberates 675 calories for every gram of snow that falls. This heat goes into warming the surrounding air and the globe generally, while the need for heat to be absorbed in melting snow and ice tends to keep regions covered by winter snow cool well into early summer. Each year, we see the Ice Age cycle repeated in miniature.
  25. In the most extreme example of this chauvinistic approach, geologists set the start of the present epoch, the Holocene, at the beginning of the present Interglacial, 10,000 years ago. This is completely unjustified, since there is no evidence that the present Interglacial marks the end of the Ice Epoch that has persisted for the past few million years; the boundary is really chosen to mark the emergence of human civilization, as much out of hubris as chauvinism. But we will not be concerned here with anything that happened as recently as 10,000 years ago.
  26. South America, moving northward, gradually caught up with North America, so that by about 3 Myr BP the gap between them was closed, and ocean currents that used to flow westward through that gap were being diverted northward as the Gulf Stream, setting up the pattern of circulating ocean currents that we see today. But the drifting continents were also closing the gaps around the Arctic Ocean, so that this northward flow of warm water could not penetrate all the way into the polar sea. The first Northern Hemisphere glaciation of the present Ice Epoch, dated using the radioactive potassium method, occurred about 3.6 million years ago. This was a particularly significant event in the evolution of humankind, because fossil remains show that our ancestors lived in East Africa at that time. It wasn’t so much the cooling itself that affected them, as the fact that, during an Ice Age, with lowered temperatures there is less evaporation from the oceans, and therefore less rainfall. Together with changes in the pattern of circulation of the atmosphere caused by the presence of ice sheets at higher latitudes, this means that with the present geography of the globe when Europe experiences an Ice Age, East Africa experiences a drought. So the forest in which our ancestors lived shrank when the ice advanced. Put all of the evidence together, and it tells us that a forest-dwelling East African proto-ape line gave rise to three separate lines, leading to ourselves, the chimpanzees and the gorillas, between about 3.5 and 4 million years ago, exactly when the climate was changing dramatically. Since both the Ice Ages and the evolutionary changes are tied to the same absolute timescale (ultimately, through radioactive potassium), there is no doubt that the evolutionary changes and the environmental changes occurred at the same time. Conceivably (but highly improbably!) the geological timescale might be adjusted once again; but if it is, the evolutionary timescale will change in step with it. It is hard to escape the conclusion that the changes in the environment in which our ancestors lived were responsible for the three-way split
  27. The distinguishing characteristic of human beings is versatility. Some animals run faster, some are better swimmers, some have better teeth and claws for killing and eating meat, some have better teeth and digestive systems for eating plants, and so on. But people do a little bit of everything quite well.
  28. Without the astronomical rhythms of the Ice Ages, we would probably still be tree-apes. It was the repeated drying out and recovery of the East African forests that pushed our ancestors out on to the plains, forced them to become more versatile, encouraged them to walk upright rather than climbing on branches, and, almost as an afterthought, made us intelligent. Fully modern humans, Homo sapiens sapiens, emerged during the previous Interglacial to our own, by about 100,000 years ago, and had just one more Ice Age to endure before they began to build civilization. We are the product of the latest Ice Epoch, in a way that Agassiz, Croll and Milankovitch could never have guessed, and that realization is the ultimate triumph of the theory of Ice Ages.
What I got out of it
  1. Interesting to learn more about positive and negative feedback loops as they relate to climate. More mild summers in which less snow melts would allow glaciers to grow, reflecting more light and absorbing less heat, allowing the glaciers to grow further, and on and on…Also didn’t know that the natural state of the Earth is in what we call an Ice Age. Without unusually warm summers to melt the ice caps, the Earth would revert back to a deep freeze

Seeking Wisdom: From Darwin to Munger by Peter Bevelin

Summary

  1. Through real life examples, many of them centered around Warren Buffett and Charlie Munger, Peter Bevelin helps the reader learn how to think better, make fewer poor decisions  understand ourselves and others better. Discusses mental models, human fallibilities, heuristics, instincts, human psychology, biology and more.

Key Takeaways

  1. Peter Bevelin lives in Malmo – visit when go to Sweden
  2. Main goal is to understand why people behave the way they do. “This book focuses on how our thoughts are influenced, why we make misjudgments and tools to improve our thinking. If we understand what influences us, we might avoid certain traps and understand why others act like they do. And if we learn and understand what works and doesn’t work and find some framework for reasoning, we will make better judgments. We can’t eliminate mistakes, but we can prevent those that can really hurt us.”
  3. Learn from other’s mistakes
  4. Learn the big ideas that underlie reality and develop good thinking habits (namely, objectivity)
  5. This book is a compilation of what Bevelin has learned from reading some of the works of the world’s best thinkers
  6. Book is broken down into 4 parts – what influences our thinking, examples of psychological reasons for misjudgments, reasons for misjudgments caused by both psychology and a lack of considering some basic ideas from physics and mathematics and lastly describes tools for better thinking
What I got out of it
  1. Seriously good read if you’re at all interested in understanding how and why we make decisions (both bad and good) and how we can go about improving our thought processes and tools. Fantastic read and couldn’t recommend more highly
Part 1 – What Influences Our Thinking?
 
  • Brain communicates through neurochemicals and genes are the recipe for how we are made
  • Behavior is influenced by genetic and environmental factors
  • The flexibility of the brain is amazing as it can change due to our thoughts and experiences
  • Mental state (situation and experience) and physical state are intimately connected – beliefs have biological consequences, both good and bad
  • World is not fixed but evolving – evolution has no goal
  • Pain (punishment) and reward (pleasure) have evolutionary benefits with pain avoidance being our primary driver
  • Hunter-gatherer environments have formed our basic nature – competitive, access to limited resources, many dangers, self-interest, ostracism = death
  • Cooperation leads to trust, especially amongst relatives
  • Fear is our most basic emotion and it guides almost everything we do. Repeated exposure lessens instinctual reactions
  • Novelty is always sought out
  • Reputation, reciprocation and fairness are big human motivators
  • Very painful to lose anything, especially status, once obtained. Higher status linked to higher health and well being
  • People learn their behavior from their culture
  • Assume people will act in their self-interest
  • Don’t blindly imitate/trust others – think rationally and form your own opinions
Part 2 – The Psychology of Misjudgments
  • Outlines 28 reasons for misjudgment. These are never exclusive or independent of each other. Many of these echo similar sentiments to Cialdini’s Influence
    1. Bias from mere association
    2. Underestimating the power of rewards and punishment
    3. Underestimating bias from own self-interest and incentives
    4. Self-serving bias
    5. Self-deception and denial
    6. Bias from consistency tendency (only see things that confirm our already formed beliefs)
    7. Bias from deprival syndrome (strongly reacting when something is taken away)
    8. Status quo bias and do-nothing syndrome
    9. Impatience
    10. Bias from envy and jealousy
    11. Distortion by contrast comparison
    12. Bias from anchoring
    13. Over-influence by vivid or the most recent information
    14. Omission and abstract blindness
    15. Bias from reciprocation tendency
    16. Bias from over-influence by liking tendency
    17. Bias from over-influence by social proof
    18. Bias from over-influence by authority
    19. Sensemaking
    20. Reason-respecting
    21. Believing first and doubting later
    22. Memory limitations
    23. Do-something syndrome
    24. Mental confusion from say-something syndrome
    25. Emotional arousal
    26. Mental confusion from stress
    27. mental confusion from physical/psychological pain, the influence of chemicals or diseases
    28. Bias from over-influence by the combined effect of many psychological tendencies working tougher
  • Behavior can’t be seen as rational/irrational alone – must have context
  • People can take bad news, but we don’t like it late
  • Evaluate things, people and situations by their own merits
  • Past experiences are often context dependent. Just because some stimulus caused you earlier pain, doesn’t mean that is still the case today
  • Create a negative emotion if you want to end a certain behavior
  • Good consequences don’t necessarily mean you made a good decision and bad consequences don’t necessarily mean you made a bad one
  • Frequent rewards, even if smaller, feels better than one large reward
  • The more “precise” people’s projections about the future are, the more wary you should be
  • Munger looks for a handful of things in people – integrity, intelligence, experience and dedication
  • Recognize your limits. How well do you know what you don’t know/ Don’t let your ego determine what you should do
  • Bad news that is true is better than good news that is false
  • People associate being wrong as a threat to their self-interest 
  • Labeling technique – when somebody labels you, whether you agree or not, you are more likely to comply and behave in ways consistent with that label
  • Avoid ideology at all costs
  • “There is nothing wrong with changing a plan when the situation has changed.” – Seneca
  • Base decisions on current situations and future consequences
  • Don’t fall in love with any particular point of view
  • Know your goals and options
  • Remember that people respond to immediate crisis and threats
  • People favor routine behavior over innovative behavior and similarly, people feel worse when they fail as a result of taking action than when they fail from doing nothing
  • Deciding to do nothing is also a decision. And the cost of doing nothing could be greater than the cost of taking an action
  • People give more weight to the present than to the future. We seek pleasure today at a cost of what may be better in the future
  • “We envy those who are near us in time, place, age or reputation.” – Aristotle
  • “The best way to avoid envy is the deserve the success you get.” – Aristotle
  • How we value things depends on what we compare them with
  • Sometimes it is the small, invisible changes that harm us the most
  • Accurate information is better than dramatic information. Back up vivid stories with facts and numbers
  • We see only what we have names for
  • Always look for alternative explanations
  • We see available information. We don’t see what isn’t reported. Missing information doesn’t draw our attention
  • A favor or gift is most effective when it is personal, significant and unexpected
  • Always try to see situations and people from their POV
  • People tend to like their kin, romantic partners and people similar to them more as well as those who are physically attractive. We also like and trust anything familiar
  • Concentrate on the issue and what you want to achieve
  • The vast majority of people would rather be wrong in a group than right in isolation
  • “It is easy in the world to live after the world’s opinion; it is easy in solitude to live after our own; but the great man is he who in the midst of the crowd keeps with perfect sweetness the independence of solitude.” – Ralph Waldo Emerson
  • When all are accountable, nobody is accountable
  • Being famous doesn’t give anybody special expertise – beware ads with celebrity endorsements
  • “We don’t like uncertainty. We have a need to understand and make sense of events. We refuse to accept the unknown. We don’t like the unpredictability and meaninglessness. We therefore seek explanations for why things happen. Especially if they are novel, puzzling or frightening. By finding patterns and causal relationships we get comfort and learn for the future.”
    • Consider how other possible outcomes might have happened. Don’t underestimate chance
  • Any reason, no matter how flimsy, often helps persuade others
  • 5 W’s – A rule for communication – must tell who was going to do what, where, when and why.
  • Memory is very selective and fallible – keep records of important events
  • Don’t confuse activity with results. There is no reason to do a good job with something you shouldn’t do in the first place
  • “Wise men talk because they have something to say; fools, because they have to say something.” – Plato
  • Awareness of ignorance is the beginning of wisdom
  • When we make big decisions, we could compare our expected feelings with those of people who have similar experiences today. In that sense, we are not as unique as we think we are
  • Understand your emotions and their influence on your behavior. Ask – Is there a reason behind my action?
  • Hold off on important decisions when you have just gone through an emotional experience
  • Cooling-off periods help us think things through
  • Stress increases our suggestibility
  • Stress is neither good nor bad in itself. It depends on the situation and our interpretation
  • “I’ve suffered a great many catastrophes in my life. Most of them never happened.” – Mark Twain
  • People tend to overestimate personal characteristics and motives when we explain the behavior of others and underestimate situational factors like social pressure, roles or things over which there are no control
  • The less knowledgeable we are about an issue, the more influenced we are by how it is framed
  • Advice from Munger – can learn to make fewer mistakes than others and how to fix your mistakes faster when you do make them. Were the factors that really govern the interests involved, rationally considered and what are the subconscious influences where the brain at a subconscious level is automatically doing these things – which by and large are useful, but which often mis function. And, take all the main models from psychology and use them as a checklist in reviewing outcomes in complex systems
Part 3 – The Physics and mathematics of Misjudgments
  • 9 Causes of Misjudgment/Mistakes
    1. Systems Thinking
      • Failing to consider that actions have both intended and unintended consequences. Includes failing to consider secondary and higher order consequences and inevitable implications
      • Failing to consider the likely reactions of others
      • Overestimating predictive ability or using unknowable factors in making predictions
    2. Scale and limits
      • Failing to consider that changes in size or time influence form, function and behavior
      • Failing to consider breakpoints, critical thresholds or limits
      • Failing to consider constraints – system’s performance constrained by its weakest link
    3. Causes
      • Not understanding what causes desired results
      • Believing cause resembles its effect – a big effect must have a big, complicated cause
      • Underestimating the influence of randomness in good or bad outcomes
      • Mistaking an effect for its cause
      • Attributing an outcome to a single cause when there are multiple
      • Mistaking correlation for cause
      • Drawing conclusions about causes from selective data
      • Invert, always invert! – look at problems backwards
    4. Numbers and their meaning
      • Looking at isolated numbers – failing to consider relationships and magnitudes. Not differentiating between absolute and relative risk
      • Underestimating the effect of exponential growth
      • Underestimating the time value of money
    5. Probabilities and number of possible outcomes
      • Underestimating the number of possible outcomes for unwanted events. Includes underestimating the probability and severity of rare or extreme events
      • Underestimating the chance of common but not publicized events
      • Believing one can control the outcome of events where chance is involved
      • Judging financial decisions by evaluating gains and losses instead of final state of wealth and personal value
      • Failing to consider the consequences of being wrong
    6. Scenarios
      • Overestimating the probability of scenarios where all of a series of steps must be achieved for a wanted outcome. Also, underestimating the opportunities for failure and what normally happens in similar situations
      • Underestimating the probability of system failure
      • Not adding a factor of safety for known and unknown risks
      • Invest a lot of time into researching and understanding your mistakes
    7. Coincidences and miracles
      • Underestimating that surprises and improbable events happen, somewhere, sometime to someone, if they have enough opportunities (large enough or time) to happen
      • Looking for meaning, searching for causes and making up patterns for chance events, especially events that have emotional implications
      • Failing to consider cases involving the absence of a cause or effect
    8. Reliability of case evidence
      • Overweighing individual case evidence and under-weighing the prior probability considering the base rate or evidence from many similar cases, random match, false positive or false negative and failing to consider relevant comparison population
    9. Misrepresentative evidence
      • Failing to consider changes in factors, context or conditions when using past evidence to predict likely future outcomes. Not searching for explanations to why past outcome happened, what is required to make past record continue and what forces change it
      • Overestimating evidence from a single case or small or unrepresentative samples
      • Underestimating the influence of chance in performance (success and failure)
      • Only seeing positive outcomes and paying little or no attention to negative outcomes and prior probabilities
      • Failing to consider variability of outcomes and their frequency
      • Failing to consider regression – in any series of events where chance is involved unique outcomes tends to regress back to the average outcome
      • Postmortems – Record your mistakes! Instead of forgetting about them, they should be highlighted
        • What was my original reason for doing something?
        • What were my assumptions?
        • How did reality work out relative to my original guess? What worked and what didn’t?
        • What worked well? What should I do differently? What did I fail to do? What did I miss? What must I learn? What must I stop doing?
Part 4 – Guidelines to Better Thinking
  • This section helps provide tools which create a foundation for rational thinking
  • 12 Tools for rational thinking
    1. Models of reality
      • A model is an idea that helps us better understand how the world works. Helps explain “why” and predict “how” people are likely to behave in certain situations
      • Ask yourself, “Is there anything I can do to make my whole mental process work better? And I [Munger] would say that the habit of mastering multiple models which underlie reality is the best thing you can do…It’s just so much fun – and it works so well.”
      • A valuable model produces meaningful explanations and predictions of likely future consequences where the cost of being wrong is high
      • Considering many ideas help us achieve a holistic view. No single discipline has all the answers – need to consider mathematics, physics, chemistry, engineering, biology, psychology and rank and use them in order of their reliability
      • Must understand how different ideas interact and combine
      • Can build your own mental models by looking around you and asking why things are happening (or why things are not happening).
    2. Meaning
      • Truly understand something when “without using the new word which you have just learned, try to rephrase what you have just learned in your own language.”
      • Meaning of words, events, causes, implications, purpose, reason, usefulness
      • “Never express yourself more clearly than you are able to think.” – Niels Bohr
      • Use ideas and terms people understand, that they are familiar with and can relate to
      • We shouldn’t engage in false precision
    3. Simplification
      • “If something is too hard, we move on to something else. What could be more simple than that?” – Charlie Munger
      • Make problems easier to solve. Eliminate everything except the essentials – break down a problem into its components but look at the problem holistically – first dispose of the easy questions
      • Make fewer but better decisions
      • Dealing with what’s important forces us to prioritize. There are only a few decisions of real importance. Don’t bother trying to get too much information of no use to explain or predict
      • Deal with the situations in live by knowing what to avoid. Reducing mistakes by learning what areas, situations and people to avoid is often a better use of time than seeking out new ways of succeeding. Also, it is often simpler to prevent something than to solve it
      • Shifting mental attention between tasks hugely inefficient. Actions and decisions are simpler when we focus on one thing at a time
      • Some important things we can’t know. Other things we can know but they are not important
      • Activity does not correlate with achievement
    4. Rules and filters
      • Gain more success from avoiding stupid decisions rather than making brilliant ones
      • Filters help us prioritize and figure out what makes sense. When we know what we want, we need criteria to evaluate alternatives. Try to use as few criteria as necessary to make your judgment. Then rank them in order of their importance and use them as filters
      • More information does not mean you are better off
      • Warren Buffet uses 4 criteria as filters
        • Can I understand it? If it passes this filter then,
          • Understanding for Buffett means thinking that he will have a reasonable probability of being able to assess where the business will be in 10 years
        • Does it look like it has some kind of sustainable advantage? If it passes this filter,
        • Is the management composed of able and honest people? If it passes this filter,
        • Is the price right? If it passes this filter, we write a check
      • Elimination – look for certain things that narrow down the possibilities
      • Checklist procedures – help reduce the chances of harm (pair with Gawande’s The Checklist Manifesto)
        • Should think about – different issues need different checklists, a checklist must include each critical item necessary for “safety” and avoiding “accidents” so we don’t need to rely on memory for items to be checked, readily usable and easy to use, agree with reality
        • Avoid excessive reliance on checklists as this can lead to a false sense of security
    5. Goals
      • How can we make the right decision if we don’t know what we want to achieve? Even if we don’t know what we want, we often know what we don’t want, meaning that our goal can be to avoid certain things
      • Goals should be – clearly defined, focused on results, concrete, realistic and logical, measurable, tailored to individual needs and subject to change
      • Goals need target dates and controls stations measuring the degree to which the goal is achieved
      • Always ask – What end result do I want? What causes that? What factors have a major impact on the outcome? What single factor has the most impact? Do I have the variable(s) needed for the goal to be achieved? What is the best way to achieve my goal? Have I considered what other effects my actions will have that will influence the final outcome?
    6. Alternatives
      • Opportunity cost – every minute we choose to spend on one thing is a minute unavailable to spend on other things. Every dollar we invest is a dollar unavailable for other available investments
      • When we decide whether to change something, we should measure it against the best of what we already have
    7. Consequences
      • Consider secondary and long-term effects of an action
      • Whenever we install a policy, take an action or evaluate statements, we must trace the consequences – remember four key things:
        • Pay attention to the whole system, direct and indirect effects
        • Consequences have implications or more consequences, some which may be unwanted. We can’t estimate all possible consequences but there is at least one unwanted consequence we should look out for,
        • Consider the effects of feedback, time, scale, repetition, critical thresholds and limits
        • Different alternatives have different consequences in terms of costs and benefits. Estimate the net effects over time and how desirable these are compared to what we want to achieve
    8. Quantification
      • How can you evaluate if a decision is intelligent or not if you can’t measure it against a relevant and important yardstick?
      • We need to understand what is behind the numbers
        • Buffett says that return on beginning equity capital is the most appropriate measure of single-year managerial performance
    9. Evidence
      • Evidence helps us prove what is likely to happen or likely to be true or false. Evidence comes from facts, observations, experiences, comparisons and experiments
      • Occam’s Razor – if we face two possible explanations which make the same predictions, the one based on the least number of unproven assumptions is preferable, until more evidence comes along
      • Past record is the single best guide
      • The following questions help decide if past evidence is representative of the future – observation (will past/present behavior continue?), explanation (why did it happen in the past or why does it happen now?), predictability (how representative is the past/present evidence for what is likely to happen in the future?), continuation and change (what is required to make the past/present record continue or to achieve the goal?), certainty and consequences (how certain am I?)
      • Falsify and disprove – a single piece of evidence against something will show that it is false
      • Look for evidence that disproves your explanation and don’t spend time on already disproved ideas or arguments or those that can’t be disproved
      • Engage in self-criticism and question your assumptions
      • Find your mistakes early and correct them quickly before they cause harm
      • The mental habit of thinking backward forces objectivity – because one way  to think a thing through backward is by taking your initial assumption and say, “let’s try and disprove it.” That is not what most people do with their initial assumption. They try and confirm it.
    10. Backward thinking
      • Avoid what causes the opposite of what you want to achieve and thinking backwards can help determine what these actions are
        • Should also make explicitly clear what we want to achieve
      • “Wise men profit more from fools than fools from wise men; for the wise men shun the mistakes of the fools, but fools do not imitate the successes of the wise.” – Cato
    11. Risk
      • Reflect on what can go wrong and ask what may cause this to turn into a catastrophe?
      • Being wrong causes both an actual loss and an opportunity cost
      • To protect us from all unknowns that lie ahead we can either avoid certain situations, make decisions that work for a wide range of outcomes, have backups or a huge margin of safety
    12. Attitudes
      • “Life is long if we know how to use it.” – Seneca
      • Know what you want and don’t want
      • Determine your abilities and limitations. Need to know what we don’t know or are not capable of knowing and avoid those areas
      • Ask – what is my nature? what motivates me? what is my tolerance for pain and risk? what has given me happiness in the past? what are my talents and skills? what are my limitations?
      • Be honest – act with integrity and individuality
      • Trusting people is efficient
      • Act as an exemplar
      • Treat people fairly – must be lovable
      • Don’t take life too seriously – have perspective, a positive attitude, enthusiasm and do what you enjoy
      • Have reasonable expectations – expect adversity
      • Live in the present – don’t emphasize the destination so much that you miss the journey. Stay in the present and enjoy life today
      • Be curious and open minded and always ask “why?”
Appendix
 
Munger Harvard School Commencement Speech 1986
  • Avoid drugs, envy, resentment, being unreliable, not learning from other’s mistakes, not standing on shoulders of giants, giving up, not looking at problems from different POVs, only reading/paying attention to information that confirms your own beliefs
  • Be objective
  • “Disraeli…learned to give up vengeance as a motivation for action, but he did retain some outlet for resentment by putting the names of people who wronged him on a piece of paper in a drawer. Then, from time to time, he reviewed these names and took pleasure in nothing the way the world had taken his enemies down without his assistance.”
Wisdom from Charles Munger and Warren Buffett
  • Appeal to other people’s interests over your own
  • Institutional imperative – tendency to resist change, make less than optimal capital deployment decisions, support foolish initiatives and imitate the actions of peer companies
  • Board of directors have few incentives (unless large owners) to replace CEO
  • Type of people to work with – need intellectual honesty and business owners must care who they sell to
  • Need role models early on
  • Emulate what you admire in others but also be aware of what you don’t like
  • Know your circle of competence
  • Use all available mental models, not just what you’re comfortable with
  • Scale extremely important – efficiencies, information (recognition), psychology (fit in), and in some industries leads to monopolies and specialization
    • Disadvantages of scale – specialization often leads to bureaucracy
  • On what something really means – ask “and then what?” to truly get at somethings core
  • There is a certain natural tendency to overlook anything that is simple and important
  • Avoid commodity businesses
  • Deal only with great people and you will avoid 99% of life’s headaches

Buffett and Munger: A Study in Simplicity and Uncommon, Common Sense by Peter Bevelin

Summary
  1. A very interesting dialogue between Warren Buffett, Charlie Munger, the “librarian” and the “seeker” of knowledge. The dialogue discusses how to live a successful, happy and fulfilling life, what to avoid in life and in business and how to improve mental biases and heuristics in order to make better decisions
Key Takeaways
  1. On fatal mistakes, prevention and simplicity
    1. Mistakes are a fact of life
    2. Don’t bother about mistakes that don’t actually matter
    3. Avoiding problems is better than being forced to solve them
    4. If we understand what works and not, we know what to do
    5. It is better to try to be consistently not stupid than to be very intelligent
    6. Thinking backwards is a great tool for solving problems
    7. Keep it simple and make it easy for yourself
    8. The secret is ignorance removal
  2. On what doesn’t work and what does
    1. Find and marry a lousy person
    2. Turn our body and mind into a wreck
    3. Only learn from your own terrible experiences
    4. Use a hammer as your only tool and approach every complex problem as if it was a nail
    5. Go through life with unreasonable expectations
    6. Only take care of your own interest
    7. Blindly trust and follow the recommendations of advisors and salesmen
    8. Mindlessly imitate the latest fads and fashions
    9. Overly care what other people think about you
    10. Let other people set your agenda in life
    11. Live above your means
    12. Go heavily into debt
    13. Go down and stay down when bad things happen
    14. When in trouble, feel sorry for yourself
    15. Be envious
    16. Be unreliable and unethical
    17. Be a jerk and treat people really badly
    18. Have a job that makes you feel miserable
    19. Work with something that goes against your nature and talent
    20. Believe you know everything about everything
    21. Associate with assholes
    22. Distort your problems so they fit your wishes
    23. Stick to, justify and rationalize your actions no matter how dumb they are
    24. Be an extreme ideologue
    25. Make it easy for people to cheat, steal and behave badly
    26. Risk what you have and need, to get what you don’t need
    27. Only look at the sunny upside (over stress the downside)
  3. On what else doesn’t work and what does in business and investing
    1. Invest your money in overpriced assets – preferably businesses without any competitive advantages or future and with lousy and crooked management
    2. If you are a businessman think like an investor and if you’re an investor, think like a businessman
    3. Investing is about where to allocate your capital
    4. Buy “wrongly” cheap productive assets you understand
    5. Things are often cheapest when people are fearful and pessimistic
    6. Be opportunistic and adapt and change when the facts and circumstances change
    7. Stick to businesses where you can assess that their economics is good and getting better
    8. Buy assets protected with a durable competitive advantage run by able and honest people
    9. Understand why it has a moat – the key factors and their permanence
    10. One test of the strength of a moat is essentiality and pricing power
    11. Go in a field, in which you have no interest, not any competence or talent for, no edge in and where the competition is huge
    12. Think about where the business is going to be in the future – not the macro factors
    13. Common sense is better than advanced math and computer models
  4. On filters and rules
    1. The right filters conserve thought and simplify life
    2. Never lose sight of what you’re trying to achieve or avoid
    3. The tune out “folly” filter
    4. The important and knowable filter
    5. The circle of competence filter
    6. The too tough filter
    7. The opportunity cost filter
    8. The “and then what?” filter
    9. The “compared to what?” filter
    10. Checklists help – assuming of we are competent enough to pick the key factors and evaluate them
    11. Have some avoid-rules
    12. Learning never stops
What I got out of it
  1. An incredible book on heuristics, mental biases, how to live, how to not live, what to avoid, the importance of thinking backwards. Highly recommend and will re-read many times moving forward
  • Buffett and Munger have an amazing ability to eliminate folly, simplify things and boil down issues to their essence and get right to the point and focus on simple and timeless truths. Succeed because rational and very seldom let extraneous factors interfere with their thoughts
  • Making better decisions helps avoid a lot of misery
  • Start out with failure and then engineer out its removal
  • Einstein’s razor – things should be made as simple as possible, but no simpler
  • The more basic knowledge you have, the less new knowledge you have to get
  • Seeking Synthesis – always putting things in context and having a latticework mindset, linking the largest areas and using/always adding to your toolbox
  • The very successful say no to almost everything – you must keep control of your time
  • Consistently rub your nose in your own mistakes
  • Best way to avoid envy is to plainly deserve the success you get
  • Set up a system and environment which plays to strengths and minimizes weaknesses
  • Ignorance more often begets confidence than does knowledge
  • There is enormous efficiency in good character. If crooks knew how profitable being honest is, they would be
  • Knowing what you ultimately want to accomplish makes it easier for you to decide what is and is not important
  • Good question for field you know little about – “can you give me a very simple example and explanation for what you’re talking about?”
  • To speak/write clearly is to think clearly – orangutan test
  • Iron rule of nature is you get what you reward for
  • No need for extra analysis – just know what you need to know
  • Attractive opportunities come from capitalizing on human behavior (fear, pessimism, greed)
  • Understanding a business should always be filter #1
  • Best way to understand moats and their key factors and permanence is to study companies who have achieved them
  • Almost always easier to figure out who loses (short horses rather than long autos)
  • Franchise – another word for moats, a product or service that: is needed or desired; is thought by its customers to have no close substitute and; is not subject to price regulation. These three allow a company to regularly price its product or service to earn high ROC. The test of a franchise is what a smart guy with a lot of money could do it if he tried. The real test of a business is how much damage a competitor can do, even if he is stupid about returns
  • Share of mind matters more than share of market
  • Best business by far has high ROC with little need of incremental capital to grow at high rates
  • If you had $1b, could you compete? – silver bullet question (ask CEOs if they could kill one competitor, who would it be and why?)
    • When speaking with management ask “If roles reversed, what would you ask if I were running your business?
  • Northern Pike Model – if you introduce a dominant species, they will soon take over (as WalMart did early on)
  • You don’t have to make money back the same way you lost it
  • It’s simple, to be a winner, work with winners – get great management and let them do their thing
  • if you can detach yourself temperamentally from the crowd, you’ll end up being very successful
  • What is important and knowable? Ignore the rest
  • Wall of Shame for things / investments that have been mistakes (don’t forget to include omissions!)
  • Always consider higher order effects and the implications 

A Few Lessons for Investors and Managers by Peter Bevelin

Summary
  1. Bevelin compiles Buffett’s investor letters as well as other good sources of value investing into a quick and easy-to-read investing manual
Key Takeaways
  1. What investing in financial assets is all about – laying out cash today in order to get more cash back in the future
  2. Valuation – follow the cash as it’s the only thing you can spend; rough approximations are enough
  3. The value of a business – beware optimistic predictions, accounting jargon
  4. Return on Tangible Invested Capital reflects the cash flow generating characteristics of the business – should be able to generate substantially more than $1 for every $1 invested
  5. Business characteristics
    1. The great – high returns, a sustainable moat and obstacles that make it tough for new companies to enter
    2. The good – earn good returns on tangible invested capital
    3. The gruesome – require a lot of capital at a low return business; I have to be smart every day businesses; fast changing industries;
  6. Past results as a guide – sometimes useful and sometimes dangerous
  7. The importance of trustworthy and talented management – integrity, talent and passion
  8. The importance of clear yardsticks to judge management performance
  9. Corporate governance – board’s most important job is to pick the right person to run the business and evaluate their performance
  10. Owners and management – just follow the golden rule; decentralization and trust and loyalty all pay off in multiples
  11. Management compensation – you get what you reward for. Incentives are a superpower
  12. M&A – dumb acquisitions cost owners far more than most other things
  13. A few management issues –  be honest and trustworthy and select people you can trust; look for companies with low HQ costs; clear communication
  14. How to reduce risk – prevention is much better than cure – keep it simple; know when you have an edge and buy with a margin of safety (fewer but larger bets); be conservative with debt; distrust biased advice; avoid mindless imitation and don’t be caught up in the latest fads and fashions; pay no attention to forecasting; have the right mental attitude towards market fluctuations
  15. Sometimes mistakes are made – do postmortems on dumb decisions; learn from others mistakes; see the world as it truly is
What I got out of it
  1. Incredible overview of Buffett’s investor letters and line of thinking. Highly recommend for anybody remotely interested in investing and how to properly manage a company

Damn Right! Behind the Scenes with Berkshire Hathaway Billionaire Charlie Munger by Janet Lowe

Summary
  1. Lowe details Charlie’s life through his early career as a lawyer, later partnership with Buffett to form Berkshire Hathaway, his family, his hobbies and outlook on life
Key Takeaways
  1. Warren, Charlie are very similar and make an amazing team. They are both from Omaha but didn’t meet until 1959
  2. Very eclectic reader – hundreds of biographies
  3. Wanted wealth because it grants independence
  4. Loves complex ideas and detailed analysis
  5. Credits his success to self-education, mental discipline, deeply understanding big ideas
  6. Always act as honorably as possible
  7. Star Island is his secluded family getaway
  8. Family was very smart, hard working and loving. Father taught him power of Tao – love of doing small things excellently
  9. Poker helps with business decisions – when to fold early and when to back heavily
  10. Somewhat arrogant but his opinions are not set in stone
  11. Divorced “Nancy 1” and soon after remarried to “Nancy 2”
  12. Tended to do a task himself or totally delegate it (usually delegated)
  13. Saw advantage of high quality businesses (easy decisions) early on and helped Buffett see the benefit of paying a fair price for high quality businesses
  14. Made first real money in real estate in California
  15. Able to look at facts and come up with new, insightful conclusions
  16. Great at analyzing businesses quickly and saying no if it falls outside his circle of competence
  17. Can zero in on what is truly important
  18. Must think correctly AND independently
  19. To become truly wealthy, need ownership in a business
  20. Simply easier to be ethical, rational and honest. Hard work and honesty gets you almost anything
  21. If Charlie trusts someone, he trusts them completely
  22. Blue Chip float lead to purchases in See’s Candy, Precision Steel
  23. Typically make one major decision every 3 years. Extreme patience with extreme decisiveness
  24. Must only deal with quality people
  25. Want to be in sectors that tend towards natural monopolies
  26. Bought Buffalo Evening News in 1977. At the time was nearly 25% of BRK net worth
  27. Foresaw savings and loan debacle and moved Wesco away from thrift
    1. “Our experience in shifting from savings and loan operation to ownership of Freddie Mac shares tends to confirm a long-held notion that being prepared, on a few occasions in a lifetime, to act promptly in scale, in doing simply and logical things, will often dramatically improve the financial results of that lifetime…A few major opportunities clearly recognizable as such, will usually come to one who continuously searches and waits, with a curious mind, loving diagnosis involving multiple variables. And then all that is required is a willingness to bet heavily when the odds are extremely favorable, using resources available as a result of prudence and patience in the past.”
  28. Remember the obvious rather than grasping the esoteric
    1. “Most geniuses—especially those who lead others—prosper not by deconstructing intricate complexities but by exploiting unrecognized simplicities.” — Andy Benoit
  29. “Our rule is pure opportunism”
  30. Look for integrity, intelligence, experience and dedication. Look to create the best business environment anywhere through evaluations without extensive meetings, capital access, focused compensation, and freedom to do one’s best
  31. Don’t confuse simplicity with ease
    1. “People underrate the importance of a few simple big ideas. And I think to the extent Berkshire Hathaway is a didactic enterprise teaching the right systems of thought, the chief lesson is that a few big ideas really work. I think these filters of ours have worked pretty well because they are so simple.”
  32. In the mid ’90s, BRK transitioned to owning more companies outright and became the buyer of first resort
  33. Munger admires Costco so much he violated his rule and joined their Board
  34. Avoid the mistake of not buying great, undervalued businesses when the stock has appreciated
  35. Tell the truth, tell it fully, tell it fast
  36. Giving time, talent, risking reputation as important as contributing money
  37. Many people specialize too early. Must deeply learn subjects you can’t live well without (psychology, math, physics, engineering)
  38. Paranoid self pity, the “victim mindset” is the most destructive frame of mind
    1. Every time you think about someone or something ruining your life, it’s in fact just you
  39. A few really big ideas carry most of the weight
  40. “To those whom much is given, much is expected. Always live below your financial means so that you will have money to invest. Invest in such a way so as to avoid the possibility of falling into a negative position – primarily, by limiting the amount of debt you use…If you want to get smart, the question you have to keep asking is “why, why, why?” And you have to relate the answers to a structure of deep theory. You’ve got to know the main theories. And it’s mildly laborious, but it’s also a lot of fun…From physics, Munger has learned to solve a problem by seeking the simplest, most direct answer. The easiest way invariably is the best way. From mathematics Munger learned to turn problems upside down or to look at them backward – invert, always invert.”
  41. If he taught finance, would look at about 100 companies who have thrived or failed
  42. Take a simple, basic idea and take it very seriously
  43. Truth is hard to assimilate in any mind when opposed by interest
  44. 5 best practices for thinking, problem solving, decision making
    1. Simplify by answering the big “no brainer” questions first
    2. Gain numerical fluency
    3. Invert problems
    4. Must use elementary and multidisciplinary thinking
    5. Lollapalooza effects come only from a combination of a large number of factors
  45. Pilot training should be implemented into different fields
    1. Formal education wide enough to cover practically everything useful
    2. Wide base of knowledge raised to practical fluency
    3. Ability to think forwards and backwards (concentrate on what you want to avoid as much as what you want to happen)
    4. What is most important gets the most attention
    5. Checklist routines are always used
    6. Forced into a special knowledge maintenance routine
What I got out of it
  1. Interesting read on Charlie Munger’s life, career, though process. Multidisciplinary thinking, inverting problems, always act honestly key topics, take a simple, basic idea and take it very seriously

Diaminds by Mihnea Moldoveanu and Roger Martin

Summary

  1. “How do successful thinkers think? And how is it that their ways of thinking make it more likely that they will succeed than fail in the cauldron of business and life…? In this book we set out to isolate a few of the key mechanisms in the minds of successful thinkers – mechanisms that seem to account for enormous differences in individual outcomes. We attempt to describe those mechanisms precisely enough that readers will see how they themselves can absorb and develop them.”
Key Takeaways
  1. Ask not “what” you / others think but rather “how” do they think
  2. Can’t directly observe thinking so have to look at what people say and do and then ask “how do you think and how does that lead to your actions, success?”
    1. How people speak and how they act a direct window into their thought process
  3. Successful thinking integrates several radically different models while preserving the thinker’s ability to act decisively. Able to quickly and effectively abstract the best qualities of radically different ways of seeing and representing; in doing so, that person develops ‘a better lens’ on the bewildering phenomenon we call the ‘world’
  4. Diamind = dialectical mind = a mind that beholds at least two often contradictory ways of seeing the world, gives each its full due, and instead of fearing and fleeing the resulting tension, lives it, embraces it, and comes up with a better way – one that does violence to neither but improves on both
  5. Like most behavior, thinking is tainable and habitual
    1. Mental habits are procedures that have been engineered for specific purposes; they are unconscious and natural. Understanding this is one key to mental habit detection, creation and procreation
  6. Making things explicit is a great learning tool
  7. Behavior does not have to be conscious to be intelligent – most diaminds don’t know how they think
  8. Thinking can be thought of as communication between present and future you
    1. External interactions, way we communicate with others influences internal communication (thinking)
      1. Can observe mental habits by people’s external patterns of communication
      2. Changing conversation patters is the lever for changing thought patterns. Changing self-talk changes mental habits
  9. Ask “what does my mind (not “I”) want to do with the world?” Give distance between self and mind is important
  10. Suppressing thoughts doesn’t work as you have to first think of what you are trying to suppress in order to suppress it
  11. Behavior becomes more intelligent, more adaptive, in proportion to the inclusiveness of the predictive model you have built from the situation at hand
    1. Integration requires an integrator – a powerful, versatile model of the situation that can explain, contain and comfortably accomodate the various impulses you feel. It also requires a will to weather the discomfort of this larger model in order to bring about the integration question. The integrator’s skill set can be traced back to a set of habitual ways of being, of habits of mind
  12. Small but frequent things (dense things) like thoughts and interactions will quickly compound with small changes
  13. Beware human’s inborn tendency to prefer simple explanations
  14. Brain as software – imagine you can program people’s actions through the inputs you feed it. What input (smile, smirk, praise, etc.) do you have to feed in order to elicit a desired response
  15. People suck at doubting but is what Taleb specializes in. Diamind realizes this and cultivates doubting skills as there are unknowns everywhere
  16. Truth does not equal certainty. Problems arise when one needs to be certain of a truth
  17. Diaminds live out their beliefs, act on and take responsibility for their predictions. Actually have skin in the game
  18. 3 central dogmas of today’s age – people are rational, cause and effect have a linear relationship and things fall into a normal (Gaussian) distribution
  19. Mind is like a fishnet and world an ocean – have to believe something in order to see it (what you catch)
  20. Inner diversity is key – many mental models, see same problem in many different ways
  21. Explanation much weaker than prediction
  22. Incorporating pre-set stopping rules (sell at 20% loss, etc.) key to dealing with unknowns and Black Swans
  23. True inner openness comes from a dogged pursuit of inner diversity (comfortable with unknowns, having many mental models)
  24. Must figure out distribution of events and estimate the parameters of these distributions
  25. Key to define as precisely as possible what a ‘non-white’ swan looks like
  26. Willingness to work and be open minded is vital
  27. Replace all explanations and justifications with predictions and commitmens – highly testable, known time fspan
    1. Prediction journal very, very helpful in keeping track of correct versus incorrect predictions. Review. Repeat. Review again
  28. Nothing is true independent of its context
  29. Replace as many statements of fact as you can with statements that highlight the dependence of the facts on the underlying theories and mechanisms that must be valid in order for the statement of fact to make sense
  30. Inverse thinking
    1. Look upon the present as if it were the past. Then look back and by eliminating all the paths you could not have taken, figure out how you must have travelled from the presnt to the future
  31. Diaminds have audacity – the ability to make the abductive leap that takes one to imagine a desired state of the world that is implausible or even inconceivable right now, to take seriously the notion that this implausible state of the world is real and then work to bring about the conditions that will supply the best explanation as to how it came about. Talk about the future as if it were the past
  32. The perception a fact is valid (a bluff) is often as powerful as the truth
  33. Writing promotes deep thinking; lists obscure it
    1. Effective self-talk is like storytelling, it is a narrative
  34. Diaminds able to successfully navigate complex world through good mental habits – think/see/do
  35. Recording yourself having a conversation can be helpful as speaking is a window to how you think
  36. “Mentalese” – language specific to thinking and problem solving
    1. Types of problems – simple vs. hard (initial and desired conditions clearly defined and there is a definite process as to how to achieve it; hard problems may be clear but you can’t see your way to the solution before actually solving the problem)
    2. Tame vs. Wicked – tame have been proven over time to be solvable in some way, wicked problems are problems whose initial and desired conditions are subject to change as a function of the very process by which you’re trying to solve them
    3. Solutions – local vs. general (specific (heuristics) vs. adaptable (algorithm)
      1. General being better as it is more widely applicable
  37. A problem is the difference between your current state and the ideal state
  38. Believing something always a matter of choice and diaminds are very choosy
  39. Diaminds awesome at flipping between simple and hard problems, determining if tame or wicked
  40. Turn goals into objectives to make real (time bounded, controllable and measurable)
  41. Diaminds think about thinking while thinking; and then act
  42. Deal with – Defer – Delete is a useful framework for problem solving
  43. Must take into account problem, own thinking other’s thinking / intelligence / background
  44. Diversity trumps ability – large group’s average guess often better than the expert’s
  45. Generality does not guaranteee truth
  46. Not all statements are meaningful
  47. Can never tell if a regularity is a law (black swan)
  48. Useful problem solving framework on page 212
What I got out of it
  1. Incredible read. I thought it did an amazing job of highlighting good thinking habits and reinforcing the fact that they can be trained and learned; speaking a window into how somebody thinks

Charlie Munger: The Complete Investor by Tren Griffin

Summary
  1. Another book on how Buffett and Munger think and how this differentiates them
Key Takeaways
  1. Munger’s independent thinking and emotional control set him apart
  2. Graham principles
    1. Stock = buying a part of the business
    2. Margin of Safety
    3. Mr. Market
    4. Must be rational, objective and dispassionate to be a successful investor
  3. Worldy wisdom – develop many mental models to make better decisions
  4. Don’t be a genius, simply avoid big mistakes
  5. Be a learning machine and learn from the mistakes of others
  6. Heuristics and biases
    1. Power of incentives
    2. Liking/loving
    3. Disliking/hating
    4. Doubt avoidance
    5. Inconsistency avoidance
    6. Curiosity tendency
    7. Kantian fairness
    8. Envy/jealousy
    9. Reciprocation
    10. Influence from association
    11. Pain avoiding denial
    12. Excessive self-regard
    13. Over-optimism
    14. Deprival super reaction
    15. Reward and punishment super response
    16. Social proof
    17. Contrast misreaction tendency
    18. Stress influence
    19. Availability misweighing
    20. Use it or lose it tendency
    21. Drug misinfluence
    22. Senescence-misinfluence
    23. Authority misinfluence
    24. Twaddle (nonsense) tendency
    25. Reason respecting tendency
    26. Lollapalooza tendency
  7. The right stuff
    1. Patient
    2. Disciplined
    3. Calm but courageous and decisive
    4. Reasonably intelligent but not misled by their high IQs
    5. Confident and non-ideological
    6. Honest
    7. Long-term oriented
    8. Passionate
    9. Studious
    10. Collegial
    11. Sound temperament
    12. Frugal
    13. Risk-averse
  8. 7 Variables in the Graham value investing system
    1. Determining the appropriate intrinsic value of a business
      1. Discounted value of the cash that can be taken out of a business during its remaining life
      2. Owner earnings – Net income + depreciation + depletion + Amortization – CapEx – additional working capital
    2. Determining the appropriate margin of safety
    3. Determining the scope of an investor’s circle of competence
    4. Determining how much of each security to buy
    5. Determining when to sell a security
    6. Determining how much to bet when you find a mispriced asset
    7. Determining whether the quality of a business should be considered
    8. Determining what business to own (in whole or in part)
  9. Berkshire math
    1. For intrinsiv value, use long-term (30 year) US treasury rate as the discount
    2. Don’t buy unless you have at least a 25% (and up to 60%) margin of safety
    3. Process
      1. Calculate past and current owner earnings
      2. Insert into the formula a rasonable and conservative growth rate of the owner earning’s
      3. Solve for the PV of the owner’s earnings by discounting using the 30 year treasury rate
      4. Focus on ROE, not EPS
  10. Moats
    1. Supply-side economies of scale and scope
    2. Demand side economies of scale (network effects
    3. Brand
    4. Regulation
    5. Patents and Intellectual Property
What I got out of it
  1. Reiterates a lot of what I’ve already read from Berkshire letters, etc. but a good overview

Poor Charlie’s Almanack by Peter Kaufman and Charlie Munger

Poor Charlie's Almanack

Summary
  1. A truly eye-opening book into the world and thought processes of Charlie Munger. He describes how and why he thinks the way he does, stresses the importance of learning the basics in the fundamental disciplines in order to avoid becoming “the man with a hammer who sees everything as a nail,” and how this has translated into the enormous success that is Berkshire Hathaway.
Key Takeaways
  1. This book is designed to help you make better decisions, invest better and get a better understanding of life through mastering basic truths, human nature and core principles from a wide range of disciplines
  2. Munger’s values – lifelong learning, perseverance, intellectual curiosity, sobriety, avoidance of envy and resentment, reliability, learning from the mistakes of others, objectivity, willingness to test ones own beliefs and many more
  3. Successful investing is simply a byproduct of his carefully organized and focused approach to life
  4. Looks at both internal workings as well as larger, integrated “ecosystem” in which it operates before investing – must use multiple mental models in broad fields such as history, psychology, physiology, math, engineering, biology, physics, chemistry, statistics, economics and so on. Enables Charlie to reduce the inherent chaos and confusion of a complex investment problem into a clarified set of fundamentals. Everything is linked and interconnected
  5. Knowing what to avoid more important than making great decisions
  6. Judge yourself by your preparation and decision making, not by the outcome
  7. “We try more to profit from always remembering the obvious than from grasping the esoteric. It is remarkable how much long term advantage people like us have gotten by trying to be consistently not stupid, instead of trying to be very intelligent.”
  8. Learn vicariously from others mistakes as much as possible
  9. People don’t think about the consequences of the consequences. So important to consider these secondary and tertiary effects
  10. Getting the incentives right is a very, very important lesson.
  11. In a career look for 3 things – don’t sell anything you wouldn’t buy yourself, don’t work for anyone you don’t respect of admire, work only with people you enjoy
  12. Learning how to “invert” problems/decisions cannot be more important. Figure out exactly what you don’t want to happen and avoid those things at all costs
  13. Psychology may be the most important mental model to grasp. The misery-caused mental misdirection and incentives should both be highlighted
  14. Lollapalooza effects, very big effects, tend to only come from large combinations of factors
  15. If you can get really good at destroying your own wrong ideas, that is a great gift
  16. The acquisition of wisdom is a moral duty.
  17. “I feel that I’m not entitled to have an opinion unless I can state the arguments against my position better than the people who are in opposition.”
  18. 25 Tendencies of Human Misjudgment…
What I got out of it
  1. Munger’s clarity of thought and insight into how to make better decisions and live a more meaningful life are life changing. The concept of having a checklist to draw on from all disciplines (mathematics, engineering, psychology, physics, etc.) in order to make better decisions is tedious and daunting but will no doubt lead to great success. This book is legendary for obvious reasons after reading it and it will be something I refer back to often. Cannot overstate how important and impactful this book can be if taken seriously and properly applied. A must read! Check out this mental model checklist I  put together based on Munger’s and other’s suggestions…

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