Inversion
MathematicsInstead of asking how to achieve success, ask how to avoid failure. Many hard problems are best solved when addressed backward. Munger borrowed this from the mathematician Carl Jacobi, who famously said 'Invert, always invert.'
Latticework
Munger believed in building a “latticework of mental models” — drawing from multiple disciplines to make better decisions. He argued that 80–90 important models carry about 90% of the freight in making you worldly-wise. These are the frameworks he returned to most often.
Instead of asking how to achieve success, ask how to avoid failure. Many hard problems are best solved when addressed backward. Munger borrowed this from the mathematician Carl Jacobi, who famously said 'Invert, always invert.'
Know the boundaries of your knowledge. Operate within areas where you have genuine understanding and be honest about the edges. The size of your circle matters less than knowing where the perimeter is.
Consider not just the immediate consequences of a decision, but the consequences of the consequences. Most people stop at first-order effects; the greatest advantages come from thinking one or two steps further.
Build in a buffer for error. Whether in investing or life decisions, allow room for things to go wrong. Engineers design bridges to hold far more weight than expected — investors should think the same way.
When multiple psychological tendencies combine in the same direction, the result is often far larger than any individual tendency. This explains why certain situations — like financial bubbles — produce such extreme outcomes.
Every choice has a cost — the value of the best alternative you didn't choose. Wise people think in terms of trade-offs. Munger always asked: 'What's the best thing that could happen with this capital?'
Never underestimate the power of incentives to distort human cognition and behavior. 'Show me the incentive and I'll show you the outcome.' People will rationalize almost anything if the incentives are strong enough.
To a man with only a hammer, every problem looks like a nail. This is why Munger insisted on building a latticework of mental models from multiple disciplines — relying on a single framework guarantees blind spots.
We tend to overweight information that comes easily to mind. Recent events, vivid stories, and personal experience distort our perception of probability. The antidote is systematic thinking and base rate awareness.
Humans look to others to determine correct behavior, especially under uncertainty. This tendency is powerful and mostly unconscious. Munger believed mimicking the herd was one of the surest paths to mediocrity.
People have a deep tendency to reciprocate both favors and slights. This powerful force can be used ethically — build trust by giving first — but also exploited, which is why it's important to recognize.
The eighth wonder of the world, according to Einstein. Small advantages, compounded over long periods, produce extraordinary results. This applies to money, knowledge, relationships, and reputation alike.