[Charlie Munger's Model of Multiple Thinking]

Although Monger University majored in law, he was actually exposed to many different fields through "self-study", in addition to accounting, statistics, and even engineering.

Today, I will introduce the common sense of several fields that Munger believes to be an investor (in fact, even if you do not invest, having this knowledge is very helpful to ordinary people).

1. Mathematics: Probability, Expectation, Permutations

Investing is a kind of gambling under the law of large numbers. If you can get an advantage in winning and odds, you have a high chance of survival in the long run.

Charlie said that if you can make the basic concept of probability and expected value a part of life, take these factors into account when making any decision, and treat it as a living habit, over time, you will continue to revise and move on the right path to success.

Although this is indeed a bit abstract, I myself am used to determining the worst possibility before making every decision, and then thinking about the benefit of the outcome. If the risk-reward ratio is high enough, you must do it, without paying too much attention to the results.

2. Accounting and Statistics

Although Munger did not mention it very carefully, I think that for investment, it must be important to be able to understand the company's fundamental financial report, understand the company's moat, and whether its pricing power is strong.

For now, I'll explain that at least basic business thinking is required. Product process, enterprise organizational structure, etc. Statistics can be considered common sense in this area, and you can see the differences in data, whether there are significant differences in statistics, and so on.

3. Engineering: Cost-benefit analysis

Quality management and cost are super important in engineering. This is also what engineering cares about most when I study chemical engineering: scale up, cost down. It is also useful to bring this concept to investment and life:

To do anything, we must minimize the cost and maximize the benefit. It is right to continue to do such a thing.

4. Psychology

Psychology should be the most convenient knowledge that Munger uses, and the knowledge that he thinks is the most important.

The "psychology of misjudgment" he often mentions means that people are often deceived by their own cognitive organs; people are actually easy to be manipulated and make mistakes under specific circumstances and circumstances.

Understand your own psychology and the psychology of the public, you can have an advantage in anything. I myself think it can be explained by a book I read before "The Psychology of Operating on a Recliner":

Understanding your own psychology means knowing your own personality when trading. If you know that you are prone to losing money when you are greedy, you should restrain your betting position every time. Before you can conquer others, you must conquer yourself first.

Understanding the psychology of the masses means that people have fear and greed at the same time, so how to grasp the psychology of the masses and operate in the opposite direction is the key to survival under the 82 rule.

【Summarize】

Munger mentioned a well-known concept called the "Lula Palusa effect". Simply put, when you think in different frameworks at the same time, or when you combine specialties in different fields, your abilities will have a multiplicative effect, and the combination will be higher than the sum of individual fields.

This is why Munger puts so much emphasis on the theoretical framework of multiple thinking. Problems in the world are not so simple that they can be solved with only one domain of thinking, they are often complex.

I think the best thing I've learned about investing is that I need to see everything and learn everything in order to understand why the day-to-day changes are coming from and how to explain them from multiple perspectives.

Building a platform of multi-domain knowledge in your head, and constantly developing different common sense on it, I believe it is something that Munger never tires of, and he most hopes that others can do it together!

Do you also have your own multiple thinking framework? Welcome to leave a message and share what fields your platform includes!

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