Making Your Own Munger Mental Model: Focus Investing Series Part 3


The idea of developing a network of mental models is based on the concept that everyone should approach problem-solving from many difference perspectives. The traditional teaching method used in the typical American classroom revolves around the idea that topics should be learned in isolation from other topics. This inhibits students from learning that ideas from multiple disciplines can be used with great success when trying to solve problems. Focus investors should develop their own systems of mental models to help them make better investment decisions.

In the following section of this article the various individual areas of knowledge that Mr. Munger has discussed in several of his speeches will be covered on an individual basis. This information should help everyone develop and enhance his or her own system of mental models.

Mental Models: Mathematics

It is critical that investors have at least an understanding of high school level mathematics. Compound interest, the time value of money, and the basic ideas of probability theory, for example, are vital concepts that all investors should have a firm grasp on; they must be a part of their basic repertoire of skills. If investors fail to add these skills to their repertoire they will be at a severe disadvantage to others in the investing field who are equipped with these skills.

Massif Capital’s Top Short Bets In The Real Asset Space [Exclisuve]

Screenshot 2022 08 10 18.57.51 1Since its founding by Will Thomson and Chip Russell in June 2016, the Massif Capital Real Asset Strategy has outperformed all of its real asset benchmarks. Since its inception, the long/short equity fund has returned 9% per annum net, compared to 6% for the Bloomberg Commodity Index, 3% for the 3 MSCI USA Infrastructure index Read More

Let’s examine more mathematical concepts that should be part of your investment toolkit. In this section we will cover probability theory, decision trees, and the law of large numbers. Compound interest and the time value of money were covered in Part 1 of the Focus Investing Series and as such will not be covered here.

Mental Models: Probability Theory