Charlie Munger’s 20 most valuable mental models – per ChatGPT

Charlie Munger’s 20 most valuable mental models – per ChatGPT

Charlie Munger, the vice chairman of Berkshire Hathaway, has for years espoused the benefits he has derived from the application of dozens of “mental models” to decision-making. I asked ChatGPT to narrow down his extensive range of mental models to ja “Top 20”, and here are some of the valuable mental models Munger frequently discusses:

1. Inversion: Thinking backward by considering the opposite perspective and identifying what to avoid or eliminate. One of Munger’s favorite models. ChatGPT listed this as #1.
2. Lollapalooza Effect: Understanding the combined impact of multiple cognitive biases and psychological tendencies leading to extreme outcomes.
3. Circle of Competence: Focusing on areas within one’s expertise and understanding the limits of knowledge. Not wasting much time and energy outside this Circle.
4. Margin of Safety: Incorporating a buffer or cushion to account for uncertainties and mitigate risks.
5. Bias from Social Proof: Being aware of the influence of social proof and the tendency to follow others’ actions and opinions.
6. Confirmation Bias: Recognizing the tendency to seek information that confirms preexisting beliefs and actively seeking opposing viewpoints.
7. Munger’s General Worldly Wisdom: Encouraging a multidisciplinary approach and acquiring knowledge across various fields. The guy reads copiously. Munger’s protege at Berkshire, Todd Combs, says he spends nearly 12 hours each day reading. He is reputed to read over 100 books per year!
8. Psychological Biases: Understanding common cognitive biases such as overconfidence, anchoring, availability bias, and loss aversion.
9. Mental Models from Multiple Disciplines: Applying concepts and models from disciplines like physics, mathematics, psychology, and biology to gain insights into business and life.
10. Pareto Principle (80/20 Rule): Recognizing that a significant portion of outcomes is often driven by a small portion of inputs or factors.
11. Long-Term Thinking: Emphasizing the importance of considering long-term consequences and avoiding short-sighted decision-making. Naval Ravikant talks about this also.
12. Durable Competitive Advantages: Seeking businesses with sustainable competitive advantages that protect against competition. Warren would call these “moats.”
13. The Law of Compound Interest: Leveraging the power of compounding over time for financial investments and personal growth. Compound interest is the 8th Wonder if the World according to Albert Einstein.
14. Disconfirming Evidence: Actively searching for evidence that contradicts one’s beliefs to avoid confirmation bias.
15. Avoiding Unnecessary Complexity: Simplifying decision-making processes and avoiding unnecessary complexities whenever possible. KISS. This one is my personal favorite!
16. Munger’s “Mental Toolkit”: Developing a diverse set of mental models to enhance decision-making across different situations. Munger has dozens of models.
17. Efficient Markets and Market Inefficiencies: Balancing the efficient market hypothesis with the recognition that market inefficiencies and mispricings can present opportunities for investors.
18. Human Misjudgment: Acknowledging common human misjudgments and biases in decision-making and working to mitigate their impact.
19. Resisting Groupthink: Encouraging independent thinking, questioning consensus, and avoiding herd mentality.
20. Patience and Delayed Gratification: Practicing patience and avoiding impulsive decisions by considering long-term benefits.

These mental models provide a framework for critical thinking, decision-making, and problem-solving in both business and life contexts. Remember that understanding these mental models is just the starting point, and their practical application requires continual practice, learning, and adaptation to specific situations.

Which ones do you already use, or plan to use? Please let me know in the comments. Thanks for reading and please subscribe!

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Mark Cuban’s Beatitudes: 7 Factors for Startup Success

This is a Guest blog post from Ines LeBow.

Shark Tank star Mark Cuban has been a startup investor and serial entrepreneur since his teenage years selling garbage bags, creating chain letters, offering dance lessons, and even running newspapers from Cleveland to Pittsburgh during a strike of the Pittsburgh Post-Gazette. Mr. Cuban is ranked #177 on the Forbes 400 list for 2020 with an estimated $4.3B in net worth.

Anyone who has listened to Mark knows that he has a lot to say and has very strong opinions on many topics. My goal here is to summarize how to be successful in business, especially for entrepreneurs in the startup arena. I’ve distilled Mark’s approach down to 7 key factors.

Be Passionate

Passion is at the core of everything in business, especially a startup business. Our passion will dictate the energy we bring to our work and will transmit our excitement to prospective customers, vendors, and partners.

“Love what you do or don’t do it.”

Be Ready

The ideal time is now, according to Mark Cuban. You need to always be moving forward in a tangible way to achieve your business and startup goals. You’ll always have doubts and the world will always put doubters in your path to throw up obstacles, to hurt your confidence, and to smother your passion. Don’t let them stop you, and don’t let changing circumstances keep you from doing it now (see “Now’s the Time to Get Your Business Funded: Coronavirus Edition”).

“Always wake up with a smile knowing that today you are going to have fun accomplishing what others are too afraid to do.”

Be Bold

Dictionary.com defines bold as “not hesitating or fearful in the face of actual or possible danger…courageous and daring…beyond the usual limits of conventional thought or action; imaginative.” For a startup to be successful, an entrepreneur must be bold but not blind. They must have a clear understanding of what they are doing and why as well as what they’re strengths and weaknesses are. You really aren’t bold or courageous if you don’t recognize the challenges or dangers that you need to overcome to succeed. See my recent article on being bold in getting investor funding (“How Far Will You Go to Get Your Business Funded?”).

“It doesn’t matter how many times you’ve failed. You only have to be right once.”

Be Knowledgeable

Knowing the business, the market, the players, the customers and their sentiments are all essential to being prepared to succeed in a startup business. Whether you need to convince Angels or PE/VC investors to fund your business or you are bootstrapping it, you need to know what it will take to win. Without this knowledge you have almost no chance to succeed. By the way, as your business grows and the market changes, you need to continually upgrade your knowledge to improve what you do and how you do it.

“Because if you’re prepared and you know what it takes, it’s not a risk. You just have to figure out how to get there. There is always a way to get there.”

Be Honest

Entrepreneurs who lie to themselves about their products, services, competitors, customers, and market conditions aren’t going to be in business very long. Don’t just make assumptions but deal in facts. If you’ve already formed assumptions, work hard to validate or invalidate them so you can prepare a genuine SWOT analysis. This will help you launch the business and bring the right product to market at the proper place and price with the proper message.

“One problem people have is that they lie to themselves…rarely is talent enough. You have to find ways to make yourself standout. You do so by playing to your strengths and making people aware of those strengths.”

Be Humble

Every startup entrepreneur wants to believe that their product or service has never been done before, but the ones who proceed with that mindset are inviting peril. Be a student of history. One of the first things you learn is that humankind doesn’t learn from history because we keep repeating the same mistakes. Humility will make you realize that somebody somewhere has probably tried this before. Do your research…and not just a quick Google search. Find out who tried and how they failed. Use their experience to learn the hard lessons without suffering the personal setbacks.

“One thing we can all control is effort. Put in the time to become an expert in whatever you’re doing.”

Be Unique

While your product or service may not be completely new, you need to make at least one aspect of it your own. Consider what characteristics you bring to the product, to how or to whom it is marketed, or how it is delivered to differentiate yourself from your competitors. If you try to be the same, you have no basis other than price on which to compete, and someone newer and cheaper can easily come along to take your market away from you.

“Creating opportunities means looking where others are not.”

“When you’ve got 10,000 people trying to do the same thing, why would you want to be number 10,001?”

“Success is about making your life a special version of unique that fits who you are – not what other people want you to be.”

If you aggressively pursue these 7 areas, your chances of startup success increase dramatically. What are you waiting for? As Mark Cuban says, the perfect time is now.

To learn more on how to stand out with an epic fundraising story, contact me for a complimentary consultation by phone at 314-578-0958 or by email at ilebow@transformationsolutions.pro. You find her on LinkedIn Profile at www.linkedin.com/in/ineslebow or her ETS website at www.transformationsolutions.pro.

The Success Formula: Success = BD+GM+F+C+P

Almost 9 years ago, I published this, my first Blog post on WINNING IDEAS. As I work with students, mentees, and other business colleagues of late, I find myself reverting to various “Fundamentals” in our conversations, this one perhaps being the most important of all.  Please enjoy and let me know what you think!

What does it take to be Successful? Everyone has an opinion on this for sure.

Success is Winning, and everyone loves Winning.

Having been a student and analyst of the subject of Success for over 40 years, I think I have boiled down the formula of what creates Success:

SUCCESS = BURNING DESIRE + GOAL MANAGEMENT + FOCUS + COURAGE + PERSISTENCE

Each of the great thinkers and each successful person has their own personal take on what it takes to achieve success, but these are the 5 essential elements.

 

Of course, I left out a couple of other important elements like Serendipity, Luck, Sacrifice, Hard Work, and others, but I believe that these “sub elements” are a part of one of these 5 essential ingredients.  For example, if you have a Burning Desire (passion), then you will make the sacrifices and work hard.  Goal Setting includes goal review, and is the roadmap to the destination.

Courage is an interesting one and we don’t hear it mentioned often, but to me, Courage is all about taking action, and stepping up and going outside your comfort zone to make things happen.  Without Courage, thought cannot easily be transformed into Action.

And what about luck?  Well, the more persistent you are, the luckier you get.  By never giving up and hanging in there, opportunities will inevitably come your way.

Persistence is my favorite, and I conclude this, my first ever Blog Post with my favorite quote:

“Never give in. Never give in. Never, never, never, never–in nothing, great or small, large or petty–never give in, except to convictions of honor and good sense. Never yield to force. Never yield to the apparently overwhelming might of the enemy.”   – Winston Churchill

 

 

 

 

 

 

You don’t know how good you have it!

This is a Guest blog post from Todd Youngblood, These thoughts are more applicable today than when he first published this almost 2 years ago.

Is there anyone alive today who did not hear the words, “You don’t know how good you have it,” from one or both parents during childhood? I seriously doubt it. I heard it so often growing up that I swore I would never say it to my own kids. I failed. The fact of the matter is they didn’t know how good they had it. And to be honest, I didn’t either.

Is the world today awash in problems and injustice? Yes! Is the U.S. in particular, awash in problems and injustice? Yes! Are there more, bigger, more complex, thornier problems than even before in human history? Yes!

My contention is, that’s good news!

In fact, it’s downright bizarre to me that only 6% of the U.S. population thinks the world is getting better. Seriously? Think! Of course we have lots of problems today, but they are due to the unanticipated, unintended consequences of the amazingly dramatic advances in standards of living that have alleviated or eliminated the problems of the past.

Are the problems we’re dealing with now real? Yes! Are they tough, horrifying, heart-wrenching, unfair, unethical, immoral and just-plain-wrong? Yes, Yes, Yes, Yes, Yes, Yes and Yes. So what? Let’s look at a few facts about the relentless, positive progress in our world, courtesy of Our World In Data

First, world population:

• 1800 – 0.9 Billion
• 1900 – 1.7 Billion
• 1960 – 3.0 Billion
• 1980 – 4.4 Billion
• 2015 – 7.4 Billion

That’s an increase by a factor of more than 7. Are 7 times more people alive because the overall average standard of living has been going down? I don’t think so. How about the % of world population living in extreme poverty?

That’s about as direct a measurement of improvement in living standards as you can get. From virtually all human beings living in extreme poverty to less than 10% in just 2 centuries. For perspective, humans have been around for something like 2,000 centuries. So that’s virtually everybody in extreme poverty for 1,998 centuries, and now only 10%.

How about the % of world population that is illiterate?

 

That’s from 88% illiterate to 88% literate. …along with the immense value of literacy.

How about global child mortality?

That’s 43% – almost half – of children dying before their 5th birthday to only 4%.

How about freedom – the % of global population living in democracy:

That’s less than 1% of people living in a free, democratic society to 53%. Amazing progress!

These statistics tell the story of a remarkable, inexorable and MASSIVE increase in quality of life. Let’s take a look at some numbers that put a totally different spin on this supposed problem of having so many problems. Is all the stuff we can buy to make our lives easier and better getting more or less expensive? Inflation and different currencies and exchange rates around the world can make answering this question quite difficult. So forget about how many dollars it takes to buy something. Look at cost in terms of how many hours you need to work to buy whatever it is you want.

Light, for example. Every time the sun goes down, we’re switching on the lights. What does that actually cost in terms of hours worked?  In 1994, Yale economist William Nordhaus answered the question. He calculated how much light could be purchased for 60 hours of work. Here’s what you could buy:

• 88 minutes of light from your oil-burning lantern in 1750 BC
• 10 hours from your tallow candle in 1800
• 16 hours from your gas-burning streetlight in 1810
• 72 hours from one of Edison’s early incandescent bulbs in 1880
• 1,200 days – over 3 years – from a fluorescent bulb in 1950
• 51 years from a modern compact fluorescent bulb

How about some other modern conveniences?

And these prices do not reflect the dramatic improvements in quality. In ‘59, the “big screen” TV was 21 inches. Are you old enough to remember complaining about too much “snow” in the picture? Today, not only is the fuzzy “snow” effect gone, you can see every pimple on an actor’s face as it marches across the 6 foot wide screen.

How about travel? To cross the U.S. by horse takes 70-80 days depending on the weather. Or you could hop on a jet and do so in less than 5 hours for less than $200. And for the record… I gripe and moan A LOT about my discomfort in those teeny-tiny airplane seats. It’s a bit embarrassing to contemplate the pain in my seat that would be caused by sitting on a jostling horse all day, every day for 2 1/2 months…

Forgive me for bringing some mathematics into the mix, but it’s a really good way to think about what happens when a problem gets solved. Think about a circle. A line through its center, the diameter, represents all the problems that have been solved by your society. The area inside the circle represents your standard of living. Around the circumference is where all of the unsolved problems facing your society are lurking, (Take a look at the show notes for this episode at IntentionallyVicarious.com to see an example of this and where I’m going with the idea…)

OK, here comes the math. Let’s say that the diameter of your circle is 10. Again that means your society has become aware of and solved 10 big problems. The area, your standard of living, is π r², which works out to about 79. Around the circumference, which is π times that diameter, is roughly 30, meaning your society is aware of 30 big, ugly problems.

Now… Your society functions pretty well, so it goes about solving every one of them. The diameter of your circle is now 40 – the 10 problems that were already solved plus the 30 you just knocked down. Your standard of living, therefore, jumps up to 1,275! But uh-oh, you can now see 125 new problems around the circumference you didn’t know about before.

Your society attacks those, and solves every one. Your socienty has now successfully solved 165 big problems, which rockets your standard of living up to 21,382. But here’s another uh-oh… You are now aware of yet another 450 new problems.

I think you get where I’m going with this. It’s one of those glass half-empty or half-full things. Your society has solved 165 of the earth’s biggest problems, and all you see and hear on the news and social media is how you – you greedy, selfish SOB – have screwed the needy by “creating” 450 ugly problems and inequalities while only solving 165.

NO!!!!! Wrong perspective!

So what that you’re now aware of 450 new, ugly problems and inequalities? The vastly more important point is you did in fact solve 165 old, ugly problems and inequalities and ratched up your standard of living from 79 to over 12,000. That’s cause for celebration …and more work, more effort, more achievement. Dare I say more fun?

Run through the cycle again and your living standard will be nearly 300,000. Are you going to gripe and moan about how society is sooooo much worse because you now have 1,900 ugly issues instead of only the 450 you had before? Go ahead and whine if you want to, but stay out of my life.

The fact that I, you or anyone can identify an ever-growing number of examples of pain, suffering, injustice and horror is good news. It means that all of us have collectively solved a boat-load of old problems and made life on earth better – MUCH, MUCH BETTER – than it was before. The more problems we solve, the more – and uglier – problems we can identify. Get over it!

The instant any one of us as an individual, or all of us as a culture, a country, a species; stops identifying the huge and growing number of agonizing problems that cry to solved, is the instant we are doomed.

Recognizing – KNOWING – about the pain, suffering and inequality of outcome that exists; and about how much MORE needs to be done, means that we have the opportunity to get better – MUCH BETTER – all the time.

So again… As we solve more and more problems, the more we will increase the world’s standard of living, AND the more terrible and agonizing problems we will identify. Lets get over it! And let’s get busy – stay busy – and continue our 2,000 century long habit of improving everybody’s quality of life.

 

Todd Youngblood is Executive Producer and Host of Intentionally Vicarious, which is dedicated to help you have more fun than anybody else you know! He is also Managing Partner and CEO of The YPS Group, Inc., a management consultancy focused on sales and sales management. Check out Intentionally Vicarious at   

https://intentionallyvicarious.com. Todd can be reached at todd@ypsgroup.com.