In a previous post, I provided a brief sketch of the life and career of legendary investor Charlie Munger. In this post, I want to provide some thoughts on what I believe is Munger’s greatest contribution: his advocacy of multi-disciplinary self-learning.
Charlie Munger, who passed away on November 28, 2023, at the age of ninety-nine, was known as a wise polymath who developed a devoted following among serious investors, businesspeople, and intellectuals. He spent his many years dispensing wisdom through interviews, speeches, and at Warren Buffett’s side at the Berkshire Hathaway annual meetings.
Munger’s lasting intellectual contributions are numerous. However, I believe that all business operators and investors can benefit from Munger’s focus on what he called a “latticework of mental models.”
On April 14, 1994, Munger gave a speech to an investment class at USC’s Marshall School of Business. Rather than provide a technical treatise on financial methods, Munger treated the students to his thoughts on how an investor can develop a framework for seeing what others do not.
Charlie Munger titled his speech A Lesson on Elementary Worldly Wisdom as it Relates to Investment Management and Business. In the speech, Munger advocated for investors to learn the “big ideas” from multiple disciplines, such that investors can think beyond the obvious conclusions from technical finance.
Naturally, students of business and finance will study accounting, economics, statistics, and other technical subjects. These are the “tools of the trade”. But these subjects only represent the minimum understanding needed to become an effective investor. What the investor, or businessperson, really needs to stand out from their cohort is to think differently. And to do this, an investor needs to broaden their “toolbox” by integrating ideas from other disciplines.
So, what disciplines should an investor focus on? In the book, Investing: The Last Liberal Art, money manager and author Robert Hagstrom elaborates on Munger’s multidisciplinary approach and advocates study in the following subjects:
- Physics
- Biology
- Sociology
- Psychology
- Philosophy
- Literature
- Mathematics
- Decision Making
In my experience, Hagstrom is absolutely correct in calling investing the “last liberal art”, in so far as it will pull the intellectually curious practitioner into many different paths of study. For example, most investors understand the role that central banks in industrial nations have within the global financial system. But where do these institutions come from? Why do societies need such institutions? For that matter, how and why did societies create commercial banking? To answer these questions, an investor will soon be knee-deep in books on monetary and economic history. And studying these subjects will lead to other questions and a further quest for additional answers.
[If I can make one suggestion to Hagstrom’s list of subjects, it is to add history as a separate subject rather than as an implied component of the study of the other subjects.]
Of course, not all of the subjects on this list are of obvious benefit to an investor. For example, while most investors will understand the benefits of studying psychology, sociology, mathematics, and decision theory, they may not see the direct benefits of studying philosophy, literature, physics, and biology. And that seems to be Munger’s point. An investor never knows when or from where an insight will come, but the greater the number of intellectual tools, the greater the chances of developing frequent insights.
And if an investor is overwhelmed by the prospect of developing an intensive program of self-learning, Munger said not to fret, “you don’t need to know it all. Just take in the best big ideas from all these disciplines.”
Munger remained a voracious reader until the end of his life. He frequently attributed his success in life to his mental habits, and often spoke of how fulfilling his intellectual journey was to his life.
The sum of mankind’s cumulative knowledge is absolutely astonishing. We are lucky to live in an age where such knowledge is available to all at such a small cost. Consider that an author may spend thousands of hours researching and writing a biography which is then made available to readers at a cost of a few dollars. In that sense, books represent the greatest value available to consumers. Add to that other mediums, such as the internet, and we see that knowledge is more universally available than at any other time in human history.
Charlie Munger leaves us with the following words: “I believe in the discipline of mastering the best that other people have ever figured out. I don’t believe in just sitting down and trying to dream it all up yourself. Nobody’s that smart…”
Sources and Suggested Reading:
Kaufman, Peter, ed. Poor Charlie’s Almanack, 3rd ed. Marceline: Walsworth Publishing, 2013.
Hagstrom, Robert. Investing: The Last Liberal Art.
