Munger's Wisdom Code: Building an Interdisciplinary Thinking Framework

Munger's Latticework Theory is well-known in investment circles, but few people can accurately grasp it.

This is because it requires us to apply general knowledge from various disciplines to construct a vast network of interdisciplinary knowledge systems, placing the issues that need verification within this network for cross-validation.

Munger says we should strive to master more knowledge about the stock market, finance, and economics, but not isolate these disciplines. Instead, we should view them as part of the treasure trove of human knowledge, encompassing psychology, engineering, mathematics, physics, and more.

The world always moves in random walks, and the market is unpredictable; no single disciplinary perspective can effectively explain its changes. However, if multiple disciplines and dimensions validate the same problem and reach the same conclusion, the accuracy of investment decisions may be higher.

But our energy is always limited. Munger advises: First, excel in mathematics, physics, chemistry, and an additional engineering discipline. Beyond mastering the basic principles of these four hard sciences, it is more important to cultivate precise logical thinking.

On this foundation, one should also master as many disciplines as possible, such as psychology, physiology, accounting, management, economics, finance, political science, sociology, history, law, medicine, business, and more.

Of course, he also said, 'You don’t need to become an expert in all these fields. All you need to do is grasp the truly useful key ideas early on, understand them thoroughly, and internalize them.'

We have excerpted this article from Robert G. Hagstrom’s book, 'Charlie Munger's Wisdom,' hoping it will help you better understand the mental latticework model.

The introduction of this book uses a very interesting language story: 'The Fox and the Hedgehog.'

In a poem by the ancient Greek poet Archilochus, there is a line that roughly translates to: The fox knows many things, but the hedgehog knows one big thing. The poet meant to convey that the fox is cunning and has many tricks to eat the hedgehog, but the hedgehog only needs one trick to protect itself—curling its soft body inside its hard, spiky shell.

However, the thinker Isaiah Berlin broke away from the fable and said that the hedgehog and the fox could actually represent two types of people, embodying two philosophies of life.

The fox is encyclopedic, knowing many things, even often 'contradictory' ones, while the hedgehog seeks to unify everything under one principle. They understand the world in different ways and apply their understanding into their decision-making processes.

The so-called hedgehog is someone who sees every problem as a nail because he holds a hammer; he places all the weight of his life on a single fulcrum of belief, adhering to a large, centralized system with unwavering conviction, steadfast and unshakable.

On the other hand, the fox understands many principles, even if they contradict each other, and can remain calm within because he maintains reasonable skepticism about the 'small' things he knows. The fox opposes blind adherence to any particular dogma or principle, such as the one big thing known by the hedgehog.

The fox possesses extensive knowledge but is not confined by grand systems or ideologies, whereas the hedgehog relies on one key approach for everything, remaining stubborn, unquestioning, and inflexible.

If you are familiar with Munger's lattice theory, you will find that he resembles a fox because he knows so many 'small' things, building the 'lattice of mental models' stake by stake, nail by nail, under the training of connectionist thinking to construct a magnificent intellectual world.

1、

In April 1994, at the Marshall School of Business, University of Southern California, Munger gave a rare lecture to students of Professor Guilford Babcock’s investment seminar.

At the outset, Munger mischievously said he wanted to play a little trick on the audience before officially starting the lecture. Instead of discussing the stock market, he talked about 'stock picking as an application branch of general wisdom.'

Over the next hour and a half, he challenged the students to broaden their horizons in markets, finance, and economics, encouraging them not to view these disciplines as isolated fields but as part of an integrated body of knowledge combining physics, biology, sociology, psychology, philosophy, literature, and mathematics.

From this broader perspective, he believed that the various disciplines were interconnected and mutually reinforcing during their integration.

A thoughtful individual can derive outstanding mental models from every discipline, drawing upon significant ideas to achieve an integrated understanding. Those who delve deeply into this approach are gradually mastering general wisdom, whereas those who stubbornly adhere to a single discipline may succeed, but only momentarily.

To clarify his perspective more vividly, Munger coined an evocative term for this mode of thinking: the Latticework Model. (Note: The term 'Latticework,' mentioned by Munger in 1994, can be understood as 'grid.')

"There are numerous models in your mind," he explained. "You should categorize your experiences, whether acquired directly or indirectly, and place them within your latticework model." Consequently, the Latticework Theory quickly gained traction in investment circles, becoming a simple hallmark identifying Munger's methodology.

Munger frequently applies his mental latticework. For instance, at the Berkshire Hathaway annual meetings, he often cites passages from books he has recently read to supplement Buffett’s responses. These citations initially appear unrelated to investing, but after Munger’s explanation, they immediately become relevant.

Charlie Munger’s focus on other disciplines is purposeful. He firmly believes that a latticework of mental models built by integrating concepts from various fields can help investors achieve superior returns.

If conclusions drawn from different disciplines align, such investment decisions will be more accurate. The greatest benefit lies in achieving a more comprehensive understanding, enabling us to become better investors.

Moreover, the impact extends beyond this. Those committed to understanding general wisdom not only improve their interpersonal skills but also become better investors, leaders, citizens, parents, spouses, and mentors.

2. The Regret of Higher Education

How can one acquire general wisdom? Simply put, it is a gradual process. First, one must gather valuable concepts, or models, from diverse knowledge domains; second, one must learn how to identify similar patterns among them. The former involves self-learning, while the latter entails learning to think about and view problems from different perspectives.

Drawing knowledge from various disciplines may seem like an insurmountable task. Fortunately, you do not need to become an expert in every field. You simply need to grasp the fundamental principles—what Munger calls 'great ideas'—and truly master them so they serve your purposes.

At this point, one often hears the question: 'Isn’t this precisely what higher education is supposed to do — teach us the important concepts developed over the past few centuries?' Of course, it is.

Most educators will passionately tell you that a curriculum built on a foundation of liberal arts and sciences in universities is the best, and perhaps the only, way to cultivate talent. Few would disagree with this notion. However, in practice, our society places more emphasis on depth of knowledge rather than breadth.

This is entirely understandable. Since students and their parents invest money in higher education, they expect this investment to be repaid immediately after graduation through good job opportunities.

They know that most corporate recruiters demand employees who can immediately contribute to the company using specialized knowledge. Therefore, it should come as no surprise that today’s students reject broad-based liberal arts education in favor of specialized expertise. This, of course, is understandable. But, as I said, I believe it is not ideal.

3. Franklin: History allows you to acquire all useful knowledge

In the summer of 1749, subscribers to the Pennsylvania Gazette received not only that day’s newspaper but also a pamphlet written by its publisher, Benjamin Franklin. In this document titled 'Proposals Relating to the Education of Youth in Pennsylvania,' he expressed regret that 'the youth of this province have not had the benefit of collegiate education.'

Young people in Connecticut and Massachusetts have long been able to attend Yale and Harvard, Virginians have the College of William and Mary, and students in New Jersey can enroll at the College of New Jersey (later renamed Princeton University).

However, Philadelphia, the largest and wealthiest city in America, proudly called the 'Athens of America,' did not have a single institution of higher learning. In this manual, Franklin proposed a solution to this issue: the establishment of the Philadelphia Academy.

During that era, Franklin’s ideas were quite unique. Institutions like Harvard, Yale, Princeton, and the College of William and Mary were designed to train clergy, with curricula focused heavily on the study of classical texts, excluding practical courses to prepare young people for future careers in business or public service.

Franklin hoped that the Philadelphia Academy would achieve both aims, emphasizing traditional classical fields (in his words, “ornamental” aspects) while also being practical. 'Regarding the instruction of youth,' he wrote, 'it is certainly desirable to teach them both useful knowledge and how to present themselves well.'

However, knowledge is boundless while time is limited. Therefore, they should learn the most essential and useful knowledge in these two areas based on the professions they will engage in the future.

Today, the Philadelphia Academy proposed by Franklin has evolved into the University of Pennsylvania. Dr. Richard Beeman, former Dean of the College of Arts and Sciences, described Franklin's achievements as follows: 'Benjamin Franklin devised the first modern curriculum,' he explained, 'and did so at the perfect time.'

In the 18th century, with continuous new discoveries in mathematics and natural sciences, there was an explosive breakthrough in the global knowledge base. The traditional curriculum, which focused on Greek, Latin, and the Bible, could no longer explain these emerging fields of knowledge.

Franklin suggested that the curriculum of the public academy include these new domains. He went a step further by recommending that students acquire necessary skills to succeed in business and public service in the future. Once students mastered these basic skills—writing, drawing, public speaking, and arithmetic—they could concentrate on acquiring knowledge.

‘Almost all useful knowledge can be obtained through the study of history,’ Franklin wrote. However, what he referred to was far broader than the conventional discipline of history. ‘History’ encompassed everything meaningful and valuable.

Franklin advocated for young people to study history, meaning they should learn philosophy, logic, mathematics, religion, government, law, chemistry, biology, healthcare, agriculture, physics, and foreign languages.

For those concerned about whether this heavy learning burden was truly necessary, Franklin responded that it was not a burden but a divine gift. By studying the histories of various countries, you will gain a deeper understanding of humanity.

Benjamin Franklin was 'the founder of liberal arts education,' Beeman pointed out, 'and his success in education was built upon three principles.'

The first principle is that students must learn basic skills: reading, writing, arithmetic, physics, and public speaking. Then, guide them to explore the ocean of knowledge. Finally, help them discover connections between different bodies of knowledge to cultivate their thinking habits.

From Franklin’s proposal 250 years ago to the present day, the American educational community has continuously debated the best ways to teach young people how to think.

Despite various shortcomings, our education system performs well in imparting skills and knowledge — these are the first two important principles Franklin referred to. What falls short is the third principle: the 'habit of thinking' that explores connections between different fields of knowledge.

We can change this situation. Even though we may no longer be in school, we can still find connections between different areas of knowledge in our own way — those connections you truly understand.

Cultivating Franklin’s 'habit of thinking,' as well as adopting Professor Biman’s insightful perspective, holds the key to acquiring Munger’s 'general wisdom.'

However, it is easier said than done. For most of us, this approach runs counter to our established ways of thinking. After spending years mastering a specialized discipline, we are now required to self-learn knowledge from other fields. We are asked not to confine ourselves to the subjects we have studied but to break through the boundaries of our expertise and observe the surrounding world.

For investors, the rewards for doing so are substantial. When you transcend the current boundaries, you can observe similar occurrences in other domains and identify distinct patterns of thinking.

Then, one concept reinforces another, which in turn is reinforced by a third, leading to continuous development. You will find yourself on the right path. The key is to seek out connections between different modes of thinking. Fortunately, the human brain has always functioned this way.

4. Wisdom is the ability to learn and master the skill of making 'connections.'

Edward Thorndike was the first person to discover what we now refer to as the stimulus-response phenomenon. Learning occurs when a connection is formed between a stimulus and a response.

In a research paper published in 1901, Thorndike and Robert Woodworth concluded that learning in one field does not assist learning in another unless there are similar elements between the original and new fields.

From this perspective, learning a new concept enriches one’s knowledge structure rather than fundamentally changing one’s learning ability. We do not study new disciplines because we become more eager to learn; instead, we become better at recognizing patterns.

Edward Thorndike's learning theory, known as connectionism, has become a core theory in contemporary cognitive science (the study of how the brain works—how we think, learn, reason, remember, and make decisions).

The connectionist psychology stems from Thorndike's research on the stimulus-response model, positing that learning is a trial-and-error process where positive responses (stimuli) to new situations actually alter the connections between brain cells.

In other words, the learning process influences synaptic connections between neurons. When the brain receives new information and identifies similar patterns within it, these synapses continuously adjust to accommodate and integrate this new information. The brain can link relevant connections into loops and transfer what has been learned to similar contexts.

Thus, intelligence can be viewed as one’s ability to learn and master more of these connections.

Since connections form the core of powerful new information systems—artificial neural networks—connectionism has gained widespread attention from business leaders and scientists alike. These networks, often referred to as neural networks, attempt to replicate a mode of operation closer to the human brain than traditional computers.

We can think of the brain as a neural network; artificial neural networks are computers designed to mimic the structure of the brain: they consist of hundreds of processing units (akin to neurons) interconnected in a complex network.

(Remarkably, neurons are several orders of magnitude slower than silicon chips, but the brain compensates for this lack of speed by leveraging numerous connections to improve efficiency.)

5. The Establishment of Latticework Thinking

The Santa Fe Institute in New Mexico integrates research and education, attracting physicists, biologists, mathematicians, computer scientists, psychologists, and economists to study complex adaptive systems.

These scientists strive to understand and predict the immune system, the central nervous system, ecology, economics, and stock markets, and they have a strong interest in innovative thinking.

(Editor's Note: Bill Miller's later conceptual shift toward maintaining an open attitude towards internet and technology stocks was also related to his visits to the Santa Fe Institute starting in 1992.

The Santa Fe Institute, which studies the science of complex systems, provided Bill Miller with different sources of information for investment research. After purchasing the blue-chip stock IBM in 1993, he mentioned, 'Technology will disrupt other industries, and failing to understand the associated risks could lead to erroneous investment decisions born out of ignorance.')

John H. Holland, a cross-disciplinary professor at the University of Michigan (in psychology, engineering, and computer science), was a regular at the Santa Fe Institute, where he delivered numerous lectures on innovative thinking.

According to Holland’s theory, innovative thinking requires us to master two critical steps.

Step 1 is understanding the basic framework through which we acquire knowledge; Step 2 is recognizing how to use analogies and their benefits.

You will find that Step 1 is identical to the first part of what Charlie Munger described as acquiring general wisdom. The ability to connect various mental models and benefit from them demonstrates that you have a fundamental understanding of each model within the lattice.

Blending mental models together without understanding how each operates and the phenomena it describes is entirely useless. Remember, while you do not need to become an expert in every model, you must still grasp the essential foundational knowledge of these models.

Step 2 is seeking analogies — which might initially seem strange, especially when recalling your ninth-grade English class. The simplest definition of an analogy is conveying meaning through unconventional, indirect methods.

When we say 'work is hell,' we are not expressing that we spend our days tormented by flames and shoveling ashes; rather, we mean that work was particularly exhausting today. Analogies can serve as concise, memorable, and vivid ways to express emotions.

Going further, analogies can be expressed not only through language but also through thoughts and actions.

However, Holland argues that analogy is more than just a vivid form of expression; it goes even deeper than the thought process it represents. It can also help us input ideas into models, which signifies innovative thinking.

By the same method, analogy can explain new concepts by comparing them with familiar ones, describe an idea through simple models to help us understand a similar complex concept, and even inspire new ideas.

According to the memorable series of reports in the magazine 'Frontiers,' James Burke wrote in 'Connections' that in many cases, inventors created new inventions by observing similarities between the desired outcome (target) and previous inventions (source). The automobile is a classic example.

The carburetor in automobiles is related to perfume bottles, which are connected to an Italian in the 18th century who wanted to harness steam. Alessandro Volta's electronic gun, originally invented to test air purity, was used 125 years later to ignite fuel in the carburetor.

Automobile gears originated from water wheels, while engine pistons and cylinders can be traced back to Thomas Newcomen's pump designed for draining coal mines.

It is evident that every major invention is linked to an earlier idea, representing a pattern that can stimulate original thoughts.

For us, the main subject we wish to understand (the target) is the stock market or the economy. Over the years, we have accumulated countless source models in finance to explain phenomena in the stock market and the economy, but these source models often fall short. The performance of markets and economies remains a mystery.

Now is the time to expand into different fields to study our understanding of the market. Exploring more areas increases the likelihood of uncovering common mechanisms that clarify the mystery. The innovative thinking we pursue often arises from the combination of two or more distinct mental models.

The lattice thinking model itself is an analogy, and a relatively simple one. Everyone knows what a lattice is, and many people have had close encounters with lattices. We use them to decorate fences, build pergolas, and create trellises for grapevines. Applying the lattice to organize a series of mental frameworks is merely a small extension of its uses.

Like many ideas that seem simple at first glance, the more we delve into the analogy of lattice theory, the more we realize its complexity, making it harder to view purely as a framework for mental models.

I myself have been using different analogies to articulate the concept of the lattice model.

When addressing those with a high-tech background, I often compare the process of creating a lattice model to designing a neural network. They quickly grasp the potential power that the lattice model might possess. Psychologists easily associate lattice theory with connectionist theories, while educators link it to the brain's ability to seek and discover new patterns.

For those who are adept at exploring human nature, I discuss the value of analogy in order to broaden our understanding of it. Other non-scientific individuals like myself typically respond strongly to descriptions involving small light bulbs within the lattice.

One afternoon, as I gazed at the garden fence, an idea struck me. The fence featured a decorative lattice divided into strips by poles, which further subdivided the lattice into blocks.

As I looked at the fence, I reflected on mental models and gradually began to realize: each lattice block resembles a field of knowledge; the one near the garage represents psychology, the next biology, and so on.

The link between two lattices can be viewed as the intersection between disciplines. Following this extraordinary reasoning process of the mind, I suddenly thought about the Christmas decorations outside the door, then imagined miniature bulbs at the nodes of the decoration.

If I urgently want to understand market trends or make an investment decision, I arrange uncertain factors using the lattice thinking approach.

First, I apply a biological mental model for prediction, where I might expect to see many bulbs lighting up. Then moving to the next section, such as psychology, more bulbs would light up. When I observe bulbs lighting up in the third and fourth sections, I gain confidence because my initially uncertain thoughts have now been validated.

Conversely, if while contemplating a problem I do not see any lit bulbs, I interpret it as evidence that the approach may not work.

This is the strength of the lattice thinking model—it is capable of far more than just solving minor issues like how to pick stocks. It allows you to comprehensively understand the forces driving the market—new industries and trends, emerging markets, cash flow, changes in international markets, economic conditions, and participants' reactions.

6. Munger: The joy of constructing a lattice thinking model will never cease.

Munger once gave a thought-provoking lecture at the University of Southern California, where he told finance students to view investment as part of general wisdom.

Two years later, at Stanford Law School, he introduced his fundamental idea for the first time: sustained success belongs to those who first construct a lattice thinking model and then apply holistic, diverse approaches to thinking.

He reminded them: this may require some effort, especially if you have already undergone professional training. Once these mental models are ingrained in your mind, you can respond rationally to various situations.

It is clear that Benjamin Franklin believed the same.

I believe that those willing to connect different thinking models are more likely to achieve extraordinary investment returns. When this happens, what Munger calls 'a particularly powerful force' will emerge.

This is not a case of one plus one equals two; it has the explosive power of critical mass—what Munger refers to as 'super powerful force.'

When answering questions from Stanford students about methods for developing thinking models, he said:

"General wisdom is very, very simple, with corresponding principles and profound insights. The process of seeking them out is enjoyable. Importantly, this enjoyment never ends. More importantly, we can derive significant wealth from it—I have personally tested it.

What I hope you do is not difficult, yet the rewards are substantial… Possessing this wisdom will greatly benefit your business, provide legal protection, give meaning to your life, and enhance your love… It empowers you to help others, help yourself, and make life full of delightful surprises."

Editor/Jayden