Charlie Munger at Michigan Ross (2017)
Charlie Munger's conversation at University of Michigan Ross School of Business on mental models, multidisciplinary thinking, and the value of legal training.
Charlie Munger at Michigan Ross (2017)
Date: 2017 Event: University of Michigan Ross School of Business Source: University of Michigan recording
Overview
Charlie Munger joined the University of Michigan Ross School of Business for a conversation about his approach to thinking, decision-making, and investing. The session focused on his "latticework of mental models" approach and how legal training shaped his thinking.
Key Themes
The Latticework of Mental Models
Munger is famous for advocating a multidisciplinary approach to investing:
"You have to have a variety of models because if you only have one or two, you'll distort reality to fit those models."
The key models he uses include:
- Psychology — Understanding why people behave irrationally
- Economics — Understanding incentives and market structures
- Accounting — Understanding how businesses work
- History — Understanding cycles and human behavior patterns
Value of Legal Training
Munger credits his law background with teaching him:
- Incentive thinking — How people respond to incentives
- Rule of reciprocity — Social obligations and their power
- Importance of epistemology — Knowing what you know and don't know
"The law teaches you that how you structure a deal determines who gets what. Structure matters enormously."
On Investment Decision-Making
Munger shared his process:
"Before I make any investment, I ask myself: What is the downside? And is the upside worth it?"
This asymmetric risk thinking is central to his margin-of-safety approach.
On Berkshire Partnership with Buffett
Munger described how their partnership evolved:
"What happened was, I had a small amount of capital and I was working with Warren. And we found that we could make more money together than separately. And it just grew from there."
The key to their 50+ year partnership: They never tried to steal from each other or compete in ways that would undermine the other.
The Costco Story
Munger reiterated his admiration for Costco:
"Costco is the most wonderful business in the world. I go in there and I buy everything I can. It's the most ethical retailer on Earth."
He emphasized Costco's ethical culture and pricing discipline as the core of its moat.
Famous Quotes
"You need to have a variety of models because if you only have one or two, you'll distort reality to fit those models."
"The best way to get what you want is to deserve what you want."
Related
- charlie-munger — The speaker
- warren-buffett — Partnership that shaped value investing
- mental-models — The concept Munger pioneered
- margin-of-safety — His risk framework
- costco — His favorite investment