Investing by Robert Hagstrom

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A Latticework of Mental Models

In April 1994, at the Marshall School of Business of the University of 
Southern California (USC), students in Dr. Guilford Babcock’s Student 
Investment Seminar got a rare treat: a powerful dose of real- world 
knowledge from a man whose thoughts on money are widely considered 
priceless.
Charles Munger— Charlie, as he is known throughout the investment 
world— is vice chairman of Berkshire Hathaway, the holding company run 
by Warren Buff ett, the world’s most famous investor. Trained originally as 
an attorney, Charlie is Buff ett’s business partner, friend, and straight man. 
He commands attention whenever he speaks.
Charlie Munger is an intellectual jewel somewhat hidden behind his 
more celebrated partner. Th e anonymity is not Buff ett’s fault. Charlie simply prefers the lower profi le. Except for his occasional appearances such as 
the one at USC and his prominent role at Berkshire Hathaway’s annual 
meetings, Charlie remains largely out of public view. Even at those annual 
meetings, he deliberately keeps his remarks brief, allowing Buff ett to answer most of the questions from shareholders. But occasionally Charlie 
does have something to add, and when he speaks, the shareholders straighten 
and shift forward to the edge of their seats, straining to get a better view, to 
catch every word.

In Dr. Babcock’s classroom that day in April, the atmosphere was 
much the same. Th e students knew whom they were listening to, and they 
knew they were about to receive the benefi t of considerable investment 
expertise. What they got instead was something infi nitely more valuable.
At the outset, Charlie mischievously admitted that he was about to 
play something of a trick on his audience. Rather than discussing the stock 
market, he intended to talk about “stock picking as a subdivision of the art 
of worldly wisdom.”1
 For the next hour and a half, he challenged the students to broaden their vision of the market, of fi nance, and of economics 
in general and to see them not as separate disciplines but as part of a larger 
body of knowledge, one that also incorporates physics, biology, social 
studies, psychology, philosophy, literature, and mathematics.
In this broader view, he suggested, each discipline entwines with, and 
in the pro cess strengthens, every other. From each discipline the thoughtful person draws signifi cant mental models, the key ideas that combine to 
produce cohesive understanding. Th ose who cultivate this broad view are 
well on their way to achieving worldly wisdom, that solid mental foundation without which success in the market— or anywhere else— is merely a 
short- lived fl uke.
To drive his point home, Charlie used a memorable meta phor to describe this interlocking structure of ideas: a latticework of models. “You’ve 
got to have models in your head,” he explained, “and you’ve got to array 
your experiences— both vicarious and direct— on this latticework of models.” So immediate is this visual image that “latticework” has become 
something of a shorthand term in the investment world, a quick and easily 
recognized reference to Charlie’s approach.
It is a theme he returns to oft en. At the Berkshire Hathaway annual 
meetings, for instance, he frequently adds to Buff ett’s answers by quoting 
from a book he has recently read. Oft en the quote at fi rst appears to have 
no direct link to investing, but with Charlie’s explanation it quickly becomes relevant. It is not that Buff ett’s answers are incomplete. Far from it. 
It is just that when Charlie is able to connect Buff ett’s ideas to similar ideas 
in other disciplines, it tends to elevate the levels of understanding among 
the group.
Charlie’s attention to other disciplines is purposeful. He operates in 
the fi rm belief that uniting the mental models from separate disciplines to 
create a latticework of understanding is a powerful way to achieve superior 
investment results. Investment decisions are more likely to be correct 
when ideas from other disciplines lead to the same conclusions. Th at is the

Investing by Robert Hagstrom