More Than You Know: Building on Charlie Munger's Intellectual Legacy

An eminent investor and writer takes up the cause of cross-boundary thinking, for better investment decisions

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Dec 09, 2019
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Charlie Munger (Trades, Portfolio), the vice chairman of Berkshire Hathaway (BRK.A, Financial)(BRK.B, Financial) and Warren Buffett (Trades, Portfolio)’s longtime associate, is one of the world’s great investors. Behind Munger’s success is a multidisciplinary approach to not just investing, but all of life. Using what he calls a “latticework of mental models” helps him make better decisions about investments.

In his footsteps comes Michael Mauboussin, who has written a book that further explores the value of stretching beyond specialization. He explained, “More Than You Know’s core premise is simple to explain but devilishly difficult to live: you will be a better investor, executive, parent, friend—person—if you approach problems from a multidisciplinary perspective.”

The full title of his book is “More Than You Know: Finding Financial Wisdom in Unconventional Places” (updated version of 2013). According to the biography on his website, Mauboussin is a Wall Street investment strategist, an author and was a professor of finance at Columbia Business School. Currently, he is director of research at BlueMountain Capital Management; previously he had been head of global financial strategies at Credit Suisse (CS, Financial) and chief investment strategist at Legg Mason Capital Management.

He began by noting that most of us end up in silos thanks to specialization: “Most occupations encourage a degree of specialization, and some vocations, like academia, insist on it. And there are the time constraints.” As a result, few of us have enough time to read about new ideas, think about them—and play with them.

Diversity, of course, is another form of multidisciplinary thinking. Mauboussin cited the work of social scientist Scott Page, who explained the logic of diversity and how it was essential in solving certain types of problems.

The author also reported on experiments by psychologist Phil Tetlock. In one study, Tetlock asked hundreds of experts to make thousands of predictions about economic and political events over 15 years. All in all, the experts were poor prognosticators; “deeply unimpressive” in Mauboussin’s words.

There was another important piece of knowledge that came out of the research, and reported in Tetlock's book “Expert Political Judgment.” He found that experts who were intellectual jacks-of-all-trades, who know a little about a lot of things, were more accurate than experts who specialized in one big thing (and knew little or nothing about a lot of other things). In other words, the diverse thinkers were better at predicting than the experts in just one field.

Mauboussin’s two most influential sources of inspiration were Munger and the Santa Fe Institute. Munger saw a mental model as a framework within which you might understand a problem at hand. But one model was not enough for him, you had to have several of them, from fields as diverse as the physical sciences and the social sciences. And, you would want to integrate or combine those models in ways that would create a latticework. One of Munger’s goals was to create a model that fit the problem, rather than trying make reality fit the model.

Developing mental models demands certain character traits, but as the author pointed out, they are traits you can choose: intellectual curiosity, integrity, patience and self-criticism. Still, it’s not easy. He wrote:

“A mental-models approach does not come without a cost, though. You need to spend substantial time and effort learning about various disciplines. Without a doubt, too, your learning may not be useful right away (in fact, it may never be useful). The good news is there are typically only a few big ideas in each discipline that you’ll need to master.”

Turning to his other source of inspiration, Mauboussin wrote, “The Santa Fe Institute sprung from a group of like-minded scientists who decided the world needed a new kind of academic institution.” The founders believed that while professors spent a lot of time with colleagues in their area, they rarely worked across disciplinary boundaries.

The Santa Fe Institute’s founders thus created an organization that would look beyond individual specialties and emphasize cross-disciplinary work. What pulls it all together is the unifying theme of complex systems. Examples of this type of study include human consciousness, the immune system and the economy.

For Mauboussin, the stock market was a complex adaptive system. He wrote, “Embracing this mental model compelled me to revisit and question almost everything I learned in finance: agent rationality, bell-shaped price-change distributions, and notions of risk and reward. I believe the complex-adaptive-systems framework is not only a much more intuitive way to understand markets but also more consonant with the empirical record.”

The institute has caught his attention on other subjects as well, from ant colonies to feedback mechanisms. And, he makes no secret of his admiration for it. “The best way to describe how I feel following an SFI symposium is intellectually intoxicated,” he said.

Conclusion

One of the eminent financial thinkers of our time, Mauboussin has set out to give us a different look at stocks and the stock market.

In the introduction, he has shown what drives his approach: multi-disciplinary or cross-disciplinary study. In other words, he wants more than just a financial or psychological look at what happens in markets. He wants big ideas from various disciplines all working together.

It’s a framework within which Munger has worked for many years, and Mauboussin would find few better mentors. More recently, the Santa Fe Institute has joined the cause and also provides an arsenal of ideas for the author.

Disclosure: I do not own shares in any company listed, and do not expect to buy any in the next 72 hours.

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