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Saturday, July 6th, 2013

The Mental Model of “Inversion” in Business

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You know the story of the man who wanted to know where he was going to die, so he could make sure not to go there?

That’s a favorite story of Charlie Munger’s to explain the concept of inversion.

Munger credits mathematician Carl Jacobi (who famously said: “Invert, always invert”) who recommended working through math problems in reverse.

As A Margin of Safety wrote in Invert, Always Invert, an example of inversion (working through a problem backwards) came from University of Florida professor Jay Ritter who looked at the problem of whether to invest in Facebook around the time of its IPO.

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Sunday, March 17th, 2013

The Mental Model of AutoCatalysis (aka “Evergreen” or “Self-Breeding”) in Business

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I first heard of AutoCatalysis being used as a business tool from reading Charlie Munger.

AutoCatalysis originates in chemistry, a subject I did poorly in in high school, so I’ll give this definition from The Focus Investing Series Part 3: The Munger Network of Mental Models:

“In the autocatalysis process, properties, events or products serve as their own catalysts and are “self-breeding. For example the self-stimulated increase in the demand for air conditioning, hence the self-stimulated increase in the demand for air conditioners.”

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Sunday, March 17th, 2013

The Mental Model of Attribution Theory (aka “Cause Theory”) in Business

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Attribution Theory could easily be called “Cause Theory” or “Explanation Theory” because it centers around the cause or explanation of why something happens.

This is critical to understand in business.

Let’s say, for example, your Web designer builds a new home page and it is considered by users to be awesome — if they attribute it to their own brilliance then that’s internal attribution.

If, on the other hand, the designer’s new Web page is criticized as shoddy and the designer attributes the fault to having too little time to do a good job, then that’s external attribution.

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Thursday, May 12th, 2011

The Top 100 Mental Models Needed To Succeed In Business

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Charlie Munger refers to a “latticework of about 100 mental models” that he and Warren Buffett credit for their successful investing. Munger points out that if you don’t master the “multidisciplinary” approach of such “mental constructs”, you will remain in the “middle ranks” or “shallows” in life.

I’m fascinated by these models, and their application to business (not just investing) and life, and decided to keep a list of ones I run across (some are related to Munger and others I’ve learned about elsewhere (but believe Munger might appreciate)).

Warren Buffett's Right-Hand Man Charlie Munger

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