The Mental Model of Compound Interest

This article on Compound Interest continues my quest to list out the Top 100 Mental Models Needed to Succeed in Business, inspired by Charlie Munger.

Munger calls compound interest “one of the most important models there is on Earth.”

It arises when interest is added to the principal.

If you don’t know how to use compound interest on a calculator,  there are a couple of excellent online compound interest tables/calculators that do all the work for you here:

• The Calculator Site
• GiniFab Compound Interest
• NCalculators Compound Interest Calculator

For example, …

No comments yet | Continue Reading »

The Mental Model of “Inversion” in Business

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. …

1 comment so far | Continue Reading »