This post looks at the mental models of the late renowned investor, Charlie Munger. It describes those mental models using Charlie’s ‘checklist’, where his values intersected with his action steps. Finally, the post applies these same steps to strategy and project management, identifying similarities and differences, all to stimulate thinking as a strategic project manager.
Charlie Munger Mental Models: An Approach to Investing…and Life
Charlie Munger, the “quiet” partner if Warren Buffett at Berkshire Hathaway, has passed – albeit leaving a trail of wisdom behind him. He would have turned 100 on New Years Day, 2024.
Charlie’s fundamental philosophy – for both investing and life – has been summed up in some basic guiding principles related to:
I will go into detail on these and a few more related areas in the next section.
But before going there, there are a few things that have stood out to me in trying to learn something from him. One that stands out is his emphasis and reliance on mental models – that is, frameworks that he has derived from various schools of thought. As a young man, Charlie was enamored by science, and even went on to major in mathematics. But his approach was very much multi-disciplinary. consider the following:
- In his book, “Poor Charlie’s Almanac: The Essential Wit and Wisdom of Charlie Munger”, the author emphasizes Charlie’s approach of “thinking across disciplines” and asserts that his book is “about more than investing…that it’s a guide to learning how think for yourself to understand the world around you.”
- Charlie evaluated business using simple and consistent frameworks for analyzing the complex.
- Virtues – such as thrift, hard work, ad simplicity – were foundational to being able to use the frameworks effectively.
- Telling stories is an effective way to communicate complex and detailed information.
- He advocated that anyone who wat to be successful should study Physics because its concepts and formulas so beautifully demonstrate the powers of sound theory.
With that as a backdrop, let’s dig a little deeper into the details of Charlies values and how they dovetail with action stops that for a beautiful template for investing – and life. The post will then look at how this applies to strategy and project management.
Where Values Intersect with Action Steps
Here’s the list of Charlie’s values – an investing principles checklist – and where they apply in analyzing investments:
- Risk – Key risk considerations include: incorporating margin of safety, avoiding people with questionable character, sufficient compensation for risk, wariness of inflation and interest rate concerns, and avoid big potential risks altogether.
- Independence – Objectivity and rationality are required, favor the quality of your analysis and judgment over opinions of others, avoid the movements of the herd because it only bring average performance from regression to the man.
- Preparation – Become smarter and wiser each day, apply strong will to preparation efforts, maintain agile rigor with models from multiple disciplines, and keep asking “Why?” until satisfied.
- Intellectual humility – Recognize your core competency and stay within it, identify and reconcile contra-evidence, recognize the limits of precision and certainty, and be honest with yourself.
- Analytic rigor – Avoid proxies such as size and price from value, keep things simple and avoid over-complexity, analyze the business before you over macro factors, think about risk factors are multiple levels, and walk through your analysis forward and backward.
- Allocation – Always compare use of capital across alternatives, become adept at identifying the rare gem and then allocate heavily, and avoid emotional attachment to an investment.
- Patience – A bias to action can work against you in investments, look for and apply compound interest, recognize and welcome luck when it comes, and enjoy the process.
- Decisiveness – Recognize greed and fear and base decisions on independent thought, seize opportunities when they arise, and be prepared or when opportunities arise.
- Change – Accept nature and adapt, challenge and amend your ideas as necessary, and accept reality even when unpalatable.
- Focus – Maintain your perspective and remember your objectives, protect your reputation and integrity, don’t become overconfident or complacent, don’t miss the obvious, and acknowledge problems as they arise.
Now, with this little bit of background in the business investing checklist of Charlie Munger, lets think about how this same checklist might apply in strategy.
Strategy Impacts of Charlie Munger’s Approach
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- Risk – It is clearly important to understand the probability of elements of a strategy going right or wrong. Identifying key strategic elements, and assessing the probability and impact is helpful, just like in project management.
- Independence – Separating emotion from independent though is a requirement. This is a rational game, and while it is important to be empathetic and consider human emotions, it much be done in an rational, unemotional way.
- Preparation – Performing thorough research to identify all important facts is a foundational requirement. Preparation is required in order to “know the way”.
- Intellectual humility – The smartest intellectual does not necessarily win. Big egos can be a major stumbling block. Instead, and open minded approach leveraging a diversity of viewpoints is usually the best approach to finding the identifying a good strategy.
- Analytic rigor – Laziness is the enemy. The willingness to show stamina in analysis, and not be satisfied until the analysis is clear and complete, is the only way.
- Allocation – It is critical to exercise good judgment on where to spend analysis time. In the end, the analysis will help determine where resources are allocated in the big picture. An 80:20 understanding of the most important factors is critical.
- Patience – Just as in investing, devising strategy is not a quick ‘do the task’ proposition. Progress comes in supports and is not linear. Understanding this can provide some patience to pursue those moments of insight that come from consistent and deep work.
- Decisiveness – When you find the solution, act on it! This is not an intellectual exercise. It’s practical, and the true value is, when you have arrived at a clear point of understanding, in taking action.
- Change – Strategy, like most other things, is not a ‘one and done’ thing. Monitoring is required to identify changes in conditions that might change the conclusions – and require a change in direction. Identify the key factors to monitor, and set up alerts that make it easier and more deliberate.
- Focus – As with investing, remember what you are after. It can be easy to get off track. Set the parameters for your study and stick to them.
One of the most impactful strategic concepts that Charlie talks about in investment analysis is that of the moat. A moat indicates a protected strategic advantage – one that is hard to competitors to overcome. This is most ideal for company strategies – and as investment criteria.
Let’s move on to this same analysis from a PM perspective.
PM Impacts of Charlie Munger’s Approach
Charlie’s approach is based on common sense. My first thoughts when I think about project management are that you need to pay attention to three big items:
- Good People – You cannot get anywhere without talented people with the desire and will to do the task at hand.
- Risk Management – This is emphasized commonly across investing, strategy, and project management. Managing risks is fundamental.
- Control Processes – This is about setting up systems. In project management, it amounts to systems that will get you successfully through the project to the realize project objectives.
Let’s turn to Charlie Munger’s checklist – applied to project management.
- Risk – Identifying risks and assessing probabilities and impacts is common practice – or should be – in managing projects. The difference can be in the scope of the risks.
- Independence – Project managers, like investors and strategists, need to exercise independent of thought. This will allow unemotional and rational decision making and managing.
- Preparation – The discipline of project management is all about ensuring that all aspects of the project have been considered. Templates provide an effective aid, focing’ you to think through each critical consideration across all areas of the project.
- Intellectual humility – Bringing in the team – and a diversity of viewpoints – is the ultimate exercise in humility. It is simply a wise practice.
- Analytic rigor – A willingness to be rigorous, and an understanding of what to emphasize, is important. Again, templates add some discipline to the process; they make it easier to add analytic rigor.
- Allocation – Where do you put resources, and when. This is fundamental to project management. Sequencing activities to produce results at the right time, and to set up for ultimate success, is all about allocating the right things at the right time.
- Patience – As with investing and strategy, progress is not linear. There can be periods of consistent work with little major progress showing. That makes the monitoring process all the more valuable. How can you add value by showing, through clear metrics, that progress is being made through these long periods of work toward ultimate success?
- Decisiveness – There are many decisions to be made on projects. It is different than investing in that area – where investing may involve mostly analysis, but decisive actions only occasionally. Project management is an active game of continuous decision making. Application of 80:20 is critical.
- Change – In project management, practicing agility is the key to acknowledging change. IT is a matter of planning enough – but not too much – up front, to account for the possibility of change. All project ultimately are hybrid – a combination of waterfall and agile. Account for the possibility of change.
- Focus – In project management, focus relates closely to keeping the scope of the project in mind. Maintain a focus on the objectives, and avoid straying outside of scope.
Checklists are common to project managers! To think more strategically, and to incorporate more strategic thinking into the project, Charlie Munger’s investment checklist can help fill some gaps.
Conclusion and Further Resources
This post looked at the mental models of the late renowned investor, Charlie Munger. It described those mental models using Charlie’s ‘checklist’, where his values intersected with his action steps. Finally, the post applies these same steps to strategy and project management, identifying similarities and differences, all to stimulate thinking as a strategic project manager.