Charlie Munger built one of the sharpest minds in business. His mental models are the greatest thinking tools you were never taught. Here’s how he used them to make better decisions, avoid disasters, and make billions. 🧵

What are mental models? They’re frameworks for how the world works, from biology to psychology to economics. “You must have the models and arrange them in a latticework in your head.” The more you have, the better you think.

Why use them? “If you don’t get elementary worldly wisdom into your system, you will go through life like a one-legged man in an ass-kicking contest.” Most mistakes come from poor thinking, not poor data. Mental models will be your protection.

1/ Inversion Don’t ask: “How do I succeed?” Ask: “How do I avoid failure?” “All I want to know is where I’m going to die, so I’ll never go there.” Avoiding stupidity is often the smartest move.

2/ Opportunity Cost Every decision has a hidden cost – the next-best thing you gave up. “Smart people make opportunity cost calculations every day.” If you don’t weigh alternatives, you’re not deciding. You’re guessing.

3/ Second-Order Thinking First-order: What happens now? Second-order: What happens next? “Understanding consequences isn't easy. Anyone who finds it easy is stupid.” Always ask: “And then what?”

4/ Circle of Competence Know what you know, and stay in that lane. “It’s not a competency if you don’t know the edge of it.” Most risk comes from acting outside your circle.

5/ Margin of Safety Borrowed from engineering, Munger applied it to life and investing. “It means always building a bridge 30% stronger than the weight you think it will have to bear.” Survival > optimization.

6/ Incentives “Never, ever, think about something else when you should be thinking about the power of incentives.” People don’t do what’s logical. They do what they’re rewarded for. Design systems with that in mind.

7/ Mr. Market Imagine the market as a manic partner, excited one day, depressed the next. “The market is there to serve you, not to guide you.” Use its emotions to your advantage. Don’t follow its mood swings.

8/ Probabilistic Thinking Life is full of uncertainty. Train your mind to think in odds. “You’re looking for likelihoods, not certainties.” Base your decisions on expected value, not emotions.

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