Munger Worldly Wisdom: Building a Trillion Dollar Business

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This is an

adaptation

from Munger’s July 20, 1996 informal talk,

Practical Thought about Practical Thought?

Charlie Munger,

“The title of my talk is “Practical Thought About Practical Thought?

with a question mark at the end.

”

Better methods of thought

In a long career, I have assimilated various ultra-simple general notions that I find helpful in solving problems.

Five of these helpful notions I will now describe. After that, I will present to you a problem of extreme scale.

Indeed, the problem will involve turning start-up capital of $2 million into $2 trillion, a sum large enough to represent a practical achievement. Then I will try to solve the problem, as sisted by my helpful general notions . Following that, I will suggest that there are important educational implications in my demonstration. I will so finish because my objective is educational, my game today being a search for better methods of thought.

Decide big “no

-

brainer” questions first.

The first helpful notion is that it is usually best to simplify problems b

y deciding big “no

-

brainer”

questions first.

Numerical fluency

The second helpful notion mimics Galileo’s conclusion that scientific reality is often revealed only by math as if math was the language of God. Galileo’

s attitude also works well in m essy, practical life. Without numerical fluency, in the part of life most of us inhabit, you are like a one- legged man in an ass-kicking contest.

Invert, always invert

The third helpful notion is that it is not enough to think problems through forward. You must also think in reverse, much like the rustic who wanted to know where he was going to die so that

he’d never go there. Indeed, many problems can’t be solved forward.

And that is why the great algebraist Carl Jacobi so often said,

“Invert, always invert.”

And why the Pythagoreans

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thought in reverse to prove that the square root of two was an irrational number.

Think in a multidisciplin ary manner

The fourth helpful notion is that the best and most practical wisdom is elementary academic wisdom. But there is one e xtremely important qualification: You must think in a mu ltidisciplinary manner. You must routinely use all the easy-to-learn concepts from the freshman course in every basic subject. Where elementary ideas will serve, your problem solving must not be limited, as academia and many b usiness bureaucracies are limited, by extreme balkanization

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Pythagoras (582-496 BC), an Ionian (Greek) m athematicia

n and philosopher known as “the father of numbers,” is often credited

with the discovery of irrational numbers. More likely though, t he credit belongs to one or more of his followers, the Pythagoreans, who produced a proof of the irrationality of the square root of t wo. But Pythagoras, believing that numbers were absolute, rejected irrational numbers and is said to have sentenced their leading proponent to death by drowning for his heresy. Generally, an i rrational number is any real number that cannot be wri

tten as a fraction “a/b,” with “a” and “b” integers, and “b” not zero. For a number to be