Tl;dr Kaliedoscope thinking is how to think faster and more clearly. It is an increasingly important career skill and anyone can learn to do it by following a couple simple guidelines.
Every year in late April or early May, Charlie Munger walks onto a stage in a large basketball stadium in Nebraska. He looks out at the crowd, usually around 40,000 people, gathered for the The Berkshire Hathaway Annual Shareholders meeting, the so-called “woodstock of capitalism.”
For a full day, Charlie sits on a stage, eats peanut brittle, and drinks cherry coke.
When he does speak, his most frequent comment is, “I have nothing to add.”
Charlie has been Warren Buffett’s silent partner in Berkshire Hathaway for over 40 years. Though much less well-known to a general audience, among professional investors he is probably the most deeply studied and respected investor alive.
Not just among value investors either; venture capitalists like Marc Andreessen have said Charlie is the best investor that anyone could study.
Charlie is impressive because he seems to have developed a knack for how to think faster and more clearly than almost anyone else. The “secret” according to Charlie is elementary, worldly wisdom.
Here’s Charlie on how to think faster and more clearly by developing elementary, worldly wisdom:
Well, the first rule is that you can’t really know anything if you just remember isolated facts and try and bang ’em back. If the facts don’t hang together on a latticework of theory, you don’t have them in a usable form.
You’ve got to have models in your head. And you’ve got to array your experience — both vicarious and direct — on this latticework of models. You may have noticed students who just try to remember and pound back what is remembered. Well, they fail in school and in life. You’ve got to hang experience on a latticework of models in your head.”
The essential element which Charlie comes back to over and over in this speech, and in other speeches, is latticework.
Many people run into trouble because they only know a few isolated facts and they try to use that fact to solve everything.
They have a hammer and they treat every problem as though it were a nail.
During The Second World War, the U.S. and Japanese armed forces used to fly in large resource packages of food and other cargo onto small islands in the Pacific that had previously never encountered more developed nations. Some of the cargo — manufactured clothing, medicine, canned food, and tents — was shared with native inhabitants of the islands.
When the war ended, the military forces left and the food drops stopped.
The island’s native inhabitants, wanting the food deliveries to resume, built ornate airports and straw planes. They formed cults which worshipped nonspecific Americans having the name “John Frum” or “Tom Navy,” who they identified as the spiritual entity that would bring cargo to them again in the near future.
This seems irrational to us, but only because we have other models to explain how that cargo showed up.
Without consciously calling them to mind, we understand the basic ways that things work in order to make the cargo show up, things like supply chains, aerodynamics, and propulsion.
Cargo doesn’t just fall out of the sky — there’s a whole infrastructure of farming, mining, refining, manufacturing, and transportation.
If the only model you have for receiving cargo is that when a ground crew made up of guys with names like John Frum and Tom Navy wave their sticks and a plane on the runway has supplies, then it is a very rational decision to build straw planes and imitate what you saw happening.
After similar monuments and rituals were discovered on a handful of islands, the phenomenon came to be called cargo culting.
Cargo culting is exactly what Munger meant when he said, “You can’t really know anything if you just remember isolated facts and try and bang ’em back. If the facts don’t hang together on a latticework of theory, you don’t have them in a usable form.”
Because the inhabitants lacked the latticework of understanding around how cargo appeared on the islands, the isolated facts they had about what an airplane looked like or what sailors were named wasn’t usable.
But cargo culting doesn’t just happen on isolated Pacific islands — it’s all around us.
Richard Feynman characterized much of what passes as science as cargo cult science. It has the trappings of real science, including publication in scientific journals, but lacks any basis in honest experimentation.
The term cargo cult programming describes software that contains elements which have been successfully used elsewhere, but are completely unnecessary for the task at hand. A cargo cult programmer looks at the code used in some successful application and copies it to his own application, believing that the presence of the code will make his application successful.
Cargo cult entrepreneurs copy the tactics used by another successful startup or business without understanding where it fits in the latticework.
To avoid falling into the trap of cargo culting, you must develop a latticework and you need to get comfortable using it.
How to Think Faster and More Clearly
Here’s Charlie explaining what it’s like to have an effective latticework:
“So you have to learn in a very usable way this very elementary math and use it routinely in life — just the way if you want to become a golfer, you can’t use the natural swing that broad evolution gave you. You have to learn — to have a certain grip and swing in a different way to realize your full potential as a golfer.”
There are two essential components to forming an effective latticework that lets you think faster and more clearly:
- You need to have multiple mental models and you need to have them from a wide range of disciplines.
If you have them all from a very narrow discipline, you end up being at best useless and at worst dangerous. It’s like having ten different sized hammers and thinking that you have a diverse range of tools.
- You need to learn to use these in a very routine way.
They need to become second nature in the same way you didn’t have to think about the nature of supply chains to know that building straw planes wouldn’t make cargo show up, or a professional golfer doesn’t have to think about swinging a golf club.
It’s having this latticework that allows Charlie and Warren to outthink other investors.
The way you build and use this latticework is not difficult, it just takes a lot of work.
The first step is to to learn a lot of different mental models, different ways of looking at the world and solving problems.
Supply chains, propulsion and aerodynamics are some of the models helpful for understanding why cargo might show up on a pacific island.
However, if you want to think faster and more clearly than others, you can’t just use the same mental models they have.
You’ll need to read a lot, from a wide variety of disciplines, and apply what you learn to your thinking.
The trouble people run into is that they think they have a latticework-level understanding when they are really just cargo culting.
The natives didn’t think they were cargo culting — they thought they were making a rational plan to get the supplies to come back.
The investors putting all their money in tech stocks in 1999 thought they were making a smart investment. It was only in retrospect that they realized they were cargo culting. They didn’t understand investment cycles, or diversification or risk. They were just mimicking others.
So how do you know if you really have a latticework level understanding?
You can imagine a latticework like the prism of a kaleidoscope.
When I was young, my parents used to have a kaleidoscope that sat in our living room. I would point it out the window and slowly turn the kaleidoscope around. Each time I turned it, the image in the kaleidoscope changed.
Was the scene outside my window changing? No, but the beads that formed the prism I was looking through were shifting around.
The beads in the kaleidoscope represent a sort of latticework. If you only have one bead in your kaleidoscope, everything looks the same. But as you add more and more beads, the image changes more with each turn. You can look at the same object or situation and see it in many different ways.
When Buffett and Munger are consider investing in a company, they are slowly turning their kaleidoscopes, seeing many different images, angles, opportunities, or dangers.
Because they can think about it from many different perspectives, they don’t immediately jump to the conclusion that one particular image is “right” or “true.” They keep turning the kaleidoscope, looking to see what they might have missed on the last turn.
The result is powerful. They can look at the same reality everyone else is looking at but see something different. They can identify opportunities and avoid dangers that others miss.
How do you know when you have a real latticework-level understanding?
Charlie summed it up this way:
“In order to disagree with somebody you must first understand their argument better than they do.”
Kaleidoscope Thinking is the Last Remaining Advantage
As Buffett and Munger have shown, Kaleidoscope thinking was a huge advantage in the 20th century business world.
I believe it will be even more important in the 21st century.
Historically, power was largely about controlling access to information.
In the last two decades, the internet has democratized access to information: your Google search results show me the same thing as a CEO of a billion dollar corporation or world leader.
Credentials are devaluing. MIT, Stanford, and Harvard now share many of their classes online for free.
The emergence of cryptocurrency seems poised to take this even farther.
Traditionally, investing is fundamentally based on access. Venture capitalists and other accredited investors get access before Joe Public.
Cryptocurrency is removing the access advantage.
With cryptocurrency ICOs (initial coin offerings), Joe Public gets access the same day as the big investors.
That means deal flow, who you know, is less important than kaleidoscope thinking, being able to look at the same reality as everyone else and see something different.
The only way to remain relevant and competitive is to take Charlie’s advice.
- Build yourself a lattice work of mental models from a wide variety of disciplines.
- Learn to use them in a routine way, turning them around in your kaleidoscope.
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