Charlie Munger once said: “People calculate too much and think too...
Kintsugi Investing@kintsugiinvest
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Feb 12, 2025
~2 min read
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Charlie Munger once said:
“People calculate too much and think too little.”
Most investors obsess over numbers.
(PE ratios, margins, earnings growth)
But the best investors think differently.
Here’s how top investors use mental models to win: 🧵
“People calculate too much and think too little.”
Most investors obsess over numbers.
(PE ratios, margins, earnings growth)
But the best investors think differently.
Here’s how top investors use mental models to win: 🧵
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1) First Principles Thinking
Google’s Waymo built fully autonomous vehicles from scratch instead of improving driver-assist tech like Tesla.
Result: 20M+ driverless miles—leading the race for true self-driving.
Disruptors rethink industries, not just improve them.
Google’s Waymo built fully autonomous vehicles from scratch instead of improving driver-assist tech like Tesla.
Result: 20M+ driverless miles—leading the race for true self-driving.
Disruptors rethink industries, not just improve them.
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2) Inversion: Solve Problems Backward
Munger: “Tell me where I’m going to die, so I never go there.”
Instead of chasing gains, avoid major losses.
• Don’t overpay
• Don’t buy hype
• Don’t ignore risks
Avoiding mistakes matters more than picking winners.
Munger: “Tell me where I’m going to die, so I never go there.”
Instead of chasing gains, avoid major losses.
• Don’t overpay
• Don’t buy hype
• Don’t ignore risks
Avoiding mistakes matters more than picking winners.
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3) Power Law: Asymmetric Bets Drive Returns
A few stocks - $NVDA, $META, $GOOGL, drive most market gains.
Most others underperform.
• Hold asymmetric bets for outsized returns.
• Use stable bets to smooth volatility.
Balance conviction with resilience.
A few stocks - $NVDA, $META, $GOOGL, drive most market gains.
Most others underperform.
• Hold asymmetric bets for outsized returns.
• Use stable bets to smooth volatility.
Balance conviction with resilience.
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4) Second-Order Thinking
AWS started as an internal tool. Instead of just improving infrastructure, Amazon built the world’s largest cloud business.
Result: $90B+ revenue, funding Amazon’s empire.
The best investments compound beyond their original purpose.
AWS started as an internal tool. Instead of just improving infrastructure, Amazon built the world’s largest cloud business.
Result: $90B+ revenue, funding Amazon’s empire.
The best investments compound beyond their original purpose.
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5) Circle of Competence
Buffett avoided tech for decades—until he understood Apple.
Invest only in what you deeply understand.
If you can’t explain how it makes money or its risks, don’t buy it.
Buffett avoided tech for decades—until he understood Apple.
Invest only in what you deeply understand.
If you can’t explain how it makes money or its risks, don’t buy it.
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6) Lollapalooza Effect
Costco thrives because multiple advantages stack up:
• Bulk buying → Low prices
• Memberships → Recurring revenue
• Customer loyalty → Stable demand
Compounding tailwinds create unstoppable businesses.
Costco thrives because multiple advantages stack up:
• Bulk buying → Low prices
• Memberships → Recurring revenue
• Customer loyalty → Stable demand
Compounding tailwinds create unstoppable businesses.
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7) Lindy Effect: What Lasts, Keeps Lasting
If a business has survived 50 years, it will likely survive 50 more.
Coca-Cola, P&G, Johnson & Johnson are Lindy businesses - they’ve proven resilience.
Safer long-term bets come from companies with decades of dominance.
If a business has survived 50 years, it will likely survive 50 more.
Coca-Cola, P&G, Johnson & Johnson are Lindy businesses - they’ve proven resilience.
Safer long-term bets come from companies with decades of dominance.
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8) Never Confuse Luck with Skill
In bull markets, everyone looks like a genius.
Munger’s rule: “When the tide goes out, you see who’s been swimming naked.”
Test yourself: Can your investing strategy survive a 50% crash? If not, it’s not a real strategy, it’s luck.
In bull markets, everyone looks like a genius.
Munger’s rule: “When the tide goes out, you see who’s been swimming naked.”
Test yourself: Can your investing strategy survive a 50% crash? If not, it’s not a real strategy, it’s luck.
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The best investors don’t just analyze numbers, they think differently.
Mental models drive long-term success:
1) First Principles
2) Inversion
3) Power Law
4) Second-Order Thinking
5) Circle of Competence
6) Lollapalooza Effect
7) Lindy Effect
8) Separate Luck from Skill
Mental models drive long-term success:
1) First Principles
2) Inversion
3) Power Law
4) Second-Order Thinking
5) Circle of Competence
6) Lollapalooza Effect
7) Lindy Effect
8) Separate Luck from Skill
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We're Zee and @thehowietan:
• Financially free investors
• Co-founders of Kintsugi Investing
• Helping you build & repair your portfolio
Follow @kintsugiinvest for our insights.
Like & Repost to empower others in their financial journey.
• Financially free investors
• Co-founders of Kintsugi Investing
• Helping you build & repair your portfolio
Follow @kintsugiinvest for our insights.
Like & Repost to empower others in their financial journey.
Kintsugi Investing@kintsugiinvest
Charlie Munger once said:
“People calculate too much and think too little.”
Most investors obsess over numbers.
(PE ratios, margins, earnings growth)
But the best investors think differently.
Here’s how top investors use mental models to win: 🧵
“People calculate too much and think too little.”
Most investors obsess over numbers.
(PE ratios, margins, earnings growth)
But the best investors think differently.
Here’s how top investors use mental models to win: 🧵
12
@thehowietan Inversion works beyond investing.
• Want to stay fit?
Ask: ‘How do I get out of shape?’
• Want better investments?
Ask: ‘How do I lose money fast?’
Drop your best inversion examples 👇
• Want to stay fit?
Ask: ‘How do I get out of shape?’
• Want better investments?
Ask: ‘How do I lose money fast?’
Drop your best inversion examples 👇