What’s A Mental Model?
A mental model is a representation, inside your head, of an external reality. Mental models are the basic units which construct a person’s world view. It is the representation that a person has in his mind about the object he is interacting with.
It is the way people think about what it is they are doing or dealing with. Mental models shape our actions as to how we act or behave in a particular situation. They define what people will pay attention to and how they approach and solve problems.
Mental models are tools for the mind. The more models you have from outside your discipline and the more you iterate through them when faced with a challenge in a checklist sort of fashion, the better you’ll be able to solve problems.
While thinking about a problem, mental models provide you a map with which you can quickly course correct your line of inquiry.
These models are additive. Like LEGO. The more you have the more things you can build, the more connections you can make between them and the more likely you are to be able to determine the relevant variables that govern the situation.
And when you learn these models you need to ask yourself under what conditions will this tool fail? That way you’re not only looking for situations where the tool is useful but also situations where something interesting is happening that might warrant further attention.
It won’t be an overstatement if we call these list of mental models as a cheat sheet which allows us to better understand when to follow and when to reject the conventional wisdom. So it’s very important to have the right models in your head.
And how do you build these models? You don’t have to build them all on your own.
According to Charlie Munger, the most efficient way to learn is vicarious learning. He says –
I believe in the discipline of mastering the best that other people have ever figured out. I don’t believe in just sitting down and trying to dream it all up yourself. Nobody’s that smart.
According to Mr. Munger, there are about 100 or so models across the disciplines of microeconomics, physiology, psychology, elementary mathematics, hard science and engineering that carry about 90% of the freight in making you a worldly-wise person.
And, of course, it’s not possible to learn all of them in day or a week or even in a single year. It’s a long term proposition and will require serious efforts. But when you’ve committed yourself to a lifelong journey for seeking worldly wisdom, it’s a small price to pay.
Mental Models, Investing, and You is a 430+ page e-book where we have compiled 50 mental models arranged by fields of study. It covers ideas from the various disciplines including psychology, economics, business, mathematics, engineering, physics, social science, literature, statistics and decision making.
We have spent last few years researching and writing this e-book, and the efforts were worth it given that we ourselves learned so much in the process.
What Will You Learn?
What’s unique about this e-book is it doesn’t just talk about the mental models in an abstract way. For every model, you will find discussion on how it can be used to gain unique insights in investing, business, and life in general.
- Why people trade in and out of stocks, despite proof that buy and hold is a much profitable and low stress strategy (Page 29)
- How small accounting frauds get bigger over time, and why investors often fail to notice them (Page 47)
- Why we fall prey to marketing gimmicks of sales people selling toxic financial products and how can we save ourselves from their persuasion tactics (Page 115)
- How to develop a strong bullshit filter that can help you quickly sift through mountain of information to discover useful ideas and discard the bad ones (Page 165)
- Why investors often sell their winning stocks and hold on to their losers (Page 240)
- How certain business insights can give you tremendous edge in evaluating strong businesses and staying away from the duds (Page 294)
- How to become a smarter investor by using the principle of inversion which focuses on “what to avoid” (Page 364)
- How ideas from the supposedly unrelated fields like Literature can make us effective thinkers and better decision makers (Page 399)
What Readers are Saying
Our happy readers have a lot to say about the book
Your devotion & dedication to mental models & value investing is worth emulating.
Wow. this is amazing work…I would have been very proud of myself if I did this. Awesome work Vishal and Anshul.
Gem of a book. Simple and powerful. You have to read each chapter and then try to relate the model to your life situations and experiences. Makes it so much integral part of your life. This is equivalent to reading 50-60 books and also getting insights into years of learnings by the author himself. Vishal, thanks for this book
Great work…I wonder how did you get the focus to put all the jam in one bottle… GREAT work.
The book is like “Yoga for Mind”. One of the best investments of time. The book does an amazing job of sharing the importance and wisdom of multi disciplinary thinking and is a great starting point to build your own latticework of mental models.
A great collection of mental models. This book can be a great starting point for someone building his own latticework of mental models.
Love reading your post about mental models. I am sure this book will be great too. Thanks Anshul and Vishal.
This book has given me plenty of references and further reading material on value investing. On my own I would have taken years to discover them.
It’s a great book and a good start for anyone who wants to go around learning the mental model way. Each model has been giving enough justice, background, and context. A must read for those who want to build the foundations of multiple mental models without ferociously searching around.
How to Get The Book?
Just as a small measure of the tremendous effort that has gone into writing and compiling this e-book, I have put a small price to it – ₹500 / $8 (I contribute 50% of this money for the betterment of underprivileged). You can treat this price as your show of love for my work at Safal Niveshak.