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Mental Models

What is a mental model?  I think of it as a framework for an idea or thought process.  Mental models are all around us, and help describe how the world works.  One of the reasons I like them is because they are not only applicable to investing, but to so many other aspects of life.

The idea of mental models was popularized by Charlie Munger, particularly in his book Poor Charlie’s Almanack (an expensive book, but worth it).

It has also been covered extensively by people like Shane Parrish over at Farnam Street / The Knowledge Project (another great resource).

While I love mental models generally, my goal here is to not only breakdown the fundamentals, but to figure out each one’s application and context in the world of the individual investor.  Although learning new ideas is wonderful, is is the connection to our lives that make them powerful.