How To Improve Your Thinking: Charlie Munger vs. Ray Dalio


 

Two modern-day business titans – Ray Dalio and Charlie Munger – have a lot in common. They run massive billion dollar businesses.  They’ve constantly adapted and evolved to achieve their own definitions of success.  But what I admire most about Ray and Charlie? They thoughtfully share the keys to their success in the form of helping others to think objectively, make decisions, and acquire knowledge.  

 

Even more impressive, you’ll notice that their methods of thinking yield different perspectives that arrive at the same conclusions.  If these well-respected businessmen operate on similar principles and can derive their success from these principles, it’s worth paying attention.  Here are two major areas of operating that Charlie and Ray both agree on, yet provide different perspectives on.  

 

Open mindedness

 

From his book “Principles”, Ray Dalio states that one of his ways to live and work is with radical open mindedness.  Radical open-mindedness means genuinely trying to understand other perspectives other than your own, and trying to be sure that your thinking is logical and correct.  Ray states that being radically open minded doesn’t mean you automatically agree with an opinion contrary to yours – rather, it means understanding the steps that someone else took to arrive at their conclusion.  As he says, in an argument or debate, one person is always wrong – don’t you want to make sure that this isn’t you?

 

Charlie Munger also has his own model of radical open-mindedness.  A key piece of this: knowing when you’re wrong or when you do not have sound logic, and finding others who might be able to assist you in uncovering the answer.  In terms of open mindedness, Charlie discusses starting with discovering your own Circle Of Competence.  This Circle of Competence refers to where you know you have expertise in something and can have an opinion – outside of this circle is where you need to be open minded and understand other perspectives from those whom you might disagree with, but who might be operating in their own Circle of Competence.  He says that you need to be willing to say – “I don’t know.”  For example, if you weren’t a physicist, you wouldn’t tell one that his theory on quantum mechanics was wrong – you’d be operating outside of your Circle of Competence and encroaching on someone else’s.  Munger views this as dangerous thinking, and the absolute antithesis of open-mindedness.

 

Understanding Reality and Truth

 

Both Dalio and Munger emphasize the absolute importance of understanding reality and acting accordingly.  One of my favorite ideas from Dalio is that you should look at reality how it truly is, not how you think it “should” be. Most of us (myself included) distort reality through our own subjective lenses.  We see what we want to see, with objectivity and truth clouded out by emotion or closed-mindedness.   Once you can get past this mental hump of trying to mold your reality to how YOU see fit, you’ll be able to make better decisions and think more clearly with accurate information. He also has interesting ideas on reality through the lens of evolution.  If you can recognize that reality optimizes for the whole of nature, and not just for you within your own subjective bubble, you’ll have more success learning from nature and how it actually operates.  Dalio views this ability to understand truth and think objectively as “the essential foundation for any good outcome.”

 

Munger also places the utmost importance on recognizing reality for making effective decisions and problem solving, but provides different methods on understanding this idea.  One of the best stories / ideas from Munger revolves around the Chauffeur Test.  Essentially, there are two types of knowledge: in-depth knowledge where one truly understands the subject (the expert), and surface level knowledge where one can talk on a subject but lack a deep understanding (the chauffeur).  Munger discusses the importance of not only having deep knowledge, but of also understanding when you’re receiving your information from a chauffeur vs. an expert on a topic.  Recognizing the difference can help you filter out useless noise when making a decision or solving a problem.  

 

In addition to training himself to recognize fake vs. real knowledge, Munger picked up all of the “big ideas from all the big disciplines and [made] them a standard part of my mental routines.”  He calls this approach the multidisciplinary approach.  Learning the major ideas from multiple disciplines such as investing, economics, and history, can help you recognize objective answers that other experts might miss.  In Charlie’s words, “You’ll see the correct answer when he’s missed it.”  

 

Conclusion

 

Of course, Munger and Dalio both have many other excellent mental models that they use to make effective decisions and solve difficult problems.  I’d recommend starting here to learn about Munger’s most used models, and read Dalio’s new book Principles to dive into his thought processes.  

 

However, their shared emphasis on the ideas of open-mindedness and deciphering reality provide the foundation for the rest of their mental models, thought processes, and decision making frameworks to sit upon.  Without the mastery of these two essential skills, they wouldn’t have the monumental success that they enjoy today.  

 

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