In this chapter of Mohnish Pabrai’s book Mosaic, the discussion starts with a look at Bill Miller of Legg Mason Value Trust. Pabrai argues that Bill Miller’s previous stellar performance with Legg Mason Value Trust lies in “Latticework“, which is the worldly wisdom that comes from an interdisciplinary collection of mental models. Bill Miller views the stockmarket as a complex adaptive system in which the future of a company cannot be solely analyzed based on book value or P/E ratio. (I wonder if his drifting away from focusing an value fundamentals has led to his more recent poor performance.)
Part of Bill Millers mental latticework comes from his education in history and philosophy. His bookshelf features the following books:
- Lives of the Poets
- At Home in the Universe
- The Eudemonic Pie
- Percentage Baseball
- Swarm Intelligence
- The Metaphysical Club
- Nature of the Greeks
- Information Rules
I’m not much of a fan of Bill Miller, but some of these books look interesting. I think I’ll add Swarm Intelligence to my reading list soon. It covers a topic I’m particularly interested in, which is how individual behavior can appear random, but collectively have order. It might even help me improve how Value Investing News works.
The article then goes on to talk about Bill Miller’s interest in The Santa Fe Institute. The goal of this organization is to encourage collaborative work between traditional disciplines, share ideas, and encourage practical applications.
Charlie Munger is very into to the development of his own investing latticework. This includes the creation of his own “law of economic selection” based on Charles Darwin’s work. One of Darwin’s observations was that people have a tendancy to ignore evidence that conflicts with their proconceived theories or the vast majority of other observed evidence. Understanding this bias, carefully observing things that don’t fit or agree with current theories, and then asking why are key to making discoveries. Pabrai recommends reading Darwin’s own words to understand how this scientist could see what others couldn’t.
The development of a latticework mental models requires continual learning. Pabrai notes, “[Investing] is one of the broadest of all disciplines where all knowledge has a cumulative effect and essentially nothing is wasted.” It’s good to know that generalists still have a use in this society, which seems to encourage and promote specialization. I’ve always been very interdisciplinary in nature, so I’m glad that this nature aligns with my interest in investing. Pabrai concludes this article by referencing and recommending The Man Who Beat the S&P by Janet Lowe.