07 August 2022

the world's two most important ideas

compound interest and mirrored reciprocation

AJ LaMarc
AJ LaMarc @ajlamarc
“How many mistakes do you make when you understand something? You don’t make any mistakes. Where do mistakes come from? They come from blind spots, a lack of understanding.” —Peter Kaufman

We all make stupid decisions. The resulting failures can lead to regret and future indecision. In the end, everyone loses and doesn’t know why.

Well, almost everyone makes stupid decisions. Warren Buffett and Charlie Munger of Berkshire Hathaway might be exceptions.

Luckily, Charlie Munger has spared some time to teach us all how to be a bit less stupid. Munger stresses the importance of mental models and multidisciplinary thinking. He is vague about his own mental models, pushing his students to derive their own.


Charlie Munger is like the Bible for decision makers. Most people don’t have the patience or intellect to understand the Bible, so we need someone to break it down for us. And someone to break down the breakdown.

Likewise for “Mungerisms.” Munger’s wisdom, conveyed in talks and speeches, first made its way into a few important books. By my own assessment, these are:

Then blogs like Farnam Street and Wealest made Mungerisms even more accessible. Finally, Twitter.

Peter Kaufman’s three buckets

All this talk of mental models makes us ask, “What’s the most important mental model?” The answer comes from one of Munger’s top students, Peter Kaufman.

In this talk, Kaufman uses his “three buckets” to derive two key models:

Using a true multidisciplinary understanding of things, Peter identifies two often overlooked, parabolic “Big Ideas”: 1) Mirrored Reciprocation (go positive and go first) and 2) Compound Interest (being constant). A great “Life Hack” is to simply combine these two into one basic approach to living your life: “Go positive and go first, and be constant in doing it.” There may be no better formula for living the best life you could possibly live. -Farnam Street

The future posts of this series will be applications of this “Life Hack.” In the meantime, listen to Kaufman’s talk here and read more about its implications here.

The world is so damn simple. It’s not complicated at all! Every single person on this planet is looking for the same thing. Now, why is it that we don’t act on these very simple things? -Peter Kaufman