, 9 tweets, 3 min read Read on Twitter
1/ "In an ensemble [weather forecasting] system a forecast model is run many times varying the initial conditions and model physics--showing the range of potential events" writes a meteorologist. This is similar to investing using Charlie Munger's lattice of mental models.
2/ Invezting is far harder to model since, as Murray Gell-Mann pointed out: “Imagine how hard physics would be if electrons could think." But the ensemble approach to modeling is still applicable. Herbert Simon named what are known as "mental models." google.com/amp/s/25iq.com…
3/ "The human brain must work in models. The trick is to have your brain work better than the other person’s brain because it understands the most fundamental models: ones that will do most work per unit.” Charlie Munger. (Sorry for the invezting typo - my power is out).
4/ The storm that took my power out was forecasted by the "UW model is driven by the U.S. GFS model on its boundaries. The ensemble forecasts of Seattle snow from many GFS runs is shown below." This is similar to Howard Marks' point the the future is a probability distribution.
5/ During WWII Charlie Munger trained as a meteorologist after spending time being trained at Cal Tech. "
During WWII Charlie Munger was trained as a meteorologist at Cal Tech while serving in the US Army. "The mathematics of permutations and combinations leads us to understand the practical probabilities of the world." fs.blog/mental-models/
If you believe that the future is a probability distribution you should naturally value having 1) a margin of safety and 2) systems that can quickly adapt to different outcomes. The former gives you a cushion against mistakes and ignorance and the latter allows you to adapt.
Even though my access to the electric power grid is out I have a generator that runs critical systems and two large propane tanks. I also have many books in paper format to read and re-read. Does your portfolio have a margin of safety? How about your business? Can you adapt?
The future is a probability distribution. "forecasts of 51 members starting 4 PM Friday: current snowstorm (light blue colors, 3-5 inches), the Sunday event, darkening to around 5-7 inches, and then the Tuesday event, moving to the reds ( 10-16 inches).
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