Customer Reviews

Latticework: The New Investing

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In Latticework, Mr. Hagstrom has written a very powerful book arguing for the importance of a multidisciplinary approach to investing. If you are looking for a "magic bullet" to make your stock picking infallible, you will need to look elsewhere. Instead Mr. Hagstrom argues that all of the major branches of learning have something to offer. As a professional investor, I couldn't agree more. In particular Mr. Hagstrom draws on the work of the Santa Fe Institute in complex adaptive systems. His argument that too often people view the market in Newtonian terms which are ultimately inappropriate rings very true.

This book does not pretend to offer a lot of answers, but rather is a starting part for future work. The bibliography alone is worth the price of admission. Ultimately, perhaps the highest praise I can give is that this book might not only make you a better investor, but also a better person.

Latticework is a good book. I liked the premise and approach more than the writing, but the writing was still good. The term latticework is attributed to Charlie Munger, the inimitable vice chairman of Berkshire Hathaway. Charlie views a latticework of mental models as an interlocking structure of ideas that is clearly multidisciplinary in nature. Drawing from this transdisciplinary focus, Hagstrom takes us through some key principles or laws from a number of disciplines such as psychology, physics, biology, and philosophy, among others. He then applies these theories to investing and the marketplace.

Bottom line, this book is not about financial models or equity premiums. It is more a book about how to apply theoretical precepts in one discipline in helping you to understand another discipline, principally investing. As anyone who has studied widely, it is quite apparent that most disciplines are artificially delineated and socially constructed. The undergirding currents of knowledge seem one and the same (cf. the 'g' idea of intelligence). In general, people that have crisp and disciplined thinking and problem solving skills can tackle any subject with authority.

I would read this book if you are tired of reading all the material that everyone else is reading and that seems to say the same thing a hundred different ways. At the end of the day, if you read what everyone else is reading, you are going to have difficulty thinking "outside the box" or differentiating your ideas in the marketplace. The smartest people I have read or talked with seem to be quite adept at applying knowledge from one area to add insight to another area. This book will at least start you on the right path to a new way of looking at the shifting market landscape.

When was the last time a Wall Street whiz suggested that you pick up a biology text?

The finance MBA programs would have us believe that investing is simply a matter of math. Robert Hagstrom, someone who has clearly mastered the numbers in his field, quite poetically tells us otherwise. It presents a way in which to view the field of investing that relies on an understanding of many other disciplines.

In fact, one of the greatest outcomes of this marvelous book may just be the resurgence of the liberal arts education.

Gee, let's compare the market to an array of other disciplines like biology and music. Anyone who read Victor Niederhoffer's The Education of a Speculator published almost four years ago will be intimately familiar with these topics. Victor's book was published before the tech-boom caused everyone and their uncle to even care about the market, and was backed up by the stupendous performance of its author who at the time was a top-performing fund manager. Mr. Hagstrom's coverage of these topics is brief, specious and uninspiring. Anyone who would like the real lowdown on such topics should read the original.

A good book always makes you think about its particular subject in a new way. Robert Hagstrom's new book, Latticework: The New Investing will definitely have the reader thinking about investing differently. The book develops the notion of combining insights from many different disciplines (biology, physics, and literature to name a few) to develop worldly wisdom. If the investor develops their own mental models (and understand how the interact with one another) they can develop a competitive advantage over most investors. Mr. Munger, Vice Chairman of Berkshire Hathaway, has endorsed this mental models concept in two separate speeches he has given.

"Investing: The Last Liberal Art" and "Latticework: The New Investing" are exactly the same book with exactly the same content up to the page numbers. Just the book name and book cover were changed. It's not clear why the publisher changed the book name but after purchasing both books I find highly misleading.

In Robert Hagstrom's new book, Latticework, it becomes clear that success in the market is directly related to a broad based understanding of the world around us.

The book clearly demonstrates that there are intersections between how markets and the economy work, and our understanding of the core principles of physics, biology, the social sciences, psychology, philosophy and literature.

As an entrepreneur, I have to pay careful attention to the market, for the health of my business, to forecast its impact on our revenue streams, and for my own personal financial well being. I am not, however, schooled in the fine points of economic theory or investing.

I picked this book up with fear and trepidation, knowing I needed to expand my knowledge of financial matters and the market, but wondering if I could really make it through a finance book. I am happy to report that I not only made it through the book - but, found it fascinating.

The book is written simply, elegantly and with a personal tone. In each chapter, I learned something new -- from equilibrium to evolution, from Newton to Darwin. I was able to gain a greater understanding of market trends and economic indicators by taking an intellectual journey, really a brief field trip, through the subject matter that defines a solid liberal arts education.

Avid investors, professional financiers, and the intellectually curious will be inspired by Latticework.

"Latticework" refers to an intellectual construct advanced by Charlie Munger, vice chairman of Berkshire Hathaway, Inc. and longtime business partner of Warren Buffett. Munger makes the case for "elementary worldly wisdom" through a multidisciplinary approach to understanding the world. When this book was published in 2000, the record of Munger's worldview was limited to occasional speeches and comments at Berkshire Hathaway and Wesco Financial annual shareholders meetings. Munger's unique perspective on "multiple mental models" became more readily accessible through a collection of his speeches in 2005 in Poor Charlie's Almanack, now in its third edition. So while Munger's own words to some extent supersedes this book, Latticework still offers some value to the careful reader.

Munger contends that he uses roughly 100 mental models from a variety of academic disciplines to evaluate investment opportunities. The close reader of Poor Charlie's Almanack: The Wit and Wisdom of Charles T. Munger, Expanded Third Edition will pick up about 30 or so of these models. Latticework adds a few additional models, but this is not the real value of this book. In fact, it appears that Hagstrom's understanding of models is different from that of Munger. Whereas Munger argues for use of multidisciplinary mental models to evaluate investment opportunities (i.e. business models), Hagstrom is mainly focused on use of mental models to understand the complexity of the stock market. Hagstrom expends a great deal of ink in various chapters discussing complex adaptive systems, mainly focused on understanding the overall stock market, rather than the entry and exit of companies in the market. (In the Graham-Buffett-Munger model, the "intelligent investor" is looking for a company with positive cash flow and a strong economic moat that s/he can buy at significant discount to its intrinsic value.) The best direct comparison of the Munger vs Hagstrom approach perhaps is best exemplified in Munger's use of social psychological models in Poor Charlie's Almanack: The Wit and Wisdom of Charles T. Munger, Expanded Third Edition to explain the competitive advantage of The Coca Cola Company.

Nitpicking aside, Latticework is a good introduction to the concept of mental models for investors. The explication of the strengths and limitations of mental models on pages 107-108 alone is worth the price of the book. This cogent discussion explains Munger's admonition for use of checklists and daily practice of use of mental models arrayed on a latticework of theory. Another useful contribution of Latticework is the discussion of the use of first-order and second-order models in the chapter on philosophy. Munger includes philosophy as one intellectual source of for his latticework of models, but gives no detail. (Kind of like the Matrix, Munger believes you can't be told but have to discover the models for yourself to understand them.) Until I read this chapter, I admit I was skeptical about the application of philosophy to investing. Like the other chapters, Hagstrom focuses on one model, pragmatism, in his discussion of the application of philosophy to investing. The existence of a "functional equivalent" (to use a Mungerism) of pragmatism as discussed on p. 127 (cf. "causes of effects" vs. "effects of causes") to my mind confirms the validity of at least this mental model from philosophy.

Like most books, Latticework is not perfect. The careful reader, however, will find it strewn with useful nuggets.

Charlie Munger always believed that in order to be successful in investing, one must constantly read and learn, but not only in the investment arena. In this book, the author illustrates a new approach to investing based on the wisdom of Munger and another extraordinary investor, Bill Miller. Both of them believe in the latticework investment style, where one needs to understand other disciplines such as psychology, physics, biology, philosophy, and literature. Concepts and ideas can be borrowed from other disciplines and applied to investing to increase the chances of success.

I found this book interesting and I can see how being well-rounded makes one a better investor. I would definitely recommend this book to investors who are looking to gain a greater understanding of the investment discipline.

- Mariusz Skonieczny, author of Why Are We So Clueless about the Stock Market? Learn how to invest your money, how to pick stocks, and how to make money in the stock market

The book is a work of art, that demonstrates the wordly wisdom of investing, not confined to the world of balance sheets and income statements.

BRAVO Mr. HAGSTROM