Munger on Accounting
In a now-famous talk given to a group of students at USC Business School in 1994, legendary investor, Charles Munger, described a number of mental models . One of the mental models accounting and double-entry bookkeeping: "One of the advantages of a fellow like Buffett, whom I've worked with all these years, is that he automatically thinks in terms of decision trees and the elementary math of permutations and combinations.... Obviously, you have to know accounting. It's the language of practical business life. It was a very useful thing to deliver to civilization. I've heard it came to civilization through Venice which of course was once the great commercial power in the Mediterranean. However, double-entry bookkeeping was a hell of an invention. And it's not that hard to understand. But you have to know enough about it to understand its limitations—because although accounting is the starting place, it's only a crude approximation. And it's not ver...
