Latticework: The New Investing

Hagstrom builds out Charlie Munger's idea that an investor should assemble a latticework of mental models from multiple disciplines rather than rely on finance alone. He takes chapters from physics, biology, sociology, psychology, philosophy and literature, explains a core concept from each, and then argues for its application to markets.

The specific transfers are: equilibrium from physics as a description of markets that the evidence does not support; evolution and adaptation from biology as a better description, with markets treated as complex adaptive systems in the Santa Fe Institute sense; self-organisation and emergence from sociology, including ant colony behaviour and information cascades; behavioural findings from psychology on overreaction and overconfidence; pragmatism from philosophy on how to hold beliefs; and close reading from literature as a model for how to interpret ambiguous evidence.

The book is an introduction to a way of thinking rather than a source of methods. It is most useful to investors who want a structured entry point into the complexity-economics view of markets and a reading list to follow. The weakness is that cross-disciplinary analogy is exactly what the book asks the reader to do, and the connections drawn are often suggestive rather than demonstrated, particularly the biology and literature chapters. Later work, including Mauboussin's and Beinhocker's, develops the complex-adaptive-systems argument with more rigour. Hagstrom's own later book Investing: The Last Liberal Art is a revised version of this material.

American portfolio manager who ran Legg Mason's Focus Trust and later served as chief investment strategist at EquityCompass.

The Warren Buffett Way was the first book to reconstruct Buffett's purchases as a repeatable set of business, management, financial and valuation tests, and it set the template later Buffett books follow. Latticework and Investing: The Last Liberal Art carry the same argument into physics, biology and psychology as sources of investment models.

Legg Mason, EquityCompass