Charlie Munger is the vice chairman of Berkshire Hathaway, the company controlled and operated by Warren Buffet. He once had the chutzpah to say one of my all time favourite quotes (if you have a different one from him maybe you’ll find it below):
“In my whole life, I have known no wise people who didn’t read all the time – none, zero.”
Numerous leaders and savvy investors have attributed reading and developing your knowledge base as one of the most crucial elements to success. While the ability to learn is important, Charlie Munger has another tip to success, which is sometimes referred to as billionaire thinking.
This process of thinking can be summarised by Charlie’s assertion that:
“it is not brilliance that makes Berkshire Hathaway succeed, but rather consistently avoiding stupidity”.
Simply called Inversion, it is a different way of thinking about how to solve a problem, in a manner that is not inherently normal. It is clear that Charlie and Warren attribute a large portion of their immense success to skill and knowledge, however they also acknowledge it is largely down to the way they solve problems.
Or to be more precise as Warren put it:
“Charlie and I have not learned how to solve difficult business problems. What we have learned is to avoid them.”
Charlie and Warren were quick to find out that investing is more about avoiding losers than finding winners. This has been a key ingredient to any investors successful track record. If you want to beat the market, avoid the losers and naturally you will invest in winners.
What is Inversion?
Inversion is the process of thinking about and preparing for the opposite of what you want to happen, giving you an edge in any pursuit you undertake. You need to avoid failure rather than strive for success (don’t you dare read that as a lack of ambition).
While Charlie is a large supporter of this thinking, he did not coin the term. In fact, the process of inversion can be traced back through history to some of the greatest innovators and thinkers of our time. It was inspired by the German mathematician Carl Gustav Jacob Jacobi who had the famous maxim “Invert, always invert”.
Inversion can be applied by deciding what you want to achieve. You then consider what could go wrong or the worst case and make suitable plan to address it. Personally, I like to think this plays into the connotation of preparation. Thinking about the good old saying of “preparation builds success” I would like to say that it should be changed to “preparation for failure, builds success”.
How do you practically do that?
In order to apply Inversion thinking you can utilise the following steps:
- Figure out what you want to achieve.
- What don’t you want to happen? (think about the worst-case scenario)
- What would cause the worst-case scenario to happen? (this is an important step!)
- How do you avoid the worst-case scenario?
The very process of thinking about the opposite of what you want to achieve can fee counter intuitive. Specially when you are told this is the best way to solve a problem. Perhaps this is one of the reasons it is not done as often as it should be – its inherently difficult.
Lets unpack this process with an example. Remember you need to think about how you intend to solve a problem in reverse. So instead of working out the steps to reach your goal, start at the goal and work out what you shouldn’t do to get there.
Can you give me an example?
Let us use my ability to present investment ideas. When I first began doing it I was trying to do it all; speak loudly, talk at a medium pace, make sure the slides are matching my comments, look people in the eye. All my focus was on trying to be a successful presenter. Instead I should have been focused on avoiding the common mistakes and by virtue I will be better off. I quickly isolated my key “don’t do” items and let the rest flow naturally. I said to myself don’t talk to quickly, don’t talk at the slides, and don’t forget these key points. After that I just let myself be myself. I quickly become a more genuine and better presenter because of it.
Avoiding losers is the secret to success. If you don’t pick any losers what are you left with?
One more Charlie Munger Quote… ok make it two please.
Another day, another quote with Charlie. This time on the principle of Inversion because it lays it out quite nicely:
Invert, always invert: Turn a situation or problem upside down. Look at it backward. What happens if all our plans go wrong? Where don’t we want to go, and how do you get there? Instead of looking for success, make a list of how to fail instead – through sloth, envy, resentment, self-pity, entitlement, all the mental habits of self-defeat. Avoid these qualities and you will succeed. Tell me where I’m going to die, that is, so I don’t go there.”
To round off the article I would encourage you to remember that Inversion is an additional tool to use when solving a problem. The process is not something to be utilised in isolation and is not the only way to solve a problem. This cannot be better summed up than our final quote from Charlie:
It is not enough to think about difficult problems one way. You need to think about them forwards and backward. ”
For more on cognitive biases and how sometimes we think incorrectly click here.