Inversion: Thinking like a billionaire
Charlie Munger, vice-chairman of Berkshire Hathaway, has a tip for success which is sometimes referred to as billionaire thinking. This is epitomised by Charlie’s quote ‘It is not brilliance that makes Berkshire Hathaway succeed, but rather consistently avoiding stupidity.’
Simply called ‘inversion’, it is a way of thinking about how to solve a problem in a manner that is not inherently normal. Charlie attributes a large portion of his success to skill and knowledge, but he acknowledges it also involves the way he solves problems.
To be more precise, as his well-known partner Warren Buffett 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 found out that succeeding in investing can be about avoiding losers rather than finding winners. It has been a key part of their successful track record.
What is inversion?
Inversion is the process of thinking about and preparing for the opposite of what you want to happen. Put differently, avoid failure rather than strive for success.
While Charlie is a big supporter of this thinking, he did not coin the term. 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 famously stated ‘Invert, always invert’.
Inversion can be applied by deciding what you would like to achieve and then considering what could go wrong and subsequently planning to address it. I think this plays into the idea of preparation. Thinking about the old saying of ‘preparation breeds success’, I would propose amending it to say ‘preparation for failure breeds success’.
How do you invert?
To apply inversion, you could follow these steps:
- Figure out what you want to succeed in.
- What don’t you want to happen? (Think about the worst-case scenario.)
- What would cause the worst-case scenario?
- Plan to avoid these scenarios.
The very process of thinking about the opposite of what you want to achieve feels counter-intuitive. Perhaps this is one of the reasons it is not done as often as it should be – it is inherently difficult.
When I was learning to present investments to wealth managers and clients, I was filled with the traditional guidance of remembering everything; speak confidently, talk at a steady pace, make sure the slides align with your comments, look people in the eye, etc. My focus was on trying to be a successful presenter and I bottled it. Instead, I began to focus on avoiding common mistakes. I quickly isolated my key ‘don’t do’ items and let the rest flow naturally. I said to myself ‘do not talk too quickly’, ‘do not repeat what is on the slides’, and ‘do not forget the key takeaway’. After that I just let myself be myself and I became a more genuine and better presenter because of it.
A quote from Charlie on the principle of inversion to round things off:
‘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 … Tell me where I am going to die so I don’t there.’