Charlie Munger Can Teach Us A Lot, But This One Rule Is Critical For Investors
Solving a problem backwards, also known as inversion thinking, is an incredibly powerful tool. You quite literally are re-framing the problem by looking at it from a different angle. This helps you see things you may have missed before and often shows an easier path forward.
Charlie Munger, Warren Buffet’s long time business partner, recently passed away. If you don’t know who Charlie Munger is you need to read this and check out his book. The man was full of wisdom.
Solving a problem by subtraction is often easier than by addition.
Losing weight it is an easy example to illustrate this point. Instead of thinking how can I lose weight, invert it to how do I gain weight? The typical advice around dieting is something like start eating salads, buy goji berries, count your calories, weigh your food, and repeat. That’s a whole lot of habits to add.
If you approach losing weight with inversion thinking, it could look like this. You realize you’re gaining weight because you can’t control yourself around ice cream and chocolate chip cookies. Rather than add 10 habits to eat healthy, you just don’t buy ice cream and chocolate chip cookies. Done.
If everything else stays the same, this one subtraction habit could have a significant impact with 1/100 the effort of all those additive habits above.
Inversion thinking can be applied to your finances.
How do I become rich becomes how could I end up broke?
Using too much leverage, not being diversified, spending more than you make, etc. Ensure these problems are avoided.
How can I get promoted becomes how could I be fired?
Neglecting your responsibilities, being rude to your colleagues, violating company policies, etc. Make sure you don’t do those things.
How can I spend my new raise becomes how can we save in case our income disappears?
Ensure you have liquidity to cover a sudden loss of income, reduce your big ticket monthly expenses, diversify your income streams, etc.
Inversion thinking can be applied to any problem.
It’s a helpful exercise that often reveals a more impactful way forward for the effort required. Give it a try.