Inversion and The Power of Avoiding Stupidity READING TIME: 2 MINUTES Charlie Munger, the business partner of Warren Buffett and Vice Chairman of Berkshire Hathaway, is famous for his quote “All I want to know is where I’m going to die, so I’ll never go there.” That thinking was inspired by the German mathematician Carl Gustav Jacob Jacobi, famous for some work on elliptic functions that I’ll never understand. Jacobi often solved difficult problems by following a simple strategy: “man muss immer umkehren” (or loosely translated, “invert, always invert.”) “[Jacobi] knew that it is in the nature of things that many hard problems are best solved when they are addressed backward,” Munger counsels. While Jacobi applied inversion mostly to mathematics, the model is one of the most powerful mental models in our toolkit. It is not enough to think about difficult problems one way. You need to think about them forwards and backward. Inversion often forces you to uncover hidden beliefs about the problem you are trying to solve. “Indeed,” says Munger, “many problems can’t be solved forward.” Let’s take a look at some examples. Say you want to improve innovation in your organization. Thinking forward, you’d think about all of the things you could do to foster innovation. If you look at the problem by inversion, however, you’d think about all the things you could do that would discourage innovation. Ideally, you’d avoid those things. Sounds simple right? I bet your organization does some of those ‘stupid’ things today. Another example, rather than think about what makes a good life, you can think about what prescriptions would ensure misery. Avoiding stupidity is easier than seeking brilliance. While both thinking forward and thinking backward result in some action, you can think of them as additive vs. subtractive. Despite our best intentions, thinking forward increases the odds that you’ll cause harm (iatrogenics). Thinking backward, call it subtractive avoidance or inversion, is less likely to cause harm. Inverting the problem won’t always solve it, but it will help you avoid trouble. You can think of it as the avoiding stupidity filter. It’s not sexy but it’s a very easy way to improve. So what does this mean in practice? Spending time thinking about the opposite of what you want doesn’t come naturally to most people. And yet many of the smartest people in history, have done this naturally. Inversion helps improve understanding of the problem. By forcing you to do the work necessary to have an opinion you’re forced to consider different perspectives. If you’re to take anything away from inversion let it be this: Spend less time trying to be brilliant and more time trying to avoid obvious stupidity. The kicker? Avoiding stupidity is easier than seeking brilliance. Inversion is part of the Farnam Street Latticework of Mental Models.
Avoiding Stupidity is Easier than Seeking Brilliance READING TIME: 4 MINUTES We often focus on trying to be brilliant, yet many great people get far more mileage out of avoiding making stupid mistakes. Amateurs win the game when their opponent loses points, experts win the game by gaining points. *** Simon Ramo, a scientist and statistician, wrote a fascinating little book that few people have bothered to read: Extraordinary Tennis Ordinary Players. The book isn’t fascinating because I love tennis. I don’t. However, in the book Ramo identifies the crucial difference between the Winner’s Game and a Loser’s Game. Ramo believed that tennis could be subdivided into two games: the professionals and the rest of us. The game looks the same from the outside. After all, players play by the same rules and scoring. And they play on the same court. Sometimes they even share the same equipment. In short, the essential elements of the game are the same. Sometimes amateurs believe they are professionals, but professionals never believe they are amateurs. Professionals know they are not playing the same game as amateurs. “It is remarkable how much long-term advantage people like us have gotten by trying to be consistently not stupid, instead of trying to be very intelligent.” — Charlie Munger Winning or Losing Points Professionals win points whereas amateurs lose them. In a professional game, each player, nearly equal in skill, plays a nearly perfect game rallying back and forth until one player hits the ball just beyond the reach of his opponent. This is about positioning, control, spin. It’s a game of inches and sometimes centimeters. This is not how amateurs play. In his 1975 essay, The Loser’s Game, Charles Elliscalls professional tennis a “Winner’s Game.” While there is some degree of skill and luck involved, the game is generally determined by the actions of the winner. Amateur tennis is an entirely different game. Not in how it is played or the rules but, rather, in how it’s won. Long and powerful rallies are generally a thing of the past. Mistakes are frequent. Balls are constantly hit into nets or out of bounds. Double faults are nearly as common as faults. The amateur duffer seldom beats his opponent, but he beats himself all the time. The victor in this game of tennis gets a higher score than the opponent, but he gets that higher score because his opponent is losing even more points. Losing Less Ramo found this out because he gave up trying to keep track of conventional scores — “Love,” “Fifteen All,” etc. Instead, he simply looked at points won versus points lost. In expert tennis, about 80 per cent of the points are won; in amateur tennis, about 80 per cent of the points are lost. In other words, professional tennis is a Winner’s Game – the final outcome is determined by the activities of the winner – and amateur tennis is a Loser’s Game – the final outcome is determined by the activities of the loser. The two games are, in their fundamental characteristic, not at all the same. They are opposites. After discovering that there are, in effect, two different games and realizing that a generic strategy will not work for both games, he devised a clever strategy by which ordinary players can win by losing less and letting the opponent defeat themselves. … if you choose to win at tennis – as opposed to having a good time – the strategy for winning is to avoid mistakes. The way to avoid mistakes is to be conservative and keep the ball in play, letting the other fellow have plenty of room in which to blunder his way to defeat, because he, being an amateur will play a losing game and not know it. If you’re an amateur your focus should be on avoiding stupidity, not seeking brilliance. Investors Bet on Someone Else’s Game This brings to memory something about Warren Buffett and Ben Graham. Buffett used to convene a group of people called the “Buffett Group.” At one such meeting Benjamin Graham, Warren Buffett’s mentor, and teacher gave them all a quiz. I spent hours searching for this reference, which comes from Benjamin Graham on Value Investing: Lessons from the Dean of Wall Street. “He gave us a quiz,” Buffett said, “A true-false quiz. And there were all these guys who were very smart. He told us ahead of time that half were true and half were false. There were 20 questions. Most of us got less than 10 right. If we’d marked every one true or every one false, we would have gotten 10 right.” Graham made up the deceptively simple historical puzzler himself, Buffett explained. “It was to illustrate a point, that the smart fellow kind of rigs the game. It was 1968, when all this phoney accounting was going on. You’d think you could profit from it by riding along on the coattails, but (the quiz) was to illustrate that if you tried to play the other guy’s game, it was not easy to do. “Roy Tolles got the highest score, I remember that,” Buffett chuckled. “We had a great time. We decided to keep doing it.” Avoiding Stupidity is Easier Than Seeking Brilliance The point is that most of us are amateurs but we refuse to believe it. This is a problem because we’re often playing the game of the professionals. What we should do in this case, when we’re the amateur, is to invert the problem. Rather than trying to win, we should avoid losing. This was a point Charlie Munger, the billionaire business partner of Warren Buffett, made a long time ago. In a letter to Wesco Shareholders, where he was at the time Chairman (and found in the excellent Damn Right!: Behind the Scenes with Berkshire Hathaway Billionaire Charlie Munger), Munger writes: Wesco continues to try more to profit from always remembering the obvious than from grasping the esoteric. … It is remarkable how much long-term advantage people like us have gotten by trying to be consistently not stupid, instead of trying to be very intelligent. There must be some wisdom in the folk saying, `It’s the strong swimmers who drown.’ And there is so much wisdom embedded in that quote that I’ve printed it out and attached it to my wall