“All I want to know is where I’m going to die, so I’ll never go there.” - Charlie Munger, Berkshire Hathaway
Let's say you're having trouble at work. You're looking for ways to impress your boss.
What's the best thing to do?
You could vaguely brag about yourself. You could ask a colleague to sing your praises. You could close a big deal making her look good.
All of the above might work, but it might not. Plus, it's tough to know what to focus on given time constraints and limited resources. You feel paralyzed by indecision.
Unfortunately, this is how human beings process complex problems. We look at them from the front. We ask ourselves, "how can I solve this problem?"
What if we inverted the original problem of impressing our boss? In other words, what would NOT impress our boss?
Showing up late and leaving early. Not being prepared for the upcoming presentation. Not closing any business.
When we invert the problem or evaluate problems from the back, we can be led to the correct course of action by avoiding obvious mistakes.
For investors, there's a trove of hot takes, tactical trades, stocks you should own, and other "sage" things you can do with your money. We would argue that many successful financial outcomes can be attributed to not doing dumb things.
Does this sound overly simplistic and amateurish? Maybe, but Charlie Munger & Warren Buffett don't think so.
“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
For Berkshire, the inversion mentality manifests itself by purchasing companies at fire sale prices when other investors are running for the exits.
When the market fell into chaos the spring of 2020, many investors were asking themselves, "what should I do now?"
A better question might be, "what should you NOT do now." That subtle inversion could have saved someone from a making a dumb mistake.
Here are a few ways investors self-sabotage by seeking brilliance...
Sitting on cash waiting for a massive correction
Anchoring to extreme pessimistic or optimistic identities
In my experience, the above stems from the human desire to avoid losses. Human psychology has shown that we hate losses much more than we enjoy gains.
Unfortunately, this idea of enjoying gains and not accepting losses is self-sabotaging behavior that usually ends in disaster. Investors would do well by looking at losses as a cost of admission rather than a sign their portfolio or market is broken.
The next time the market acts up and you're feeling confused, anxious, or compelled to act, try asking yourself these questions...
What would a horrible investor do?
What's the worst action to take?
Your next action might become more clear by simply inverting. It's amazing how much value is unlocked by doing simple, routine things. On the flip side, much value is destroyed by NOT doing simple, routine things.
Forget trying to guess the direction of the market. Understand your risk exposures. Don't pay too much for advice. Make sure your portfolio is tax-efficient.
Most people would be better off spending less time trying to be brilliant and more time avoiding obvious stupidity.