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Business Modeling

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Invert

Who ʻWouldaʼ Thought?

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Often when trying to solve a difficult problem, it is wise to concentrate on the outcome that you do not want and thereby avoid it to reach the desired result.

In every business deal or transaction, identify the worst thing that can possibly go wrong, and then make sure it doesn’t happen — John Paul Getty

Charles Munger, in ‘Poor Charlie’s Almanack’, highlights the point:

The great algebraist, Jacobi… was known for his constant repetition of one phrase: ‘Invert, always invert.’ It is in the nature of things, as Jacobi knew, that many hard problems are best solved only when they are addressed backward.

A further Charles Munger explanation is given in ‘Seeking Wisdom’, by Peter Bevelin:

The mental habit of thinking backward forces objectivity — because one of the ways you think through backward is you take your initial assumption and say, ‘Let’s try and disprove it.’

That is not what most people do with their initial assumption. They try and confirm it. It’s an automatic tendency in psychology — often called ‘first-conclusion bias’. But it’s only a tendency. You can train yourself away from the tendency to a substantial degree. You just constantly take your own assumptions and try to disprove them.

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Jakub Smrček
Jakub Smrček

Written by Jakub Smrček

Qualitative investment analysis is about understanding a business before taking out your calculator. This blog teaches you how to do it for common stocks.

Business Modeling
Business Modeling

Published in Business Modeling

Models allowing you to Read a Business Like a Book!