Can we improve our investments by thinking backwards?
Investing has been called a loser’s game. A loser’s game is one where winners simply outlast their opponents by minimizing stupid mistakes. In tennis, it’s avoiding the unforced error. In golf, it’s keeping the ball on the fairway and staying out of the bunker. And with investing its staying away from the Lehmans and Madoffs of the market.
Investing legend Charlie Munger understands this when he says that many hard problems are best solved when addressed backwards. An example from everyday life might be parenting. Raising children is incredibly complex, but thinking backwards helps. Imagine all the things that a bad parent would do–losing your temper, yelling, acting arbitrary—and shun these. If you want to foster innovation on the job, think of what would stifle new ideas and stop doing that.
Thinking forwards and backwards works because every avoided Enron adds to performance. And it’s a lot easier to avoid stupidity than to find brilliance.
Douglas R. Tengdin, CFA
Chief Investment Officer