“Invert, always invert”

Boeing B-17GA good investment process is really difficult to achieve and even harder to sustain. The variables are many and the problems challenging. Charlie Munger borrowed a highly useful idea from the great 19th Century German mathematician Carl Jacobi that provides a helpful way to deal with the myriad problems investors face in trying to establish a good investment process.

Invert, always invert (“man muss immer umkehren”).

Jacobi believed that the solution for many difficult problems could be found if the problems were expressed in the inverse – by working backward. As in most investment matters, we would do well to emulate Charlie here. Continue reading

Knowing What We Don’t Know

DunnoIn a recent post I made the obvious point that randomness has a very significant impact on investment performance. Of course, we’re all too ready to acknowledge bad luck when things go wrong, but when we succeed we want all the credit.  In any event, my friend Cullen Roche also published the post at Pragmatic Capitalism, where it got a comment that I find interesting and deserving of a bit more examination. Continue reading