Want to Live Better? Focus on What You Hate

In a 2017 survey of 10,000 corporate leaders by global accounting firm Deloitte, one of the top findings was that "diversity of thinking is the new frontier."

There's a lot to be said about the ability to "think differently." Research shows that high-performing business teams are cognitively diverse, meaning that members approach problems using different frameworks.

How can investors generate their own form of cognitive diversity? We're encouraged to diversify our portfolio holdings to manage risk, but what can we do to enhance decision-making, manage our cognitive biases (like confirmation bias, risk aversion, and over-confidence), and maybe even improve our overall performance?

Who better to look to for inspiration than an investment guru like Charlie Munger, vice-chairman of Berkshire Hathaway (and thereby Warren Buffett's right-hand man).

What's Inversion All About?

Munger uses a thought-process technique originated by 19th Century German mathematician Carl Jacobi, whose dictum for solving complicated problems was, man muss immer umkehren — or "invert, always invert."

What does that mean? Instead of tackling problems the way most of us do — setting goals and diligently working toward them — Munger takes a different tack. He inverts the problem.

For example, instead of setting a goal to have a happy life, Munger would flip the question and might ask something like, "What do I hate that would result in a miserable life?" Once those factors are identified, it's simply (or maybe not-so-simply) a matter of avoiding them as much as possible. Avoiding what you don't want, the argument goes, will lead to what you do want.

"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," Munger has said in explaining his and partner Buffett's financial successes.

When it comes to investing decisions, such as whether to buy a particular asset, we can flex our minds by posing questions forwards and backwards. For example: "Why should I buy stock in Company A/Why shouldn't I buy stock in Company A?" This type of exercise can challenge our biases and enhance our mental creativity to generate a range of possible actions. Another example? If you're seeking financial security, you could ask yourself what makes you feel financially insecure? That can reveal what actions you'll want to avoid.

It's not often we're encouraged to focus on what we don't want, but challenging ourselves to do so may bring clarity...or at least allow us to think differently now and then.

Munger himself sums the whole idea up perfectly with this: "Instead of looking for success, make a list of how to fail instead — through sloth, envy, resentment, self-pity, entitlement, all the mental habits of self-defeat. Avoid these qualities and you will succeed. Tell me where I'm going to die, that is, so I don't go there."