When analyzing a situation, Charlie Munger (of Berkshire Hathaway fame), was a proponent of "inverting". Reading more about his life in Poor Charlie's Almanac, I began to see the usefulness of his philosophy.
Suppose I am thinking about investing in India. Normally I would start by looking at all the positive attributes.
One of the largest and fastest-growing populations. This should be great for trade and commerce
A rapidly growing middle class. Essential for building out consumer products
A focus on education should allow for creativity and discovery of new products, medicine etc.,
But what if I "invert" the analysis as Charlie recommends........
Why would I not invest in India? What negatives might I uncover? If the negatives are modest, only then, may I want to examine the positives.
So I invert India.....
there is poor infrastructure for the transportation of goods
internal political and economic issues will now bog down India post the recent election
Possible religious strife
Corruption. India scores a 40 in Transparency International "Corruption Perception Index" (on a scale of 0-100, where 0 means highly corrupt and 100 means very clean)
I do not mean to pick on India, I could just have decided to look at Europe or Canada. Nevertheless, the negatives are strong enough to cast my eyes elsewhere.
Poor Charlie's Almanac is worth a quick read. He believed a focus on "inverting" the analysis was useful not just for stock picking, but with all questions in life.
regards, Tim
Tim Morton, CFA is a retired portfolio manager with 45 years of experience working with private clients. For the past two years, the editor of mortonir.com and a contributor to Barron's. My comments are not to be taken as investment recommendations. They are purely for discussion purposes. Please see your advisor for investment advice.
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