Found this book thanks to a podcast and it has become one of my favorite books about not only investing but general wisdom for a better life.
Here are some of my favorite highlights.
Work hard so you have conviction
One morning, I was standing beside him when he rang his office to check in. The analyst on the other end of the line broke it to him that AES, a stock that Miller had only just bought, had announced terrible earnings. The stock halved, costing him $ 50 million before lunchtime. Miller instantly doubled his bet, calmly assuming that irrational investors had overreacted to the company’s dismal news. As he explained to me, investing is a constant process of calculating the odds: “It’s all probabilities. There is no certainty.”
The lesson from Miller here is that conviction shines through in your actions. Instead of panicking, he doubled down on his decision because he knew he had an even better discount for a company with great long-term prospects.
If you want to beat the market, focus only on the best. There are not many great winners out there
“Most people would be much better off with an index fund,” said Ruane. But for investors aiming to beat the market, concentration struck him as the smart way to go: “I don’t know anybody who can really do a good job investing in a lot of stocks except Peter Lynch.”
“I observe what works and what doesn’t and why”
This mindset is embodied by Buffett’s frighteningly clever partner, Charlie Munger, who once remarked, “I observe what works and what doesn’t and why.” Munger, who is one of the central figures in this book, has roamed far and wide in his quest for better ways to think, borrowing analytical tools from disciplines as diverse as mathematics, biology, and behavioral psychology. His role models include Charles Darwin, Albert Einstein, Benjamin Franklin, and a nineteenth-century algebraist named Carl Gustav Jacobi. “I learned a lot from a lot of dead people,” Munger told me. “I always realized that there were a lot of dead people I ought to get to know.”
I’ve come to think of the best investors as an idiosyncratic breed of practical philosophers. They aren’t trying to solve those abstruse puzzles that mesmerize many real philosophers, such as “Does this chair exist?” Rather, they are seekers of what the economist John Maynard Keynes called “worldly wisdom,” which they deploy to attack more pressing problems, such as “How can I make smart decisions about the future if the future is unknowable?” They look for advantages wherever they can find them: economic history, neuroscience, literature, Stoicism, Buddhism, sports, the science of habit formation, meditation, or anything else that can help. Their unconstrained willingness to explore “what works” makes them powerful role models to study in our own pursuit of success, not only in markets but in every area of life.
Practice playing probabilities
Another way to think about the most skillful investors is as consummate game players. It’s no coincidence that many top-notch money managers play cards for pleasure and profit. Templeton used his poker winnings to help pay for college during the Depression. Buffett and Munger are passionate about bridge. Mario Gabelli, a billionaire fund mogul, told me how he earned money as a poor boy from the Bronx by playing cards between rounds as a caddy at a fancy golf club. “I was eleven or twelve,” he recalled, “and everybody thought they could win.” Lynch, who played poker in high school, college, and the army, told me, “Learning to play poker or learning to play bridge, anything that teaches you to play the probabilities… would be better than all the books on the stock market.”
Save yourself time and learn from other people
A wise man ought always to follow the paths beaten by great men, and to imitate those who have been supreme, so that if his ability does not equal theirs, at least it will savor of it.
—Niccolò Machiavelli
I believe in the discipline of mastering the best that other people have ever figured out. I don’t believe in just sitting down and trying to dream it all up yourself. Nobody’s that smart.
—Charlie Munger
“Humans have something weird in their DNA which prohibits them from adopting good ideas easily,” says Pabrai. “What I learned a long time back is, keep observing the world inside and outside your industry, and when you see someone doing something smart, force yourself to adopt it.” This sounds so obvious, even trite. But this one habit has played a decisive role in his success.
So, with the zeal of a true disciple, Pabrai committed to invest “the way Warren said I should.” Given that Buffett had averaged 31 percent a year, Pabrai naively assumed that it shouldn’t be hard to average 26 percent. At that rate, his $1 million would double every three years and hit $1 billion in thirty years. As a reminder of this compounding target, his license plate reads COMLB 26. Even if he missed by a mile, he expected to do fine; if, say, he averaged 16 percent a year, his $1 million would turn into $85.85 million in thirty years. Such is the glory of compounding.
Of course, he had no MBA from a fancy school such as Wharton or Columbia, no qualification as a certified financial analyst, no experience on Wall Street. But Pabrai, who regards his entire life as a game, expected his rigorous application of Buffett’s methodology to give him an edge over all of the fools who failed to follow the Sage of Omaha. “I want to play games that I know I can win,” says Pabrai. “So how do you win the game? You’ve got to play according to the rules. And the good news is, I’m playing against players who don’t even fucking know the rules.”
In investing, you get paid for doing nothing
Graham’s insight that Mr. Market is prone to irrational mood swings has profound implications. For master investors such as Buffett and Munger, the essence of the game is to detach themselves from the madness and watch dispassionately until the bipolar market provides them with what Munger calls “a mispriced gamble.” There are no prizes for frenetic activity. Rather, investing is mostly a matter of waiting for these rare moments when the odds of making money vastly outweigh the odds of losing it. As Buffett has said, “You don’t have to swing at everything—you can wait for your pitch. The problem when you’re a money manager is that your fans keep yelling, ‘Swing, you bum!’ ”
Buffett, Munger, and Pabrai are not alone in pursuing this strategy of extreme patience and extreme selectivity. Their elite cohort includes great investors such as Francis Chou, one of Canada’s most prominent fund managers. When I first interviewed him in 2014, Chou had 30 percent of his assets in cash and hadn’t made a significant stock purchase in years. “When there’s hardly anything to buy, you have to be very careful,” he told me. “You cannot force the issue. You just have to be patient, and the bargains will come to you.” He warned, “If you want to participate in the market all the time, then it’s a mug’s game and you’re going to lose.”
How long can he go without buying? “Oh, I can wait ten years—even longer,” Chou replied. In the meantime, he studies stocks that aren’t cheap enough to buy, hits balls at a golf range, and reads two hundred to four hundred pages a day. One technique that he uses to distance himself emotionally from the day-to-day drama of the market is to think of himself in the third person instead of the first person.
Like Chou, Pabrai has constructed a lifestyle that supports this heroically inactive investment strategy. When I visited his office in Irvine, he was dressed in shorts, sneakers, and a short-sleeved shirt. He looked less like an adrenaline-fueled stock jockey than a vacationer contemplating a lazy stroll on the beach. Cloning Buffett, who once showed him the blank pages of his little black diary, Pabrai keeps his calendar virtually empty so he can spend most of his time reading and studying companies. On a typical day at the office, he schedules a grand total of zero meetings and zero phone calls. One of his favorite quotes is from the philosopher Blaise Pascal: “All of humanity’s problems stem from man’s inability to sit quietly in a room alone.”
One challenge, says Pabrai, is that “large motors aren’t good at grinding away without resulting actions.” He thinks Berkshire Hathaway’s shareholders have profited immensely from Buffett’s passion for playing online bridge, since this mental distraction counteracts the “natural bias for action.” Pabrai plays online bridge, too, and he burns off energy by biking and playing racquetball. When there’s nothing to buy and no reason to sell, he can also direct more attention to his charitable foundation. He says it helps that his investment staff consists of a single person: him. “The moment you have people on your team, they’re going to want to act and do things, and then you’re hosed.” In most fields, a hunger for action is a virtue. But as Buffett said at Berkshire’s 1998 annual meeting, “We don’t get paid for activity, just for being right.”
If you don’t gamble, you don’t need much other than patience to make it
By contrast, Buffett said that he and Munger were never in a hurry because they always knew they’d become enormously rich if they kept compounding over decades without too many catastrophic mistakes.
“If you’re even a slightly above average investor who spends less than you earn, over a lifetime you cannot help but get very wealthy.”
-Warren Buffett
Over lunch, Buffett explained that he and Munger always measure themselves by “an inner scorecard.” Instead of worrying how others judge them, they focus on living up to their own exacting standards.
“Hang out with people who are better than you and you cannot help but improve.”
-Warren Buffett
Be good and get rewarded
Diplomacy is not his strong point, but Pabrai regards truthfulness as a higher concern. In the late nineties, he read a book titled Power vs. Force: The Hidden Determinants of Human Behavior by David Hawkins, which Pabrai describes as “a huge part of what I believe in.” Hawkins argues that “true power” stems from traits such as honesty, compassion, and a dedication to enhancing other people’s lives. These powerful “attractors” have an unconscious effect on people, making them “go strong,” whereas traits such as dishonesty, fear, and shame make them “go weak.” Pabrai took one specific lesson from Hawkins and determined to live by it. “You can’t get away with lying to other humans,” says Pabrai, “and that’s a very profound idea.”Be good
Keep it simple and use common sense
Intelligent people are easily seduced by complexity while underestimating the importance of simple ideas that carry tremendous weight. Pabrai, the ultimate pragmatist, doesn’t fall into this trap. “Compounding is a very simple idea. Cloning is a very simple idea. Telling the truth is a very simple idea,” he says. But when you apply a handful of powerful ideas with obsessive fervor, the cumulative effect “becomes unbeatable.”
Away from the madness of the crowd
Michael Lipper, the president of an investment firm called Lipper Advisory Services, once remarked to me that Templeton, George Soros, and Warren Buffett shared one invaluable characteristic: “the willingness to be lonely, the willingness to take a position that others don’t think is too bright. They have an inner conviction that a lot of people do not have.” That phrase—the willingness to be lonely—has stuck in my mind for many years. It eloquently conveys the critical idea that the best investors are not like other people. They are iconoclasts, mavericks, and misfits who see the world differently from the crowd and follow their own peculiar path—not just in the way they invest but in the way they think and live. François Rochon, a Canadian money manager who has beaten the market by a mile over the last quarter of a century, has an intriguing theory. As we all know, the human genetic code developed over hundreds of thousands of years to support the primary objective of survival. One lesson we learned at least two hundred thousand years ago is that it’s safer to belong to a tribe. That unconscious instinct tends to kick in almost irresistibly when we feel under threat, says Rochon. For example, when stocks plummet, the average investor sees others panicking and instinctively follows the tribe by selling stocks and fleeing to the safe haven of cash. What the tribe followers fail to recognize is the counterintuitive truth that this might be the perfect time to buy stocks, since they’re now on sale. “But I think some people in the race don’t have that tribal gene,” says Rochon, “so they don’t feel the urge to follow a tribe. And those people can become good investors because they can think for themselves.” Rochon, who uses his talent for stock picking to bankroll his passion for collecting art, suspects that many artists, writers, and entrepreneurs also lack the tribal gene. Rochon’s theory is entirely unprovable, but there’s plenty of anecdotal evidence that the best investors are wired in unusual ways that may be financially advantageous. One famed investor who asked not to be quoted by name on this subject told me that many of his most successful peers are “kind of Aspergerish” and that almost all are “unemotional.” He points out that “it’s a help to be unemotional” when making unconventional bets that the crowd would consider foolish. He adds that people with developmental conditions such as Asperger’s syndrome “often have something else in compensation, and very often it’s numeracy.… Being unemotional and [numerate] is a great combination for investing.”
Buy at the point of maximum pessimism
In the depths of the Depression, the stock market was a toxic wasteland. From October 1929 to July 1932, the Dow Jones Industrial Average plunged 89 percent. In the wake of that catastrophe, few people had the financial or emotional fortitude to pick through the rubble in search of bargains. But the fact that others were too scared to invest did nothing to diminish Templeton’s interest. Against this backdrop of widespread gloom, he asked himself a critical question: How can I buy a stock for a fraction of what it’s worth? His answer: “Absolutely nothing will make a stock go down to an extremely low price except for other people urgently trying to sell.” Templeton had witnessed firsthand how financial distress had forced farmers in Tennessee to sell their land for next to nothing. The lesson was etched in his brain: “You have to buy at a time when other people are desperately trying to sell.” He later coined a marvelous phrase to describe these moments when fear and desperation go viral: “the point of maximum pessimism.”
First of all, said Templeton, beware of emotion: “Most people get led astray by emotions in investing. They get led astray by being excessively careless and optimistic when they have big profits, and by getting excessively pessimistic and too cautious when they have big losses.”
Focus where the opportunities are
When he heard his professors’ explanations of market efficiency, Marks says he experienced the financial equivalent of satori, “the moment of enlightenment in Zen Buddhism.” It made sense to him that millions of investors hustling to earn a profit would “find the bargains and buy them up.” This is “not universally true,” he says, “but it makes a hell of a lot more sense than to think that something could be an obvious bargain and nobody else will tumble to it.” Marks regards the efficient-market hypothesis as a “very powerful concept.” Still, there’s a big enough difference between academic theory and real-world practice for him to have earned billions for himself and his clients. There’s an old joke he tells, which goes like this: A professor of finance and a student are strolling across the Chicago campus. The student stops and exclaims, “Look! There’s a five-dollar bill on the ground!” The professor replies, “It can’t be a five-dollar bill or someone else would have picked it up already.” The professor walks away, so the student picks up the money and buys himself a beer. Appropriately, Marks keeps in his wallet a folded $5 bill that he once found in the Harvard Business School library—a reminder of the limitations of theory. Marks drew a simple but life-changing lesson from these academic debates: if he wanted to add value as an investor, he should avoid the most efficient markets and focus exclusively on less efficient ones.
The market is made off of human emotions which you can reverse engineer
The investor faces a similar challenge: life is endlessly confusing and complicated. But what if we could detect some underlying patterns within that infinitely complex web? Then, we might have more success in figuring out what the future has in store for us. Marks has a rare gift for identifying cyclical patterns that have occurred again and again in financial markets. Once we understand these patterns, we can avoid being blindsided by them and can even profit from them. “It’s very helpful,” Marks tells me, “to view the world as behaving cyclically and oscillating, rather than going in some straight line.” He believes that almost everything is cyclical.
The financial markets are the perfect laboratory for the study of cyclicality because they’re driven by investor psychology, which veers perennially between euphoria and despondency, greed and fear, credulousness and skepticism, complacency and terror. Humans get carried away, so the trend always overshoots in one direction or the other. The future may be unpredictable, but this recurring process of boom and bust is remarkably predictable. Once we recognize this underlying pattern, we’re no longer flying blind.
Marks and his partner, Karsh, would compare notes and exclaim, “Look at this piece of crap! A deal like this shouldn’t be able to get done—and the fact that it can get done means there’s something wrong in the market.”
Simplify your decisions
Marks never thinks of the future as a single predetermined scenario that’s bound to occur. He views it instead as a “distribution of different possibilities.” His standard approach is to assign probabilities to each of these “alternative futures.” But in this case, the uncertainty was so extreme that there was no point even trying to assign probabilities for the array of possible outcomes. He found it more helpful to simplify his decision-making by thinking of the situation in binary terms: “I think you can reduce it to, either the world ends or it doesn’t.… And if it doesn’t end and we didn’t buy, then we didn’t do our job. That made it awfully straightforward.”
For a rational skeptic, the point is not to be permanently pessimistic; it’s to question what “everyone” believes to be true, whether it’s too positive or too negative.
“Skepticism calls for pessimism when optimism is excessive. But it also calls for optimism when pessimism is excessive.”
Simplicity Is the Ultimate Sophistication
As I would soon learn, the principles underpinning his strategies are surprisingly simple. In fact, what makes Greenblatt such an illuminating guide to investing is his gift for reducing this complex game to its purest essence. For example, during a conversation at his office in midtown Manhattan, he tells me that the entire secret of successful stock picking comes down to this: “Figure out what something is worth and pay a lot less.”
The late Jack Bogle, who founded the Vanguard Group in 1975 and created the first index fund a year later, observed in a book titled Enough, “Financial institutions operate by a kind of reverse Occam’s razor. They have a large incentive to favor the complex and costly over the simple and cheap, quite the opposite of what most investors need and ought to want.”
One of the most thoughtful proponents of simplicity is Josh Waitzkin, an expert on peak performance in fields as diverse as chess, martial arts, and investing. As a child prodigy, he was a national chess champion and the subject of the movie Searching for Bobby Fischer. As an adult, he became a world champion in tai chi chuan push hands, a coach to hedge fund managers, and the author of a fascinating book, The Art of Learning: An Inner Journey to Optimal Performance.
Based on his own experience as a world-class performer, Waitzkin stresses the importance of breaking down complicated challenges into simple components. When teaching chess, he would remove all but three pieces (two kings and one pawn) as a way of exploring the game’s essential principles in a context of reduced complexity. Similarly, he mastered tai chi by “incrementally refining the simplest of movements—for example pushing your hands six inches through the air.” By obsessively practicing such “simplified motions,” he gradually internalized the underlying principles of the entire martial art, such as “the coordination of mind, breath, and body.” He concludes, “It is rarely a mysterious technique that drives us to the top, but rather a profound mastery of what may well be a basic skill set.”
This is a crucial insight that can benefit even the smartest investors. After all, complexity can be a particularly seductive trap for clever people. They were rewarded at school for solving complex problems, so it’s no surprise if they are drawn to complicated solutions when confronted by the puzzle of investing. But in financial markets, as in martial arts, victory doesn’t depend on dazzling displays of esoteric techniques. It depends on a firm grasp of the principles of the game and a deep mastery of basic skills. As Buffett has said, “Business schools reward difficult, complex behavior more than simple behavior. But simple behavior is more effective.”
Efficient Market Hypothesis vs common sense
Intellectually, it’s an elegant theory—a testament to the collective wisdom of crowds. What’s more, it’s had the positive effect of drawing many regular investors into index funds. They are built upon the disheartening but realistic notion that, if you can’t beat the market, you should focus on matching its returns at the lowest possible cost. For the vast majority of investors, indexing is the most rational—and simplest—strategy of all.
But Greenblatt didn’t buy what he was being taught. “I had a visceral response to what I was learning about efficient markets,” he says. “It didn’t seem to make sense to me just on a basic level of looking at the newspaper and seeing what was happening.”
For a start, he could see that stocks routinely experience wild swings between their fifty-two-week highs and lows. If a stock trades at $50 in February and shoots up to $90 in November, how could it be correctly priced at both extremes? And what about hot stocks, such as the Nifty Fifty, that suddenly burst into flames? For example, did the purportedly all-knowing crowd price Polaroid fairly at $150 in 1972 and at $14 in 1974? It seemed highly unlikely.
The folly of the market is the opportunity of the disciplined
Many investors get rattled when they read the latest news about, say, a Greek debt crisis that threatens the European economy. But Greenblatt says, “The way I look at it is, if I own a chain store in the Midwest, am I all of a sudden going to sell it for half of what it’s worth because something bad happened in Greece? I don’t think so! But that’s what you read in the newspaper, and that’s what everyone is looking at. If you have a context to say, ‘Well, does it matter or doesn’t it matter?’—it’s just very helpful.”
Indeed, you start to realize that much of the investment world is engaged in fruitless nonsense. Wall Street economists and market strategists pontificate about macroeconomic headwinds and tailwinds that nobody can reliably or consistently predict. Media pundits muse about the significance of short-term price fluctuations that are random and meaningless. Highly intelligent analysts at brokerage firms squander their time calculating next quarter’s corporate earnings to the exact penny—an absurd guessing game that’s irrelevant to successful, long-term investors.
Not to be outdone, academics teach complicated mathematical formulas and speak in a private code about Sharpe ratios, Sortino ratios, alpha, beta, the Modigliani-Modigliani measure, and other arcane concepts that lend an air of scientific exactitude to the messiness of the markets. Meanwhile, investment consultants harness these highfalutin notions to convince clients that their portfolios need frequent, subtle fine-tuning. Buffett has derided these high-priced peddlers of complexity as “hyper-helpers” whose “advice is often delivered in esoteric gibberish.”
By contrast, Graham wrote simply and clearly about “Mr. Market.” He encapsulated the entire game of investing in one brief parable about this muddle-headed character. In The Intelligent Investor, Graham suggests imagining that you own a $1,000 stake in a private business. Every day, your partner—the obliging but irrational Mr. Market—provides you with a valuation of that stake. His price quote changes based on how enthusiastic or fearful he feels that day: “You may be happy to sell out to him when he quotes you a ridiculously high price and equally happy to buy from him when his price is low.” The rest of the time, you can sit on your hands, waiting for Mr. Market to lose his mind once more and offer you another deal that you can’t refuse.
In other words, the market isn’t an efficient machine that reliably and consistently sets fair prices. It’s a comedy of errors, a festival of folly. “People are crazy and emotional,” says Greenblatt. “They buy and sell things in an emotional way, not in a logical way, and that’s the only reason why we have any opportunity.… So if you have a way to value businesses that’s disciplined and makes sense, you should be able to take advantage of other people’s emotions.”
Deferred gratification
Deferring gratification is no easy task, given the environment in which we live. In wealthier nations, everything is available on demand—limitless food, information, bingeable TV shows, every flavor of porn, or whatever else tickles our fleeting fancy. Our attention spans are shortening under a high-speed bombardment of emails, text messages, Facebook posts, and Twitter notifications. Similarly, in the investment realm, we can now dart in and out of the market instantaneously by pushing a few keys on our mobile phones. We’re all struggling in our own ways to adjust to this technological and social revolution, which is both miraculous and perilous. As pleasure-seeking creatures, we tend to be drawn to whatever feels good now, despite the price that we (or others) may have to pay later. This is evident not just in our individual lives but collectively in everything from government deficits to unconstrained energy consumption.
“It’s all about deferred gratification,” says Sleep. “When you look at all the mistakes you make in life, private and professional, it’s almost always because you reached for some short-term fix or some short-term high.… And that’s the overwhelming habit of people in the stock market.”
Just think for a moment of the many unchecked impulses that ruin investors’ returns: for example, the tendency to trade too frequently; to make emotional decisions based on alarming or alarmist news stories; to join the herd in charging after the most popular (and overpriced) assets; to dump funds that have lagged for a year or two; or to sell winning stocks prematurely, instead of leaving them to compound for years. The ability to resist such urges is “one of those big superpowers,” says Sleep. “You need to give it huge weight when you’re weighing what works.”
One practical trick, says Sleep, is to “reward yourself in the short term” by relishing the prospect of all the wonderful benefits you will enjoy because you chose to override your desire for instant gratification. That way, deferral becomes associated with pleasure and “you’re much more likely to embrace it.”
Moderate, incremental changes
Gayner, who is now the co-CEO of Markel, a financial holding company with insurance and investment operations around the world, may not set any records for the 100-meter dash. But his running habit (topped off with a little yoga and some modest kettlebell lifting) helps him to handle the physical demands and daily stress of a relentless job that involves managing about $21 billion in stocks and bonds, plus a collection of nineteen fully owned companies, not to mention around seventeen thousand employees. “If you’re an executive or a money manager who has these kinds of responsibilities, you’re playing the game twenty-four hours a day, seven days a week. There’s no off-season. There are no days off,” he says. “As a consequence, I think it’s very important to be disciplined about paying attention to your wellness, your sleep, your exercise, a little work-life balance, spending time with your wife and kids and your fellow parishioners—all these sorts of things.” Such behavior “may not create the outcome that you want, but it improves your odds.”
What’s distinctive is the indomitable consistency of his discipline. Most people get fired up for a few days, then flame out. I own a kettlebell and a skipping rope, neither of which I’ve used more than three times. The primary purpose of their existence is to make me feel guilty. Yet Gayner keeps plugging away, never perfect, but always directionally correct. The key, he says, is that he is “radically moderate” about everything he does. “If I make extreme changes, they’re not sustainable. But moderate, incremental changes—they’re sustainable.”
All of this points to an important conclusion that applies both to investing and life. Resounding victories tend to be the result of small, incremental advances and improvements sustained over long stretches of time. “If you want the secret to great success, it’s just to make each day a little bit better than the day before,” says Gayner. “There are different ways you can go about doing that, but that’s the story.… Just making progress over and over again is the critical part.”
Small efforts add up
What Gayner’s record shows is that you don’t need to be extreme to achieve exceptional long-term results. On the contrary, he says, “People get themselves into trouble with extremes.”
“You cannot control the outcome,” says Gayner. “You can only control the effort and the dedication and the giving of one hundred percent of yourself to the task at hand. And then whatever happens, happens.”
Brailsford, who has an MBA, was inspired by the Japanese principle of kaizen (continuous improvement), which had played a starring role in vaulting Toyota to greatness. Speaking with Eben Harrell at the Harvard Business Review, Brailsford explained, “It struck me that we should think small, not big, and adopt a philosophy of continuous improvement through the aggregation of marginal gains. Forget about perfection; focus on progression, and compound the improvements.”
Invert the problem to get the best solution
It’s counterintuitive that you go at the problem backward. If you try and be smart, it’s difficult. If you just go around and identify all of the disasters and say, ‘What caused that?’ and try to avoid it, it turns out to be a very simple way to find opportunities and avoid troubles.”
Munger’s approach of solving problems backward was influenced by Carl Gustav Jacobi, a nineteenth-century algebraist who famously said, “Invert, always invert.” But Munger tells me that he also honed this mental habit of inversion with help from his friend Garrett Hardin, an ecologist who shared his fascination with the dire repercussions of shoddy thinking: “Hardin’s basic idea was, if somebody asks you how to help India, just say, ‘What could I do to really ruin India?’ And you think through all of the things you could do to ruin India, and then you reverse it and say, ‘Now, I won’t do those.’ It’s counterintuitive but it really helps you to reverse these issues. It’s a more complete way of thinking a problem through.”
Another psychologically astute strategy is to perform a “premortem” before making any significant investment decision. That’s to say, you project into the future and ask yourself a hypothetical question: “Why did this decision prove to be such a disaster?” The notion of a premortem was devised by an applied psychologist, Gary Klein, to identify problems in advance and reduce the risk of overconfidence.