Always "Invert"

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

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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.