Inversion: How Charlie Munger tackles hard problems

Some hard problems can only be solved by thinking backwards. Instead of searching for silver bullets, Charlie Munger uses inversion to identify how things could go wrong and then works hard to avoid those pitfalls.

Here are four examples of how Charlie Munger uses inversion to solve hard problems.

Examples of Inversion

1. How to live a happy life
2. How to save lives
3. How to build a retailing giant
4. How to improve academia

1. How to live a happy life

Instead of trying to create happiness by creating X, Charlie studies what causes misery to learn how to create non-X.

In his 1986 Harvard Commencement Speech, he expanded on Johnny Carson’s insights and laid out seven surefire ways to “How to Guarantee a Life of Misery”:

• Addiction
• Envy
• Resentment
• Be unreliable
• Learning only from personal experience
• Letting life knock you down
• Not thinking backwards

2. How to save lives

During WWII, Charlie served as a meteorologist and was told to draw weather maps and predict the weather. He quickly figured out his real job was to clear pilots to take flights.

So he reversed the problem and asked “Suppose I want to kill a lot of pilots. What would be the easiest way to do it?” He came up with two answers:

• Sending pilots into icing conditions they couldn’t handle
• Letting pilots run out of fuel before they could land safely

By prioritising the avoidance of these two scenarios, Charlie improved his weather predictions and kept pilots safe.

3. How to build a retailing giant

Charlie admired Costco’s strategy and praised the company for focusing on avoiding common retail problems.

In building a retail giant, Costco focused on "what makes running a retailer miserable":

• Unreliable staff
• Store theft
• Unsold inventory
• Copycat competitors

To solve these issues, Costco:

• Hired and nurtured reliable employees
• Introduced a $60 annual fee to attract quality customers and keep out the riff raff
• Stocked fewer items to maintain low inventory and passed on savings
• Invested in premium locations to avoid competition next door

As Costco founder Jim Sinegal put it:

If you hire good people, give them good jobs, and pay them good wages, generally something good is going to happen.

4. How to improve academia

Charlie sought to solve the problem of narrow, siloed thinking in academia. In his 1998 talk during the 50th reunion of his Harvard Law School class, he posed the question: “What causes bad professional cognition?”

He identified two key problems:

• Incentive caused bias
• Man-with-a-hammer tendency (“To a man with a hammer, everything looks like a nail”)

Drawing from aviation, Charlie compared formal education in pilot training where incentives are most aligned and where carrying multiple tools is needed to avoid hazards.

Pilots receive a broad formal education, develop fluency through hands-on practice, undergo targeted weakness-based training, follow mandatory checklists and regularly participate in simulation exercises to prevent skill degradation.

References

• “Talk 1: Harvard School Commencement Speech.”, “Talk 5 Harvard Law School 50th Reunion Address” In Poor Charlie’s Almanack: The Wit and Wisdom of Charles T. Munger, edited by Peter D. Kaufman (Stripe Press edition).
• Charlie Munger Daily Journal Annual Meeting. (2020, February). Charlie Munger Daily Journal Annual Meeting February 2020 YouTube Video.