This article is an excerpt from the Shortform book guide to "Poor Charlie's Almanack" by Charles T. Munger. Shortform has the world's best summaries and analyses of books you should be reading.
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What is contrarian thinking? How do you practice divergent thinking?
Contrarian thinking involves challenging the prevailing consensus on any particular issue to arrive at an independent point of view. Thinking for yourself can help generate new ideas that are more correct than the public consensus. You practice divergent thinking by inverting the prevailing view on an issue to see it from a different perspective.
Read on to discover how to practice contrarian thinking.
Practice Divergent and Contrarian Thinking
Social proof bias is the tendency to believe what others believe, to improve social cohesion. This causes humans to think like sheep, even if the ideas they believe are wrong. Practicing contrarian thinking invites new ideas that might be more correct than what everyone else thinks.
Munger and Buffett practice contrarian thinking regularly in their financial management. If you adopt the same investment practices as everyone else, you can by definition only get average returns. To achieve outstanding returns, you need to think differently from the crowd.
- Munger bemoans how many institutional investors are unwilling to deviate from the crowd, because doing so and failing would make them look dumb.
- Given Berkshire Hathaway’s successful investment record, why don’t more investors try to emulate their strategy? The answer might be that their multidisciplinary approach to investing (described later) is simply too difficult, or that people are afraid to look dumb by not following the crowd.
“The ‘silly’ question is the first intimation of some totally new development.”—Alfred Whitehead
Munger demonstrates a few examples of contrarian thinking in his writing:
- Japan’s recession had endured for ten years, despite their government trying to stir growth through monetary policy. At the same time, there was an asset bubble in Hong Kong. Economists struggled to come up with an explanation. Munger thought it was simple—Japanese and Chinese people have very different cultures, and “the Chinese are gamblers.” But economists wouldn’t have accepted this explanation, not least of all because it’s politically incorrect. Munger cited this as an example of how successful investors need to practice multidisciplinary, divergent thinking to succeed.
- To get better at tennis, Charlie didn’t practice serves or powerful swings, like most people. Instead, he bought a tennis ball practice machine and practiced volleys endlessly. This is tedious and no one really likes practicing volleys, but mastering them gave him a competitive advantage.
Invert, Always Invert
One way to practice divergent thinking is to invert your view on a situation, to look at it from the opposite perspective. This approach to contrarian thinking can reveal new insights. “Many hard problems are best solved only when they are addressed backwards.”
Here are a few examples of inverting thinking:
- Instead of thinking about how something can succeed, think about how it can fail. “What can go wrong that I haven’t seen?”
- When physicists were trying to revise Maxwell’s electromagnetic laws to be consistent with Newton’s mechanical laws, Einstein inverted the situation—he revised Newton’s laws to fit Maxwell’s, and so discovered special relativity.
- Great bridge players not only think, “how can I take the winners?” but also “how can I avoid taking too many losers?”
- If you want to help a developing country like India, don’t just think, “how can I best help India?” Also think, “how can I most hurt India?” Then you find what can do the worst damage, and then you try to avoid it.
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Here's what you'll find in our full Poor Charlie's Almanack summary :
- A collection of Charlie Munger’s best advice given over 30 years
- Why you need to know what you’re good at and what you’re bad at to make decisions
- Descriptions of the 25 psychological biases that distort how you see the world