Via Negativa

“All I want to know is where I’m going to die, so I’ll never go there.” – Charlie Munger

Munger says that you need to “identify the main stupidities that do bright people in and then organize your patterns for thinking and developments, so you don’t stumble into those stupidities.” Simply put, what not to do is more important than what to do. To come up with the most rational decisions, one must also eliminate their own irrational behaviours and preconceived notions in the light of new information.

The mental model that describes Munger’s specific attitude towards investing is via negativa or ‘the negative way.’ Although the concept references a philosophical approach towards theology, which asserts that the only way to describe God is to state what he is not, its application in investing is nonetheless parallel. As a mental model in investing, it emphasizes the importance of outlining all the things that can go wrong and the probability of those occurrences.    

In Daniel Kahneman’s book Thinking, Fast and Slow (2011), Kahneman outlines the two modes of thought: “System 1” is fast, instinctive and emotional whilst “System 2” is slower, deliberate and more logical. The combination of both these modes are responsible for the way we interpret the world around us. It has given us beliefs and cognitive biases that can also distort our perception of reality. Inherently, humans are more irrational then we would like to believe.

Dan Ariely re-affirms this notion in his book Predictably Rational (2008). Ariely explains that “We all want explanations for why we behave as we do and for the ways the world around us functions. Even when our feeble explanations have little to do with reality. We’re storytelling creatures by nature, and we tell ourselves story after story until we come up with an explanation that we like and that sounds reasonable enough to believe. And when the story portrays us in a more glowing and positive light, so much the better.”

It is therefore of utmost importance to consciously think in terms of “System 2” in order to achieve the highest level of rationality. Achieving rationality requires constant introspection and re-examination of currently held beliefs, which often times are distorted by the counter-productive thoughts generated by “System 1.” Rationality is, and should be, the highest priority in investing and in life.