-Carl Gustav Jacob Jacobi, 19th century mathematician, using the phrase to describe how he thought many problems in math could be solved by looking at the inverse. Charlie Munger often uses this same quote to express how investors can likewise benefit by looking at the inverse, or opposite, of what others are looking at.
Yesterday I wrote a post on Buffett and how he achieved 50% returns, and “guaranteed” that he could replicate those returns on a smaller amount of investment capital. Many other investors have achieved these types of returns in the past in their early years of managing just their own money, or when their funds were small. Joel Greenblatt made triple digit returns in his early years with his own money (according to his interview in Market Wizards), and then famously averaged 50.0% per year for 10 years while starting with $7 million of investment capital in his fund. Many other investors, most of whom the average person hasn’t ever heard of, have also achieved huge returns.
I’ve always thought that is is extremely beneficial to study the patterns and investment styles of these types of investors. How did Greenblatt do it? How did Buffett make 60% returns for a few years in his early 20′s? How did Ahmet Okumus achieve 100% returns for a decade, and then 30% returns in his fund? How did Mohnish Pabrai achieve similar returns with his own capital and subsequently for his partners’ capital?
As I said in yesterday’s post, they did this by thinking differently. As Munger said, they “inverted”.