Knowing what is irrelevant. What not to do, avoiding big and costly mistakes, eliminating bad habits and getting rid of what doesn’t work, is the simplest and safest way to get closer to the right answer.
Nassim Taleb called this attitude “via negativa,” which is Latin for "the negative way." Via negativa is theological thinking that attempts to describe God by negation, or by highlighting what God is not. It is a posture that could be applied to many aspects of life, as Taleb pointed out:
“Chess grandmasters usually win by not losing; people become rich by not going bust (particularly when other do); religions are mostly about interdicts; the learning of life is about what to avoid.”
Subtractive knowledge
When it comes to knowledge, Taleb believe that the best way to accumulate it is by removing what we think is wrong – subtractive knowledge.
Many times, we have heard Charlie Munger (Trades, Portfolio) talk about “piece by piece” ignorance removal and about trying to be consistently not stupid:
“It is remarkable how much long-term advantage people like us have gotten by trying to be consistently not stupid, instead of trying to be very intelligent.”
Warren Buffett (Trades, Portfolio) always mentions he wants to make sure he is working within his circle of competence. He doesn’t want any exposure to things that he can’t understand.
These are all examples of this principle of constantly looking to avoid the bad things, to limit the downside.
Via negativa in value investing
This is a good mental model to have when one goes about analyzing a company (to acquire or to produce a recommendation report): First think about what could go wrong. Reflect on the biggest risks of the company and their probability of happening.
And the answer doesn’t have to be the same all the time. That is the challenge: to always confront ideas and test their limits. It’s about taking notice of what has changed and incorporating it. Always try to enlarge the circle of competence and remove ignorance.
Investors or managers are highly influenced by markets and their pressure to act. A manager who does something (like an acquisition) is more considered than the one who does nothing, although empirical evidence is that normally these kinds of pressured decisions lead to very bad results.
Independent thinking is critical to produce good judgement. Via negativa is the safest attitude to have to increase chances of survival, to be led to upside opportunities, to be antifragile.
Read more here:Ă‚
Nassim Taleb's Portfolio Approach: The Barbell Strategy
