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Problem Solving Made Easy

Problems. Around every corner and when least expected problems rear their head. Problems solving, as a result, is one of the most useful skills anyone can have.

Problems are a part of life. Problems can be small. Some problems grow gargantuan in size! Many problems have readily available answers and some problems are studied for year, decades, and even centuries before a solution is found. Some problems still have no solution.

Your ability to solve problems will have a direct impact on your life. Simple problems that arise while driving can alter, even end, a life. Most decisions are not life or death. Most problems we face impact our personal life, family, and finances.

There are two ways to solve most problems quickly. And if you can’t get the right answer, you get the best answer, or close to it.

Since this is The Wealthy Accountant we will use problem solving examples from business and investing. Of course, there are other types of problems. The skills you learn in this article will extend to those other problems as well.

Before we explore the two ways to conquer problems fast we need to lay some groundwork.

All too often people look toward perfection. They want the absolute perfect and most correct answer. This is a recipe for a life of mediocrity.

“You don’t have to do exceptional things to get exceptional results.”
—Warren Buffett

The goal is to get the best answer quickly. There will always be people who be better at the task than you are. But while they stay focused on one task over a lifetime, you will be competent over a wide variety of skills. Not the best! Competent. This also happens to be the definition of common sense, according to Charlie Munger.

You don’t have to pick the best performing stock on the exchange every day. Picking solid companies you can understand, and are easy to understand, is key. Businesses easy to understand also provide clarity on what that business will look like in 10 years. Example: Pepsi is likely to be selling more carbonated drinks and snacks in 10 years while a technology company may transform many times. When transformations in an industry are common, the same companies don’t always stay on the top. Pepsi is the easier answer in this instance.

Let’s get to work solving problems.

Problem solving the fast and easy way with Occam's Razor.
Problem solving the fast and easy way with Occam’s Razor.

Problem Solving with Occam’s Razor

The problem with problem solving is that we can overthink the situation.

Occam’s Razor says that the simplest solution is usually the best choice. It doesn’t mean the simplest solution is always the most right choice or most correct choice. It is simply the best choice to make.

Overthinking a problem, perfectionism, and other similar types of behavior push us into a position of making no choice, which is not the simplest solution. It is usually the worst choice.

When we overthink we also tend to complicate the issue. Out goes Occam and his Razor. And once we get more moving parts, the greater the chance for making a poor choice.

There is a tendency to think the more complicated something is the better it is. An automobile is a complex piece of engineering. And look what it can do! This leads us to a fundamental truth of Occam’s Razor.

“It should be made as simple as possible and no simpler.”
— Charlie Munger

The words of Charlie Munger seem humorous. They are in a way. Yet they are 100% serious!

You can make things too simple! The simplest solution does not mean you cut every word from a story until only one word remains. Simplest does not mean “no complexity.” Less complexity is better, to a point. This is why we need our next problem solving tool.

I discussed Occam’s Razor before. You can read more about using Occam’s Razor with the link.

Using inversion to solve problems Charlie Munger style.

Solving Problems with Inversion

Charlie Munger challenged his family with a riddle. The exercise was to help the younger members of the family learn to think.

Charlie’s challenge: The same man became the champion at the same tournament 65 years apart. What was the tournament for?

Nobody in the family had a clue on what it could possibly be. The one person that did get the answer, and the right answer, also happened to be a PhD. It took all of 15 seconds. How did he do it?

Here is how he reasoned out the solution: He quickly realized athletics was out. There is no athletic competition a man in his 80s could win (assuming the first win happened when he was 15 years old).

Next he considered chess. Chess tournaments are popular. But it is also clear a man in his 80s could not compete on the level of chess masters in their prime.

This led him to checkers, which was the right answer. Checkers is a game that doesn’t require a massive reservoir of strategies. Years of experience is all that is needed to play a good game of checkers.

Problems are often easier to solve when you view them from another angle. The front-on assault is often the worst point of attack. Working backwards changes the whole view. It allows you to see things differently. It also makes it much easier to eliminate obvious wrong answers.

Using Charlie Munger’s riddle, if you attacked the question head-on every choice was a possibility. Inversion turned the question around and eliminated wrong answers. The remaining choices means even guessing gives a higher percentage chance of hitting the correct answer. Better, inversion can eliminate so many choice only one remains. Which brings us to Sherlock Holmes:

Once you eliminate the impossible, whatever remains, no matter how improbable, must be the truth.

Holmes was wrong about one thing. Removing the impossible does not leave a “must be the truth.” But it comes mighty close! Inversion is a powerful problem solving tool.

A Few More Tools for Fast Problem Solving

Occam’s Razor and inversion do not guarantee a good (or correct) result. It just improves the odds. Their greatest advantage is speed.

When reliable tools give a wrong answer it is important to cut mistakes fast so they stay small. All too often people sell at a small gain and let the losses ride, praying they “come back.” Do the opposite if you want to have extraordinary results. Cut mistakes as fast as they are discovered and let the good answers ride.

Another important point is: Don’t try to look so intelligent or try to make really smart decisions. If you do overthinking will enter the scene, if not, over-confidence will. It is unlikely you are the smartest person in the room. The smartest person, by the way, is getting his head handed to him due to his arrogance.

Charlie Munger warns us to “avoid boners.” The term might sound wrong since the term has a different meaning today. In Charlie’s day it meant not making boneheaded decisions, stupid mistakes usually guided by arrogance.

Super smart ideas are NOT required! Avoid industrial strength stupid, apply Occam’s Razor, and use inversion to solve problems fast and with the best chance for an outcome you are happy with.

Warren Buffett and Charlie Munger on solving difficult problems. And not make stupid mistakes.