Just as you need the end before the beginning and the evaluation of your notes and strategy performance before writing those notes or investing according to your strategy, you can often benefit from inverting, or umkehren, as the famous mathematician Jacobi called it. Umkehren means taking an opposite perspective on a matter, such as focusing on minimizing losses instead of maximizing profits.

Always invert – immer umkehren

One example is calculating and comparing implicit annual returns, “r”, from an investment rather than calculating the net present value. By inverting to future annual r, instead of current target prices, you can dynamically adjust for varying levels of risk when ranking investment alternatives.

Mean reversion

Another example of inverting is “mean reversion” (e.g., high growth rates often soon fall toward their historical average). Profit margins, unemployment, interest rates, valuation multiples, etc, often gravitate back toward their average levels. Consequently, a euphoric market is a harbinger of worse times, high unemployment rates lay the foundation of economic recovery, and low unemployment appears right before a recession, and so on.

Investing is often the art of finding a new angle that the market hasn’t figured out yet

Always invert the perspective for new and better insights: immer umkehren. A micro mobility company like Voi might be about collecting big data about its users rather than actually profiting from the rides. And reddit’s value might lie in training data for Large Language Models, not in advertising on the platform.

Learn more Investing Concepts here:

• Intrinsic Value
• Margin of Safety
• Competitive Advantage
• Relative Valuation