Heuristics

What are heuristics? Heuristics are nothing more than a learning approach that fosters discovery and problem-solving through experience. It emphasize a ‘good-enough’ solution that is akin to a rule-of-thumb approach; it de-emphasizes exhaustive, time-consuming analysis when impractical.

What is the value of heuristics? The inherent value of heuristics is that it enables faster decision-making & pattern recognition by allowing for efficiency of thought across wide ranges of topics, industries, philosophies, etc.

A natural extension of heuristics are checklists. Nick Gogerty brilliantly elaborates the value of checklists within investing by explaining,

Checklists allow for efficiency of semi-structured tasks and better individual and group goal-directed behavior. Effective checklists are finely tuned for effectiveness, brevity and looseness. Looseness is required for creativity to come in…Charlie Munger preaches inversion as a way to solve problems. So here is an inversion technique to build a value investing checklist: Find some great-sounding investments that failed or companies that disappeared from an industry and then list why they failed. That causal list becomes your checklist.

As evidenced in the similar approach used by the National Transportation Safety Board (who study historical accidents and discern causal factors) this type of approach transcends investing and has much practical value for other disciplines, especially problem areas with disaggregated information and variable factors. I plan to leverage this style of analysis when relevant.