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The Most Important Question We Never Ask

A few years ago, the key executives of Disney summoned a study of their theme parks to figure out what kids found most absorbing. Were they more enticed by Mickey and Minnie Mouse, or were they more in awe of Cinderella’s castle? Were they attracted more by the sweet-smelling snacks or colourful toys that were sold at the parks?

The study revealed that it wasn’t the Disney magic that captured the young children’s attention the most. Instead it was their parents’ cell phones, especially when the parents were using them. And because the parents were always staring at their phones, the kids wanted to as well – even when they were surrounded by giant mice, spinning teacups, and the magic of pumpkin turning into a carriage.

Today, more of us are hooked to our devices, which in turn keep us hooked to work…and away from the more important things in life. An average American spends over two hours on his or her smartphone every day. An average Indian smartphone user spends almost three hours every day on his or her device. We check them first thing in the morning, and often last thing at night.

Now what are the consequences for such an addiction towards cell phones? There’s erosion in our ability to communicate in face-to-face dialogue and reduction in family conversation. Gone are the days of sitting together at a table and asking the simple question of ‘how are you’ and ‘how was your day?’ Increasingly more people are dying in road accidents caused by focus on their cell phones instead of the road and traffic. Then there are the grave consequences seen on our brain, eyes, and hands from the overuse of cell phones.

Ah Consequences!
He or she was surely a wise man or a woman who said – “You are free to make whatever choice you want but you are not free from the consequences of the choice.”

Sadly, consequences are what we fail to put our attention to as we make decisions under uncertainties. It’s not that we are not aware of the consequences; it’s just that we fail to give them much importance because, like death, we keep believing that bad things won’t happen to us.

Of course, there is no point living a life or taking decisions only worrying about the future, it’s important to understand the consequences and how you would deal with them when you are starting out or indulging in something…like smoking, drinking, overusing cell phones, speculating in the stock market, or quitting your job to become a full-time investor.

The Most Important Question We Never Ask
The key thing in economics, whenever someone makes an assertion to you, is to always ask, “And then what?” Actually, it’s not such a bad idea to ask it about everything. But you should always ask, “And then what?” ~ Warren Buffett

I was recently reading an old interview of Peter Bernstein, author of the critically acclaimed history of financial risk, Against the Gods. Here is a key segment from the interview (emphasis is mine) where Bernstein was asked his most important lessons about risk from his book –

Two things. First, in 1703 the mathematician Gottfried von Leibniz told the scientist Jacob Bernoulli that nature does work in patterns, but “only for the most part.” The other part—the unpredictable part—tends to be where things matter the most. That’s where the action often is.

Second, Pascal’s Wager. In making decisions under conditions of uncertainty, the consequences of being wrong must carry more weight than the probabilities of being right. You begin with something that’s obvious. But because it’s hard to accept, you have to keep reminding yourself: We don’t know what’s going to happen with anything, ever. And so it’s inevitable that a certain percentage of our decisions will be wrong. There’s just no way we can always make the right decision.

That doesn’t mean you’re an idiot. But it does mean you must focus on how serious the consequences could be if you turn out to be wrong: Suppose this doesn’t do what I expect it to do. What’s going to be the impact on me? If it goes wrong, how wrong could it go and how much will it matter?

Pascal’s Wager doesn’t mean that you have to be convinced beyond doubt that you are right. But you have to think about the consequences of what you’re doing and establish that you can survive them if you’re wrong. Consequences are more important than probabilities.

…Risk-taking is an inevitable ingredient in investing, and in life, but never take a risk you do not have to take.

Nassim Taleb writes in The Black Swan

The probabilities of very rare events are not computable; the effect of an event on us is considerably easier to ascertain (the rarer the event, the fuzzier the odds). We can have a clear idea of the consequences of an event, even if we do not know how likely it is to occur.

…This idea that in order to make a decision you need to focus on the consequences (which you can know) rather than the probability (which you can’t know) is the central idea of uncertainty. Much of my life is based on it.

Warren Buffett has written a lot about consequences in his letters, because he seemingly has the “And then what?” question on top of his mind while making decisions –

1959 – Most of you know I have been very apprehensive about general stock market levels for several years. To date, this caution has been unnecessary. By previous standards, the present level of “blue chip” security prices contains a substantial speculative component with a corresponding risk of loss. Perhaps other standards of valuation are evolving which will permanently replace the old standard. I don’t think so. I may very well be wrong; however, I would rather sustain the penalties resulting from over-conservatism than face the consequences of error, perhaps with permanent capital loss, resulting from the adoption of a “New Era” philosophy where trees really do grow to the sky.

1968 – I make no effort to predict the course of general business or the stock market. Period. However, currently there are practices snowballing in the security markets and business world which, while devoid of short term predictive value, bother me as to possible long term consequences.

1997 – In this respect, as in others, we try to “reverse engineer” our future at Berkshire, bearing in mind Charlie’s dictum: “All I want to know is where I’m going to die so I’ll never go there.” (Inverting really works: Try singing country western songs backwards and you will quickly regain your house, your car and your wife.) If we can’t tolerate a possible consequence, remote though it may be, we steer clear of planting its seeds.

2005 – Every day, in countless ways, the competitive position of each of our businesses grows either weaker or stronger. If we are delighting customers, eliminating unnecessary costs and improving our products and services, we gain strength. But if we treat customers with indifference or tolerate bloat, our businesses will wither. On a daily basis, the effects of our actions are imperceptible; cumulatively, though, their consequences are enormous.

These insights from Bernstein, Taleb, and Buffett help me realize that – while not constantly worrying about the future – I should probably do more to balance my optimism about my investing, work, and life with occasional reminders that risk is real and things may not work out at all like I expect.

And Then What?
When you are an investor in businesses, it’s important to always consider secondary and long-term effects of an action. This is akin to second-level thinking that Howard Marks writes about in his seminal book The Most Important Thing.

Asking “And then what?” to every data point or analysis that is thrown at you is of extreme importance. Especially when you are looking at a commodity business or one earning substandard returns, it’s important to question every capital investment or cost saving that the company is making…because the benefits would rarely flow to the business or its shareholders, but always to the consumer. For example, this is what Charlie Munger has to say about the textile business and the failure of business owners to ask the “And then what?” question –

…all of the advantages from great improvements are going to flow through to the customers … the people who sell the machinery – and, by and large, even the internal bureaucrats urging you to buy the equipment – show you projections with the amount you’ll save at current prices with the new technology. However, they don’t do the second step of the analysis – which is to determine how much is going to stay home and how much is just going to flow through to the customer.

I’ve never seen a single projection incorporating that second step in my life. And I see them all the time. Rather, they always read: “This capital outlay will save you so much money that it will pay for itself in three years.” So you keep buying things that will pay for themselves in three years. And after 20 years of doing it, somehow you’ve earned a return of only about 4% per annum. That’s the textile business.

And it isn’t that the machines weren’t better. It’s just that the savings didn’t go to you. The cost reductions came through all right. But the benefit of the cost reductions didn’t go to the guy who bought the equipment.

Investors who overpay for stocks, or who buy sub-standard businesses, or who partner managers with low integrity fail to ask the “And then what?” question (and that is why they decide to do what they decide to do).

Managers, too, often fail to ask this question, especially when the times are good. I am sure the guys at Tata Steel didn’t ask “And then what?” when they were paying more than they could had afforded to buy Corus in 2007 (and now they are looking to sell it at a huge loss). Those at Suzlon seem to have never asked this question at all. Fund manager Bill Ackman failed to ask this question when he was doubling down on his stake in the scam-tainted Valeant Pharmaceuticals. And as Warren Buffett has confessed at so many times, he failed to ask this question while throwing good money after bad money on the textile business of Berkshire in the 1960s.

Asking “And then what?” is all about looking past a news event or action and understanding what that event or action might mean for the bigger picture. Of course, not all events and actions will destroy your core assumptions, but looking at things wearing the “And then what?” glasses would keep you from making hurried investing decisions based on your emotions, which are often an investor’s worst enemy.

Anyways, before I end this post, a lot of tribe members – after reading my last post on quitting a job to become full time investor – wrote to me asking for a checklist if they wanted to ignore my warnings and still wanted to get into full time investing. Here is something I have drawn that contains that checklist, and also some consequences of getting it wrong –

[Click here to download large image]

Whether you are looking to invest in a business, or invest in a new relationship or career, never forget to ask the “And then what?” question.

It’s a life saver, believe me!

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About the Author

Vishal Khandelwal is the founder of Safal Niveshak. He works with small investors to help them become smart and independent in their stock market investing decisions. He is a SEBI registered Research Analyst. Connect with Vishal on Twitter.


  1. Chintan Sheth says:

    Hey Vishal…another gem of an article…keep it up!!

  2. Dear Vishal,

    I see this an apt article on Risk management. It is something that everyone ignores…variable which are controllable and variables which are not controllable. I personally use the decision tree approach in making decisions, in which a general rule, the more the nodes (akin to then what?), i.e. more variables (mostly outside control)..the more difficult it will be predict the outcome or control the output (in case of a task/ project). The same is true with every aspect of life. Presumably, that’s the reason why Warren Buffet has invested in businesses where he foresees smaller rate of change.

    Thank you…your blog helps build perspectives and validate some as well. 🙂

  3. Awesome post Vishal! One of your best works. Thanks for sharing!

  4. Checklist provided above is holistic and cover each and every angle to look into before taking a plunge..

    One factor i would like to add is also focus on personal finance side of things like asset diversification, insurance (health, life), emergency fund etc. A full time investor should also not fully invest his/her entire capital in equities and keep some margin of safety during a deep bear market scenario.

    I am a big fan of your drawings and hand writting.

  5. Deepak Ahuja says:

    Thanks for writing another gem of a piece. It gives enough clarity. Loved the checklist. Keep it up. God Bless you.

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