Keep It Simple
Complexity creates an illusion of certainty
“Investing is simple, but not easy.”
These are the words of a man who’s practiced investing successfully for three-quarters of a century! The temptation to think the requirements for his job should follow the advancement of his intellect must’ve been strong, but Warren Buffet kept to it.
He knows it’s the strong swimmers who usually die, or, as François de La Rochefoucauld said, “The desire to appear clever often prevents one from being so.”
The answer to our problems or the path toward our objectives can often be found in simple terms. But we feel the honorable title, position, or role we hold should be treated with such respect as to look a bit further. We find it necessary to mask the task with complexity. If we choose the more challenging path, at least we don't invite people to believe our job is simple. We receive a pat on the back – well done – on to the next one.
Often at the expense of being right.
We complicate things that enjoy the most comfort in simplicity because our ego’s desire is to appear smart.
Philosophical tangent: Occam's razor is a problem-solving principle in philosophy that says the simplest explanation is preferable to a complex one. Among competing hypotheses, the one with the fewest assumptions should be favored because it is easier to verify.
Result vs appearance
Investing emphasizes results more than appearance. It's not always easy to measure results. One has to account for different factors, such as how the market did in general, individual goals, time horizons, and other opportunities along the way. And even if the results are still considered bad, they can be highly valuable if stewarded well.
But an emphasis on appearance bears the gift of trouble.
Appearance has a great appeal to it. An eloquently articulated thesis on how the market's going to fare the next quarter or a sophisticated valuation model for how a company's going to do has the power to seduce us.
LTCM (even the acronym is complicated) was the hallmark of expertise within finance in the 1990s. It was a hedge fund made up of the most prominent financial professionals, including Nobel prize winners. They created sophisticated mathematical models for their trading strategies, creating an illusion of certainty that would justify larger and larger bets with ever more debt. Despite the weight of their resumes and scholarly credentials, they managed to blow up their fund on an epic scale, creating ripple effects throughout the world economy.
Increased complexity can create a false impression of certainty, and that's a danger zone.
Aim to avoid complexity
Einstein probably could’ve solved the meme-equation above backward, but he didn’t bother. “If they aren’t simple, I wouldn’t be interested in them,” he said when asked about the laws of physics. It’s hard to tell where 'investing' falls on the spectrum of domains, but simplicity seems to be desired throughout. Da Vinci, the ultimate polymath who hovered between all kinds of fields, stated, “Simplicity is the ultimate sophistication.”
If we can’t understand an investment, we should, like Einstein, kiss it goodbye. But if we do understand one, hold on to the kiss. Keep it simple stupid – all the time. That’s the only way we’ll be able to keep going.
Investing is an industry where the required discipline is to do a little less than we think necessary. The longer we’re able to sit on our hands, the better the odds for success.
Steve Jobs said, “You have to work hard to get your thinking clean to make it simple.”
It means we have to constantly sweep the clutter of our minds to resist the temptation of complicating things, making our problem-solving reflect a clear mind. It means fostering a discipline to stick to a simple plan. And ultimately a continuous work on our conviction for why this is the way.