The Value of Simplicity
Thursday, July 24, 2008
Question: who is the greatest investor of all time?
Some might say Donald Trump, others might suggest Peter Lynch; but I suspect that the most popular investor is Warren Buffet. Despite his tremendous wealth, Buffet's investing strategy is incredibly simple. So simple that it can basically be summed up in one sentence: buy companies whose value is less today than it will be at some point in the future. This is the strategy that makes someone the richest man in the world; and it makes me wonder, if it is so simple, why do we struggle with it so much?
I'll be the first to admit that I am guilty: at times I have been skeptical of Buffet's investing style for being "too easy". We're taught that life isn't easy after all, and if we want to succeed, we need to be one step ahead of everyone else. I was in a Borders in Washington DC recently and there existed books on every investing topic on the planet. There thousand page textbooks on the topic of technical analysis, books on daytrading, swing trading, value investing, growth investing, and magical "systems" to pick the perfect portfolio. Having read many of these books, I can tell you that the "systems" are not always compatible - someone must be right and someone must be wrong? Or maybe they're all wrong? If you've followed this blog over the past months, you'll know there are times that I traded the greenback consulting portfolio using incredibly complicated thesis. Why? I'm only grateful that I have these posts in writing, so I can look back and learn from these mistakes.
The value of simplicity permeates well beyond the investing world. Businesses constantly fail because entrepreneurs make the same mistakes that investors do: they complicate everything. An idea might be met with skepticism because it is "too simple". If only we extrapolate on this program and form this extra partnership, etc... or so the logic goes. Humans hate bureaucracy and we complain about it constantly. In essence, bureaucracy = inefficiency. Yet at the same time, many entrepreneurs create bureaucracy by complicating their business in ways that allow them to avoid answering the question "is it really this easy?".
Simplicity is efficiency. At the end of the day, the most successful investors are the ones with the simplest investing strategies and the most successful entrepreneurs are the ones with simple businesses that solve problems efficiently. What's the catch? There isn't one (unless you're running some sort of scam, of course).
Posted by Rob Pitingolo 9:36 AM
