Investing is simple!
There is no secret to investing (this is the secret). It really comes down to not making a great deal of investment errors coupled with investing in good companies. That’s It – 100%.
That could be the whole article – don’t screw up and invest in companies that do well (or even moderately well). It is simple to say but difficult to practice and implement.
Other nuggets of investment simplicity are as follows:
- Investment models will only get you so far and will often mislead you. The more complex the investment model/ spreadsheet, the more likely you are to lose money. Analysts and investors often get lost in the micro details when it is the big picture that truly matters.
- It is better to be approximately right, rather than precisely wrong when making investment decisions. Making decisions with less than-perfect-knowledge is often necessary and you are often rewarded for bearing the risk of uncertainty. It is impossible to know everything about a security so do the best with your current knowledge and experience.
- No investment points are awarded for difficulty or complexity. Simple strategies can lead to outstanding returns.
- The success of indexing is evidence that the-most-simple investment approach can be successful and profitable.
- Or, you invest in a well-diversified company like Corning (GLW – one of my favorites) that does well in three different areas: technology (Gorilla Glass), automotive (catalytic converters and filters) and science (specialized glass and filters).
- Finally, it is perfectly acceptable to avoid securities you do not understand. Many famed investors, like Warren Buffett, call this putting investments in the “too hard” pile and it has saved them both money and mental anguish.
The point is – investing is simple but not thoughtless. One must commit to making investing simple by NOT making overly complex investment models and avoiding investments they do not understand. Complexity is often used as a sales tool by banks and investment managers where they show off “the better investment mousetrap” via the use of leverage or complicated investment products. My experience is that the simple approach always outperforms the complex when thoughtfully implemented.