Simple: “easily understood or done; presenting no difficulty.” Synonyms: straightforward, easy, uncomplicated, uninvolved, effortless, painless, undemanding, elementary, child’s play.
Complex: (mathematics) “denoting or involving numbers or quantities containing both a real and an imaginary part.”
Imagine for a moment hearing the process of building your wealth over a long period of time described as “simple.” In the early 80’s when I began working, the masses never guessed what was coming. A review now could have reduced all planning for retirement to the following instructions: “Keep saving/buying. Never sell. Retire.”
I have learned over time that keeping something simple – while a whirlwind of activity is constantly unfolding around you – is one of the more difficult things you will try to accomplish. Making the markets many moving parts seem like a simple process to endure is complicated mainly by our need to “be on top of things.” We have been collectively taught that because we can now hear every piece of data in real-time, it must somehow mean something.
After all, those experts heralded in during stressful times surely did not get on TV and have all those letters after their names because they are unimportant, right? One must ask themselves then – how is that process working out?
In recent quarters we have been told any number of things by experts:
- We had the worst 2016 start to the markets in over 80 years
- Oil prices crashing to $26 will topple the global economic system
- China’s problems will collapse the global economy
- Brexit is the end of all exits and will topple the EU first followed by everyone else
- Zika is the next plague
We have high-speed trading, algo shops, robo-advisors, ETF’s in every slice of perspective you can imagine and too many mutual funds (already too many ETF’s). Many have seen the 60-Minutes piece telling us how some shops pay premiums to be closer to the main source of data so they know something milliseconds before you do.
And in all of this – almost everyone who pushes a buy or sell button from their home or office screen after seeing some terrible piece of news – feels they are somehow doing something unique.
The Dark Secrets?
There are many – most are directly opposite of what “sells”:
- Risk is in all things
- There is no secret pathway to outwit or outrun risk
- A life of investing will be littered with some of the worst possible investment choices
- There is no money heaven that capital goes to during windows of loss – it just moves
- What is unpopular today can and often will be nice and shiny a few years later
- Keeping it simple will be the hardest thing you ever accomplish
I point this small list out knowing that there are many more elements to add to it. Here is the thing which always amazes me:
Did it Really Matter?
As noted, we started the year terribly. Volatility was everywhere yet few can even remember the reason(s) why. We merely mentally note the start was the worst in decades. Did that matter in the end? Only if you reacted to it poorly.
Which is more important today:
The market crashed on October 19, 1987, falling over 22% in a single session – or
On October 20, 1987 you could buy the DOW under 1,925?
I don’t want to make this tougher than it is – and that is tough all by itself. As such, we must all accept this: every single record we research today, every fund or manager or process some consultant reviews or puts forth to their client had horrible events unfold in the past. There will be terrible events to unfold in the future as well – even today as I type. Something appearing bad right this moment is nearly assured to unfold.
In time, it will be seen for what it was – one element along a very long pathway. This pathway has been followed by all long-term investors. A pathway which includes this finding: the success of choices made over time in this part of your life are much like a great hitter in baseball. The hitters with a .300 average are very successful and very wealthy.
The Tough Route
I have had the blessed opportunity to learn from some of the best. Simple has always been a reference they used. Even Mr. Buffett. Ask him about markets or averages or where something is going and the answer is almost the same, “I have no clue.” Ask him about the latest buzzword or buzz-topic or “monster of the day” and his mantra never changes, “we pretty much like to invest in something forever.” Be assured, forever includes a lot of mistakes.
I have often asked those I respect the same question. It usually went something like this: “So why doesn’t everyone do this?” The answers were usually close to the same, going something like this: “Probably because it doesn’t sound smart enough. One could never sell this process to most people, it’s too simple.”
You cannot believe how many people ask things like, well how does that portfolio get checked? Who keeps up with the quarterly reports, margins, P/E’s, growth rates? How do you diagnose problems? When do you sell and how do you know that?
In reality, the list is long – but if those things were actually the correct things to focus upon, don’t we think by now that more people would have been monumentally successful in beating markets?
Seriously folks – has no lesson been learned? My Mom once told me that if I kept doing the same stuff – I would likely get pretty much the same result. I was 7.
FACT: A business must have consumers of its product or service – an expanding group of them is a tailwind. Follow people over the decades you will be building your wealth and you will run into plenty of opportunity over time.
Notice I did NOT say everything will always be perfect or every year will be fantastic or that no blunders or potholes will appear on the path. Nothing could be further from the truth. I also did not say weeks or quarters – I said decades of building wealth.
If you expect something different from the markets, you must be prepared to interact with the markets differently. Said another way: You want better results than the masses we all study? Then you must be prepared to do something very different to get it.
One suggestion: embrace simple.
No one should ever be able to convince you that complexity is better than simplicity when it comes to investing. End of story. Be assured, over 30 years, I’ve learned this first hand – often – the hard way.
So my effort today is to maybe save you a bit of trouble.
We have been “taught” that smart investors, big hedge fund dudes and magical experts on the screen have become that way because of complexity. We have bought into the idea that somehow, opportunity has been masked from everyone else unless you are on the inside. (A lesson many very large investors are suddenly realizing is false in the long-heralded hedge fund game.)
Unfortunately, a terrible cycle has been created: complexity for complexity’s sake. It’s been stated, “Sophisticated minds are often drawn to unsolvable puzzles.” The cycle is the same – and gets worse.
And yet – guys like Warren win out most of the time – here is the key – over time.
Bad Attention Span
In a world of millisecond holding periods, proper focus has become more like a gnat landing on a surface. It is there for a second and moves. More noise, more data, more analysis. More things to analyze are like drugs to an addict: they only lead to more mistakes for most, if not all – over time.
Meanwhile – simple works as long as one is patient and disciplined. Too much evidence exists to more than prove this out.
Year after year, decade after decade, portfolios with simple building blocks and transparent plans get the job done. Sure, they have bad spots. You bet they have carnage at times. Sure, they have many forks in the road and carry treacherous events.
But with patience and the ability to let these things roll by you like water off a duck’s back, over time, they prove beneficial. A bet that this will not be the case in the future because of (pick a latest reason) is a low odds bet indeed.
Many investors are sold using complexity. It positions the seller of those services in a supposedly superior spot. It often feels something like this, “There are things you likely cannot understand in ‘X’, but I am managing and monitoring it for you.”
It’s real purpose? A justification for above-average costs. If something gets too simple, the intermediary could begin to feel his or her own place in the process becoming more vulnerable – i.e., what do we need you for?
Remember – simple is the hardest thing you will ever implement.
Wrong From the Start
The first lesson many investors are taught by Wall Street is that they need something as complex as the market appears to protect them from it or help them win.
While logical, it’s a widely held fallacy. Taking the tough route at times, I’ve come to feel that becoming a better long-term investor is a process of reducing steps rather than a contest to add more bells and whistles. A 30-year journey has taught me (painfully at times) to let go of a lot more things than I’ve added.
Working toward a pathway of simple versus complex puts one on the side of some of history’s greatest investors. Look at every list and you find a common trait toward success in this area of wealth-building: those able to reduce their process and strategy down to just a handful of important truths have usually hit their goals.
The big fear dancing in your mind? That somehow “simple” feels too much like easy or worse, stupid.
The most difficult part about the simplicity game versus the complexity game is all mental. Too much noise in our head’s. Too much being given attention. And it goes on stage fresh every day:
Be assured there will always be a new complex solution gaining adherents around Wall Street.
Some magical new potion. Some process or tool or equation – all with one compelling output goal:
Making outsiders feel as though “they just don’t understand what’s happening out there.” There will always be another “it’s never been this bad…” lurking in the shadows.
Stay focused, be patient, remain disciplined. The future is far brighter than many care to accept today – even as trouble is set to always be included.
Until we see again, many your journey be grand and your legacy significant.