The More I Know, The Less I Want
Complexity sells. A seemingly complex problem needs a complex solution. Or does it?
Think about many of the problems we have in life. Perhaps you are struggling to lose weight or are stressed by your job. Do these sorts of things need a detailed and complicated spreadsheet combined with an expensive product?
Of course not – the solution is simple. Problem 1) – eat less, exercise more. Problem 2) – work less or get a new job.
As Carl Richards says, it’s the application of the solution that is tricky, not the solution itself.
Think about how this applies to your money and investments.
Investment markets, global economies and the interaction between the two are far from simple. It’s counter-intuitive to most that there is a simple solution to deal with such a web of complexity. Wall Street has lived off this for decades.
One ex-Goldman Sachs banker said:
“The quickest way to make money on Wall Street is to take the most sophisticated product and try to sell it to the least sophisticated client.”
In a podcast recently, Josh Brown, CEO of Ritholtz Wealth Management was asked how his firm manages money.
Here is his response.
“Less is more. There are no liquid alts, there’s no hedging. The perfect hedge has existed all along. If you are so worried about your equity exposure, especially if you are close to retirement, if you are so worried about it, then just have more cash. Or have more short-term treasuries. What is the point of taking a million dollar portfolio and hedging it so you can’t lose any money? You will never make any money. And every time we learn about someone who has invented some trick to do that, it’s either a Ponzi or an options overlay strategy that’s blowing up or it’s someone who goes ten years and never sees any upside. And then they realise, wait a minute, I was hedged, but I wasn’t long anything either.”
The investment industry has every flavour and every colour. You want this in red? I can find you that. Oh, not the right shade? I can find you a different shade.
That’s not my job. That’s the job of a ‘broker’. A real financial advisor does the opposite.
Josh said “The longer I’m doing this the more stuff I want to take out, not add. I am always thinking about how I can simplify this.”
This is exactly how it should be.
I want to own a lot less today than I did even five years ago. I don’t want to own gold or commodities or exotic options or leveraged funds. I don’t want my clients to own those things. I focus on achieving the returns that are available from the market, as simply, effectively and cheaply as possible. That’s how we build real wealth over the long-term.
It’s so simple but it’s hard because it involves saying no to a lot of things.