Stick With A Simple Investment Strategy

The other day Josh Brown, one of my favorite social media follows and author of the blog The Reformed Broker, wrote an excellent treatise on Simple vs Complex investment methods.If you haven’t already, go here to read it. You won’t be disappointed.

My first thought after reading this is that Josh hit the nail on the head. I hate jumping on this bandwagon after he already blazed the trail, but my hope is that sharing some of my own experiences with complex strategies will drive this point home even further.

Complex Sounds Better

I used to work with a colleague who believed wholeheartedly in the complexity and interconnected machine that is the global markets. He was tremendous at espousing his views on how if X does this, then Y does that, and Z will go here, and so on….

I would sit in meetings with him and prospective clients while he spun tales of these complex structures. Before you knew it, he had convinced the investor that we were going to own inflationary and deflationary assets. We were going to be long stocks and long volatility. We were going to own the dollar and simultaneously short it. We were going to hedge our hedge and if that doesn’t work, we will just hedge that too.

“Sounds great!” they declared, “let’s do it.”

In practice, this equated to big and long-term piles of cash that were randomly deployed in small allocations to a confusing array of exotic mutual funds or ETFs.  Positions were selected and sized with arbitrary considerations. There was no rhyme or reason to it.No sense of balance, proper diversification, or long-term thinking.

It was a complete mess that very rarely resulted in any positive net gains for anyone. Everything was so contradictory that the portfolio just chased itself in circles and never went anywhere.

The most important part to him and the client (on the front end) was that it sounded good. People want to believe there is some magic going on behind the scenes that you are employing as an advisor to try and beat the market.