For those who want to fly high, fast and far as investors, it’s hard to imagine a better inspiration than Kelly Johnson.
He produced the first fighter jet capable of Mach 2 speed. That’s fast, for those of us who don’t follow fighter jet speeds.
Johnson’s inventions didn’t stop there. For an encore, he envisioned plans for a Mach 3 ramjet which, you might guess, were spread over dozens and dozens of pages with drawings that drilled down to the tiniest screw.
Well, not exactly.
He sketched his 1959 A-3 prototype on a single yellow page that contained fewer than 100 words. That’s right: One of the greatest aviation engineers in history is also credited with coining the acronym “KISS”: “Keep it simple, stupid.”
The investing world is packed with analogs to Johnson’s genius, and there are many smart investors who follow a straightforward principle: the more complicated a money management strategy, the harder it becomes to build sustainable wealth.
To top it off, no era in investing history has created so much wealth of another kind: investment information. The internet is heavily populated with investing videos of all kinds, while automated technologies have stripped much of the guesswork from the investment process.
Still, that creates a few conundrums. When does too much information lead to paralysis by analysis? What information is reliable in the first place? And, how does one tune out the noise floor and tune up a game plan?
Here, we’ll look at some common pitfalls, as well as paths to owning your strategy and the research you can do to build it.
Media and the markets: when no news is good news
If the investment noise floor has a chief source of cacophony, look no further than media outlets that publish alarmist headlines, quick-fix advice, and enough FOMO (fear of missing out) to leave envious investors foaming at the mouth.
In an era of broad-brush “fake news” accusations, it’s worth stressing that much of what the mainstream investment media reports is factually solid: market patterns backed up by numbers, for example.
For our portfolios, the question rests more on what’s useful in executing our strategic plans. To that end, news outlets do much better as town criers than towers of wisdom.
Consumed daily, media reports can distract investors from staying the course. Or worse yet, make them second guess it.
Consider how the headlines of quarterly earnings reports, good or bad, compel hasty investors to click on the buy button or stampede for the exits. In fact, media salivation in large part fueled anticipation for the May 2019 IPO of Uber. Investors who bought the hype, and the stock, paid dearly. Uber’s inauspicious debut now ranks among the most disappointing IPOs in Wall Street history.
And the media’s over-the-top celebrities who spout opinions and predictions don’t really help. Few in investment history have gotten it so overwhelmingly wrong as CNBC “Mad Money” host Jim Cramer did on March 11, 2008. He famously urged investors not to sell off Bear Stearns stock, punctuating his rant with a loud “No! No! No!”
Three days later, Bear Stearns fell 92% on news of a Fed bailout and $2-a-share takeover by JPMorgan Chase & Co.
Time to hit the books
As opposed to flashy headline stories, many investment books reflect copious amounts of study, analysis and deep knowledge. The result: condensed, common sense information free of jargon and rich with sound guidance.
On the old school side, we beeline for a timeless classic: The Intelligent Investor, a 1949 book by Benjamin Graham. The British-born economist at Columbia Business School was the first to describe the principles of value investing: that is, picking stocks that appear to trade for less than their intrinsic or book value.
Graham’s principles made billionaires of at least three men: Charles Brandes, Berkshire Hathaway vice chairman Charlie Munger and his partner Warren Buffett, who praised Intelligent as “by far the best book about investing ever written.” Legendary investors such as the late William J. Ruane of Sequoia Capital also swore by Graham’s work.
Beyond financial nuts and bolts, investment requires a deep focus on your personal philosophy and courage to tackle the work required to get better at it.
At M1, we started a book club with Extreme Ownership: How U.S. Navy SEALs Lead and Win by Jocko Willink and Leif Babin. In the book, these two veterans of Iraqi combat draw on their experiences to educate a business audience.
The first step to success centers on what Willink and Babin call “winning the war within.” It’s a process that they stress is “simple” to describe, “but not easy” to execute.
There’s that word again: simple. For investors who want to get smarter, fighting the war within is unavoidable. It’s easy to rattle off the many temptations smart investors must avoid, like the temptation to time the market, fall for the next sexy tech stock, or panic sell a slumping stock that still holds promise.
To be sure some investors, will resist advice from a pair of battle-hardened U.S. Navy SEALs. But if you pay enough attention to some of the smartest long-term investors, you can’t help but find them preaching the same principle of simplicity.
Remember: hard and complex are not the same.
You can overcome the self-sabotage if you start simple, whatever that may look life for you.
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