Trying Too Hard
I stole the title of this post from an investing speech I recently read that was given at Rockford College by Dean Williams in 1981. In case you’re wondering, no I did not come across this during my weekly reading of 40-year-old investment speeches. Rather I found it through my daily perusing of Twitter. As it turns out, Twitter can be useful on occasion.
The key is to follow the right people. Morgan Housel, a great follow, tweeted a link to the talk stating it was maybe the best investment talk he’s ever read. After reading through it, I think I might agree with him.
Speaking to a group of financial analysts, Williams talks about how investors will try so hard to produce superior results when in reality, much of what they’re doing does not correlate to better returns and often leads to inferior investment success.
Here’s a link to the speech. If you have 10-15 minutes and are wanting to dive into the weeds of investment philosophy, I would highly recommend giving it a read. If not, you can continue reading here where I’ll share a couple of my favorite points.
Takeaway #1: Don’t worry about predicting the future
Humans spend a lot of time trying to predict the future. We can’t help it. We do so with the hope of bringing some form of certainty to an unknown, uncertain future.
The ironic thing is, we aren’t very good at it. Particularly when it comes to financial markets. Dean Williams says:
“One of the most consuming uses of our time, in fact, has been accumulating information to help us make forecasts of all those things we think we have to predict. We get forecasts about the economy, interest rates, the stock market. We process that information and act on the basis of it. Where’s the evidence that it works? I’ve been looking for it. Really. Here are my conclusions:
Confidence in a forecast rises with the amount of information that goes into it. But the accuracy of the forecast stays the same. And when it comes to forecasting—as opposed to doing something—a lot of expertise is no better than a little expertise. And may even be worse.
[J. Scott] Armstrong cataloged studies of market forecasts and stock picking ability from as early as 1902 only to find that 50% had been right and 50% wrong.
No matter how much evidence that seers do not exist, suckers will still pay for the existence of seers.”
The good news is predicting the future isn’t a requirement to be a successful investor.
Takeaway #2: Keep it simple
Complexity sells. Especially when it comes to financial and investment advice. Charge a client for ten sentences of advice and they’ll leave underwhelmed. Give them a phone-book-size elaboration and they’ll pay a fortune and refer their friends.
Simple solutions seem too easy whereas complexity offers intrigue and mystery. Many skip over the simple solution to the complex one with hopes that it will be the secret ingredient to finally propel them to wealth.
However, there’s no evidence a more complex investment approach offers anything other than wasted time and money. Williams says:
“Albert Einstein said that ‘….most of the fundamental ideas of science are essentially simple and may, as a rule, be expressed in a language comprehensible to everyone.’ The first time I heard that I thought, ‘Sure, that is easy for him to say.’ But as long as there are people out there who can beat us using dart boards, I urge us all to respect the virtues of a simple investment plan.
The reason for dwelling on the virtue of simple investment approaches is that complicated ones, which can’t be explained simply, may be disguising a more basic defect. They may not make any sense.
Mastery often expresses itself in simplicity.”
I love the obvious but seldom asked question he poses here: Does your investment approach actually make sense? Or is it unnecessarily complex just for the sake of it?
Time and effort correlate with positive outcomes in so many fields that it’s hard to accept situations where it doesn’t. Investing happens to be one of those fields. In fact, there’s a negative correlation between time spent monitoring and tinkering with your investments and good performance.
As Dean Williams argues, we’re just not as important to our investment results as we’d like to think we are. This may be an uncomfortable realization, but one that is beneficial because it allows us to stop wasting time on things we don’t have control over.
For those who find themselves constantly trying to predict the future or continually looking for new complex strategies, Williams asks you to consider, “Do you think you might be trying too hard?”
Thanks for reading!