Home Investment The Oversimplification Of "Keep It Simple" Has Produced Investment Simpletons

The Oversimplification Of "Keep It Simple" Has Produced Investment Simpletons

7 min read

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Investing used to be fun – a sophisticated mental, logical and emotional challenge that pitted investors against “the market” and its collective beliefs, experience and wisdom. Now, we are in a new age – one where simple-minded drivel accompanies dramatic assertions. For investors, today’s risky “ism” is “simplism.” (Oxford Dictionary: “The oversimplification of an issue.”)

Disclosure: Author holds U.S. stocks and U.S. stock funds, including homebuilding stocks

How “simple” became “simplistic”

Oxford Dictionary:

Simple:  Easily understood or done; presenting no difficulty

Simplistic: Treating complex issues and problems as if they were much simpler than they really are

It would be easy to say technology is to blame, where free, easy and fast access to a broad range of sources altered the flow of investment information and analysis. However, such a change can only occur if investors are willing advocates of the change. They certainly have been, driven by age-old desires for easy-to-understand, persuasive, “sounds right” and “feels good” presentations.

The reliance on a limited number of trusted sources has given way to a plethora of catchy, popular postings. This market’s many advisories and product offerings are no longer simplified, but are now simple-minded.

Oxford Dictionary:

Simplified:  Made simpler or easier to do or understand

Simple-minded: Having or showing very little intelligence or judgment

What a successful purveyor needs now is to rank high in a Google search, build a Twitter following and be identified as “trending today.” Investors equate these popularity signs to value measures. The competition is fierce (and fast), so outlandish headlines with dramatic, “do-now!” commands are important bait. Sound analyses with supported conclusions (not to mention proper grammar) are unnecessary nowadays.

The problem has spread even to formerly reliably thoughtful sources

A good example is the blanket coverage of the existing home sales report last month. Virtually every news service, pundit and blogger grossly over-simplified the report and erroneously drew a negative conclusion. As is so often the case, correcting the errors, then performing a proper analysis takes a lot more time and explanation. Here are my three write-ups aimed at doing just that.

Erroneous reporting is a common occurrence now. As a result, newer investors are getting incorrect training. They view reaction speed, not thoughtful analysis, as the route to investing success. For experienced investors, perhaps it is easier to take advantage of the mistaken thinking and investing missteps. However, a market driven by simplistic thinking has its own, odd risks.

The bottom line

Many over-simplified investment ideas and suggestions have emerged over the past ten years. They have even affected and been influenced by institutions such as the SEC and the Federal Reserve. What’s an investor to do? Question everything and stick to the tried-and-true basics such as the importance of “real” yields and returns, and the link between government deficits and inflation. Also, be on the lookout for pockets of over-optimism, the surest sign of risk when the economy is doing well. The media, pundits and bloggers will certainly be on the wrong side of such developments.

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