The Rational Investor #049: Simple is Best
Happy Saturday to you,
Welcome to the 49th edition of The Rational Investor Newsletter.
This week, I read The Tao of Warren Buffett. It’s a short, easy read and is filled with 125 great quotes from Buffett (some of which I had never seen before), with each quote followed by a bit of commentary from Mary Buffett and David Clark.
Just a thought: With Christmas around the corner, this book would make a nice gift for an investor who is just starting out since it keeps everything high-level, but it’s full of wisdom.
Onto the main event…
Here’s Warren Buffett on Why Simple is Best:
“‘There seems to be some perverse human characteristic that likes to make easy things difficult.’ - Buffett
Every profession is ultimately a conspiracy against the laity. Only when something is made difficult to understand is there a need for experts, who can charge high fees for having figured it all out. The greater the complexity, the greater the need for an expert to help guide you through the complexity.
Wall Street is in the business of selling its expertise in picking stocks for you to invest in, and because of this brokers have a vested interest in presenting the investment game as being so complicated that it is beyond understanding for anyone but the most savvy of pros.
Their scheme is simple—they are going to get rich off making you rich, and they keep you coming back because they have convinced you that the investment game is too complicated to figure out.”
Throughout his career, Buffett has been skeptical of Wall Street and has said as much. And rightfully so, as the commentary above supports. Along these same lines, there’s a great quote from the movie The Big Short that shows a similar attempt to convince the public of the complex nature of investing,
“Wall Street loves to use confusing terms to make you think only they can do what they do.”
Fortunately, it’s not that complicated. It’s actually incredibly simple. Here’s the five-step formula for financial success:
Spend less than you make.
Save/invest the difference.
Buy the great companies of the world (e.g., index funds).
Never sell!
Seriously, never sell.
People tend to believe that this is an oversimplification, but it’s not. Of course, we know that Wall Street would love to convince you that it is, in fact, more complicated than this, but one look at a long-term stock market chart should be all the proof anyone should ever need that simple is the way to go.
That’s all for this week. Thanks for reading. I’ll be back next week with more timeless wisdom from great investors.
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