I am a big believer of simplification, especially when it comes to investing where there is still a significant amount of luck involved with investment returns. There is up to a certain point where a high IQ helps you before it starts to hurt you in the investment world.
- Changing your mind about an investment is very hard
- What we think is tomorrow’s biggest risk rarely is
- Taking advantage of opportunities is harder than it sounds
- Most investing is simple, but we complicate it
Housel makes this simple point, ” Companies earn a profit. When investors are in a good mood, they pay up for that profit. When they are in a bad mood, they pay less. Future stock returns will equal profit growth, plus or minus the change in investor attitudes.” He summarizes his article by saying, “what stocks might do next quarter, or when the next crash might come—can be needlessly complicating. Investors should learn to take the simple route.”
I couldn’t agree more.