Simple does best (at least in investing...)

One of the (many) advantages of having a young family, and the resulting evenings of endless baby-sitting, is that time not spent in seeking the new gastronomic delights my city has to offer or catching up on the latest movies, can be generously allocated for reading purposes.

Given these circumstances it follows that on this instance my expose will draw heavily on recent reading material. A couple of weeks ago I completed an almost one-sitting read of a revealing little book, the almost naively titled "The Little Book That Beats The Market" by Joel Greenblatt.

Whilst I'll be the first to admit that it hardly sounds like a riveting read, allow me to elaborate on its contents and to comment on what I think can be gained from investing a couple of hours of one's precious time on Mr. Greenblatt's book.

Firstly, in spite of covering the well-trodden path of investment-guide writing, the Little Book...is not an academic exercise performed by some high-brow theory-wielding professor whose connection with the ugly reality of the financial markets is remote at best, but rather a practical hands-on exercise proposed by a remarkably succesful investor.

Secondly, what truly makes this book exceptional is that it sings praises for simplicity as a tactic, in an industry where complexity, obscurity and downright exoticity are championed. Indeed the central (and only) strategy put forward is one of identifying 2 , that's right 2! criteria for selecting stocks and sticking with this theory for a number of years. Amazingly enough the lack of success derived from applying the tactic suggested in the book is almost solely attributed to an excessively short investment horizon (read impatient investors), as opposed to any fundamental flaw in the methodology applied.

Simple to do then, right?

Apparently not so. In fact, as humans we tend to be wary of overly simple theorems, and more worringly even if we overcome our natural tendency to discard these basic propositions, our lack of patience or conviction, lead to our eventual undoing. After reading Mr Greenblatt's volume I took two important lessons "home":

1. There is no value in being "too clever" and indeed simplicity works in one's favour in most endeavours, not least when making investment decisions.
2. Patience is indeed a virtue and one should approach an investment decision as if we only had a finite number of such choices in our lifetime with the correspondingly huge opportunity cost for erroneous selections.

In short, in investing as in many other aspects of life, it pays to focus (keep things simple) and to know one's self (identify and mitigate our own deeply ingrained shortcomings)