Two Evening Reads

I wanted to highlight two exceptional posts I read today. The first is from Josh Brown on the importance of simplicity in investing. Josh nails it.

Here’s a sample:

It should not come as any surprise that a sophisticated investment thesis will appeal to funds whose reputations are steeped in the aura of being able to solve market puzzles before the crowd. Sometimes it works beautifully but sometimes the consequences are disastrous. I’ve come to learn that, for most investors, the entire enterprise is completely unnecessary. Year after year, decade after decade, portfolios with simple building blocks and transparent mechanics get the job done. A bet that this will not be the case in the future because of (name your reason) is a low probability one.

Check out the whole thing.

I’ve noticed how often people in finance will make what they do needlessly complex. Even with wording. A simple phrase like “more money” becomes “net capital inflows.” A lower share price becomes “consolidation.” This serves a purpose of scaring away novices.

Investing is routinely made out to be far more complicated than it is. Not only is simple investing easier to understand, but it’s often better as well. I’ve talked about the great performance of JM Smucker (SJM). They make jelly and then sell said jelly for more than it cost them to make it. Simple, easy to understand and insanely profitable.

If something sounds highly complex, there’s a good chance that someone is hiding something.

The other post comes from Cullen Roche who takes aim at a talking point I don’t like. I often hear people dismiss earnings buybacks as somehow being illegitimate. People speak of it as distorting a company’s results. That’s simply not true.

Here’s Cullen:

Corporations are buying back shares because profits are very high and they have determined this to be an efficient way to return capital to investors during a time when they have more cash than they know what to do with. So, every time you read a headline about buybacks “propping up the stock market” you can rewrite that as “Corporate Profits are Propping up the Stock Market”. Of course, that makes for a far less sexy headline, but it’s a much more accurate description of the current state of the stock market.

Posted by on April 4th, 2016 at 8:16 pm


The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.