Investment snapshot: The KISS principle of investing

investment snapshot
John P. Maguire of Rationalis Capital Management in Hinsdale | Submitted

We’ve started a new investment feature designed to give you some background on current market trends. Our sixth piece discusses why simple investment advice can often times be more effective for the casual investor.

Did you know adults are more confident about choosing the right surgeon for a major surgery than selecting the right investment?

That finding from a recent AARP survey should send a message to any investment advisor: keep it simple, stupid! However, apparently not everyone has received the memo.

For example, a few days ago I received an email from an investment advisory firm touting their “tactical Multi Asset high income products which provide protection against drawdowns while allowing upside participation in changing market environments. We seek to maximize risk adjusted returns by generating double-sided alpha. Our understanding of optionality and volatility allow us to give our investors better risk adjusted returns.”

That’s certainly a mouthful. And while I understand what it means, I also understand that hardly anyone outside of my profession would be able to decipher it from start to finish.

In fact, when I came across the email, I immediately thought back to 1982 when I was three weeks into my training program at Goldman Sachs. Our training manager had given us an assignment but before our meeting adjourned, he held our attention to deliver one final instruction.

“K-I-S-S. Does anyone know what that means?” After listening to a few juvenile responses, he supplied the answer: “Keep it simple, stupid.”

The acronym was first coined by Kelly Johnson, an aircraft engineer who felt that the goal in design should be simplicity and unnecessary complexity should be avoided. This principle is best exemplified by a story of Johnson handing a team of design engineers a handful of tools and telling them to design an aircraft engine that could be repaired by an average mechanic under combat conditions.

Since my own illuminating training day more than 30 years ago, I have made the KISS principle the foundation of my business philosophy. My goal is to simplify my presentation so that my clients understand what we are proposing. It’s in direct contrast to those who use complex jargon to either impress or confuse their potential clients. “Keep it simple, stupid” is a principle that can benefit us in all aspects of our lives: investing for retirement, raising a family or starting a business.

Every industry has its own jargon but there is a disproportionate amount in the financial industry. In the AARP survey noted above, most adults admitted that they didn’t read financial literature because it was too difficult and confusing.

So how should individuals approach their investment decisions? The same way they would choose a surgeon—by applying the KISS principle.

Before getting my hip replaced five years ago I spent nearly two years researching the benefits and risks of different procedures and different doctors. I sat down with three surgeons and listened while they explained the procedure and what I could expect before, during and after.

I made them explain it so I could understand it in simple terms. I asked them how many hip replacement surgeries they had performed and their success and complication rates. I made sure I understood the complications like sciatic nerve injury and drop foot. I researched the infection rates of the hospitals that I was considering. I learned the medical jargon or at least made sure that my surgeon explained it clearly.

When investing, insist on nothing less.

Disclaimer: The information contained in this article is not a solicitation to sell securities or investment advisory services where such an offer would not be legal. Information included in this statement regarding market or other financial information is obtained from sources believed to be reliable. Past performance is never a guarantee of future performance.

John Maguire has been an Investment Advisor for more than 30 years. He is a Managing Partner of Hinsdale-based Rationalis Capital Management, LLC, online at www.rationaliscapital.com. He can be reached at john@rationaliscapital.com.

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