Alex Chappell

16th June, 2017

IC Insights

Dumbing down investments

The investment industry is terrible at making things simple. It likes to hide behind jargon and phraseology, aiming to confuse and amaze. It makes the people sound clever and what they do extremely difficult. However, it’s no coincidence that often the fund managers with the best performance records are those that can talk about the world in simple terms.

It reminds me of the scene in “Good Will Hunting” where a bonehead guy is trying to chat up a girl in a bar with some complex history conclusions. Matt Damon (Will), a true genius confronts the guy and asks if he has any of his own thoughts on the stuff he was regurgitating from his textbook. Of course, anyone can recite a passage from something they know nothing about to sound clever, but making your own conclusions and just thinking logically can sometimes reap the best rewards.

There is a lot of stuff going on in the world, no doubt. As an Investment Committee it is always a challenge to keep looking ahead to understand where trends and actions will take us. We have to utilise people’s expertise in the right areas and have a consistent process that directs discussions and analysis to form conclusions. However, overcomplicating things can get you in a pickle…

For one, there are a lot of people in the world smarter than me.  There are also computers that can invest and disinvest in milliseconds to make a profit. Thinking you are better than others, or know something other people don’t, can lead to overconfidence and mistakes.

Secondly, it distracts you from what you are trying to achieve. You can have the best forehand in the world from a technical point of view, but if you can’t hit the ball in the court you’re not going to have much success. We live in a world where there is so much information, that understanding what doesn’t matter is actually more important than what does. Simply remembering what your objective is can keep you from wasting time on things that aren’t relevant.

I could go on, but in the interest of keeping things simple, let me now explain in simple terms what we actually do. Stay with me here… to save my fingers the pain of writing the word ‘Investment’ over and over and boring you senseless, I’m substituting it with the word ‘Minion‘… (those little yellow helpers from Despicable Me).

How does an investment portfolio work?

You buy a variety of minions that do well at different times. This means that when some minions are struggling, others are doing well for you.

What does the Investment Committee do?

They decide how many of each type of minion we want given where we think the opportunities and threats are. An example would be buying a few more European minions but selling some US minions because of opportunities in Europe and threats in the US.

How does risk fit in?

Some minions are more dependable than others, but produce lower returns. If you want to provide more certainty, you buy more of these. The minions that are less dependable can be fantastic one minute, and shocking the next, so these are more appropriate if you don’t mind some risk.  

What’s our objective?

Produce returns that make our clients financial plans work with maximum probability. If the aim is 4%-6%, we are not going for 10%, because we could lose 10%. 

We also aim to make it as simple as possible for you guys. Going right back to basics, this is the exact reason our portfolios are called “Low Risk” and “Low to Medium Risk” and so on, not the “Conservative Diversified Balanced Income Aggressive Portfolio” that we see from some others in the industry. Further, we see it as our duty to communicate in an effective manner, keeping you abreast of the stuff that could really matter to your portfolio.

#keepitsimple #we.are.different.

We hope you continue to read and enjoy our blogs – as always, if you ever have any questions, or would like clarity on anything and everything, our team are always available to help.