17 June 2020

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Simplicity: Virtue or ability?

Author: Luigi Campopiano

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“Never invest in anything that you cannot draw with a pencil”: who had this vision. Here he is: 76 years’ old, born in 1944, with a list of 21 principles for investing and a 29% average annual yield of Fidelity Magellan Investment Fund that he managed for 23 years, from 1977 to 1990. As you can guess we are talking about one of the most successful investors of all time: Peter Lynch. What inspires me about him and at the same time continues to surprise me can be summarized in a nutshell

“Invest in what you know”  

A remarkably simple concept and thus a very successful concept with the public. Peter Lynch has the gift of making a complicated subject simple, easy to understand. When he talks he uses everyday examples that anyone can grasp. He shortens the distance between finance and the lay investors.
I ask myself (as if I were a client waiting for an answer) “Would I invest my money in something that I cannot easily comprehend or that I have difficulty envisioning?”
 My answer is that I would most likely have difficulty if the answer depended solely on my understanding 100% of everything my investment advisor told me at any time. And if for a moment I changed places with the investor and put myself in their shoes, how would I approach a meeting? What sort of advisor do I expect to receive me? For what reasons should I give my trust to an advisor?  

Firstly, I suppose I would expect the advisor to be technically competent and up-to-date; a necessary but perhaps not sufficient condition.  
I would also quite simply wish my advisor to be humanly comprehensive. After all, I am about to entrust him/her not only with my hard earned savings but also with everything that preceded and that will follow. My future life projects! Basically I would like my advisor to talk to me plainly, simply but also sympathetically: I would like to come out of the meeting with a clearer idea of how to approach and solve my life needs and not with greater confusion. I would like to have a sensation of reliability, of intellectual honesty. To obtain all these benefits from the conversation I think simplicity is an essential ingredient. On the contrary an excess of technical terms and concepts can alienate a layman and leave the potential investor unsettled.
Now if I don the cap of advisor again I can see another aspect: often the relationship in consultancy proceeds through “proxy” of trust rather than through the real possibility for the client to acquire financial knowledge and understanding, as sometimes despite all the efforts of simplification the subject matter is just too complex to be easily transferred. The vast majority of client / advisor relations is thus of a fiduciary nature, where the advisor becomes an extension.
 If I think of Peter Lynch’s ability to communicate, I am convinced that simplicity, when not innate, is a virtue that can be learned through practice and goodwill.