Jeff Raupp, CFA, Senior Investment Manager, Brinker Capital
Simple can be harder than complex: You have to work hard to get your thinking clean to make it simple. But it’s worth it in the end because once you get there, you can move mountains. ~Steve Jobs
If you can’t explain it simply, you don’t understand it well enough. ~Albert Einstein
As an aspiring young basketball player in my pre-teens, I was fortunate enough to have my dad coach my township basketball team. When watching him draw up and teach a play for our team to execute, I decided I, too, could design a play for us. I guess I had always been a bit of an analytic. I went home and proceeded to design what might have been the most complex play ever developed, involving multiple players setting multiple picks, variations depending on how the defense reacted, and multiple passes that required each player’s timing to be nothing less than perfect. I proudly showed it to my dad. He appropriately praised me for the effort and then, to my dismay, declined to implement it 
at the next practice. Naturally, I bothered him incessantly about it, as only kids can do, until he finally sat me down and walked through the play. He pointed out that while on paper the play looked great, if the execution or timing was even slightly off for any of the players, the entire thing broke down. As a team, we were still grappling with the idea of executing a simple pick and roll, so a play this complex was destined for failure. For our basketball team, simple was better.
Years later, I have found this lesson to be applicable in so many cases, particularly in investing. When you think of all the factors that can affect returns—economic factors, geopolitical issues, company specific factors, investor sentiment, government regulation, etc.—the tendency is to think that to be successful in such a complex environment you need to come up with a complex solution. Like my basketball play, complex investment solutions can often look great on paper, but fail to deliver.
I’ve interviewed hundreds, if not thousands of investment managers covering any asset class you can imagine. One of the things I’ve learned over the years is that if I can’t walk out of that interview with a good understanding of the key factors that will make their product successful and how that will help me, I’m better off passing on the strategy.
An instance that stands out to me is the time I visited a manager where we discussed an immensely elaborate strategy that tracked hundreds of factors to find securities that they believed were attractive. We visited the floor where the portfolio was managed by computing firepower and a collection of PhDs that rivaled NASA. You really couldn’t help but be impressed by the speed at which their systems could make decisions on new data and execute trades, and the algorithms they used to optimize their inputs used just about every letter in the Greek alphabet.
The conversation then went towards discussing how all of this translates to performance and it hit me—all of this firepower didn’t produce a result that I couldn’t get elsewhere from cheaper, less-complex strategies. So while I could appreciate all the work that went into putting the strategy together, I had a hard time seeing how the end results helped our investors. I felt that in creating an intellectually impressive structure, the firm had lost sight of the bottom line—delivering results to their investors.
This isn’t to say that all complex investment strategies aren’t worthwhile. We use many in our portfolios and over the years they’ve added significant value. We spend a lot of time analyzing the types of trades and opportunities that these managers look for and use. But I’ve found that if I can’t step back and articulate why I’d use a strategy in three or four bullet points, I’m better off walking away.
Most of the time you’re better off with the simple pick and roll.
The views expressed are those of Brinker Capital and are for informational purposes only.
Get names and numbers. You need to have key information handy in a few different areas. Know the software name, version number, and license holder so that when you call or go online for help you can be sure you are asking about the right program. Also know the names and numbers of customer support persons at your technology provider.
Bill Miller
Amy Magnotta, CFA
Dr. Daniel Crosby
Goals provide comfort in hard times – Viktor Frankl, the Austrian psychiatrist and Holocaust survivor, has written beautifully about the power of purpose in his classic, “Man’s Search for Meaning.” Frankl noticed early on that much of what differentiated hope from a failure to thrive among prisoners was a connection to something bigger than the here and now. For those rooted in the horror of the present, it was exceedingly easy to find reasons to despair. But for those able to look forward to something more, their pain was couched in terms of aiding their long-term goals, which provided them some succor.
While these questions, and others, are difficult to bring up, they are essential. They will provide the context to determine the balance between providing enough money so that the children can pursue their dreams without a concern for their finances, and not providing so much of an inheritance that a feeling of entitlement or loss of self-purpose develops. Warren Buffet said it best when he noted that he wanted to leave enough money for his heirs so they can do anything, but not so much money that they can do nothing.
1. Brinker Capital Blog 