My first job out of college was at a mutual fund company. I had worked my way up to the portfolio accounting group, which meant I did a lot of number crunching and used a lot of spreadsheets. After a while, I realized that there were a lot of inefficiencies in the work that we did. So, I figured out how to do things faster and more efficiently. Eventually, I was able to complete eight hours’ worth of work in four. How was I rewarded for this workplace improvement? I got to do two peoples’ worth of work every day.
Regrettably, our world seems to gravitate toward complexity. I’m hard-pressed to think of any industry that has gotten simpler over time. Politicians make laws more complicated. The tax code grows in complexity every year. The number and kinds of financial products that are offered by banks, brokers, and insurance companies is impossible to track. Even our efforts to simplify our lives seem to backfire. Artificial Intelligence offers us the promise of making our day-to-day lives easier with self-driving cars and smart homes. Then our legal system struggles to adapt when AI runs amok, using copyrighted material without permission, plagiarizing works of others, and even making discriminatory decisions when corporations use AI to filter incoming calls.
Though it may be difficult, trying to simplify our lives is still worthwhile. This is especially true when it comes to investments. There are countless investments we can buy—mutual funds, exchange traded funds, unit investment trusts, annuities, and others—and endless variations in different packages for each of these. But inside almost all of them are the basic building blocks of all portfolios—stocks and bonds. The packaging makes the products salable, but most of the time, the packaging also makes them complex. That’s why we avoid as much of that as we can. We buy individual stocks for growth, for most clients and accounts, and we use bond funds—the cheap and transparent kind—when clients need income.
Many of the companies we own are also simple. Ecolab (ECL) makes disinfectants, cleansers, and soaps. Cheniere (LNG) transports natural gas. Chipotle (CMG) makes burritos. And even the companies that are racing to play in the AI space have a simple core to their business that allows them to invest heavily in projects like this. Microsoft (MSFT) sells software to support their AI push. Google (GOOG) sells advertising. And Amazon (AMZN) sells … well, Amazon sells everything else.
A paraphrased quote attributed to Albert Einstein says, “make things as simple as possible, but not simpler.” This is great advice, and it’s a philosophy we take to heart in the way we manage money for our clients.
Here’s hoping you are able to enjoy the simplicity of a beautiful and peaceful Thanksgiving and Christmas season.
~ Travis Raish, CFA