Thursday, December 10, 2015

KISS Principle for Investing

Many of you already know the KISS acronym which stands for “Keep It Simple, Stupid”. It was something that was started by the US Navy in the 1960s. In the technology area, it was also frequently used for software and hardware design.


“The KISS principle states that most systems work best if they are kept simple rather than made complicated; therefore simplicity should be a key goal in design and unnecessary complexity should be avoided.”

This principle makes sense for investors. If you look at the financial meltdown in 2008, the complexity of the financial products (e.g. CDO (collateralized debt obligation) and CDS (credit default swap)) must have contributed to problems by misrepresenting some of the risks.


Also, there are some many tricks in investing that can hurt seriously hurt you.


Ouch!!

Also, the principle is somewhat adopted by two of the greatest investors in history,Warren Buffett and Peter Lynch.


“According to sources, Peter Lynch used to start an egg timer when on the telephone with financial analysts and traders, for forcing them to explain the basic premise of an investing idea in less than a minute.”

Of course, please don’t keep it too simple and follow the herd blindly! That would be stupid. If you follow the herd, then expect to step on the turd! Always do your homework and know the risks.  A wise man recently told me, you can always invest in small increments (Keep it small and simple).

There are some variants of the KISS acronym (since you shouldn’t call anyone stupid apart from yourself) -  "keep it short and simple", "keep it simple and straightforward".

For my investing, especially now that my son has shown an interest in investing, I will use a new criteria “Keep it Simple, Son” for trade considerations. In other words, my investments must be understandable by him.

Do you use the KISS principle?

D4s

2 comments:

  1. Very true! I try to fight the urge when I think I have some grand scheme to hurry the process along. 99% of the time it wouldn't be a grand result. I am a fan of this principle!

    Have a great weekend,

    JT

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    1. DD, thanks for visiting. With investing, i am finding that simple and boring with tons of patience are needed to be successful. Sometimes, there is no need to overthink things and make things more complicated.
      Thanks
      D4s

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