Ben Carlson - A wealth of common sense: why simplicity trumps complexity in any investment plan

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Ben Carlson

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Copyright 2015 by Ben Carlson. All rights reserved.

Published by John Wiley & Sons, Inc., Hoboken, New Jersey.
Published simultaneously in Canada.

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ISBN 978-1-119-02492-7 (Hardcover)
ISBN 978-1-119-02489-7 (ePDF)
ISBN 978-1-119-02485-9 (ePub)

For Cortney and Libby, who make me smile every single day.

In 1776, Thomas Paine, a political activist, philosopher, and poet published a simple pamphlet that likely altered history as we know it. The title of his publication was plain and simpleCommon Sense. This tiny pamphlet, which numbered less than 90 pages, inspired the original 13 colonies to seek their independence from Great Britain and form the United States of America. It's been said that virtually every rebel read, or at least listened to, the words written by Paine. This was Paine's introduction to Common Sense:

In the following pages I offer nothing more than simple facts, plain arguments, and common sense; and have no other preliminaries to settle with the reader, than that he will divest himself of prejudice and prepossession, and suffer his reason and his feelings to determine for themselves; that he will put ON, or rather that he will not put OFF, the true character of a man, and generously enlarge his views beyond the present day.

Paine's simple words ignited the people of that day to fight for their independence. As John Quincy Adams, the second president of the United States, once said, Without the pen of the author of Common Sense, the sword of Washington would have been raised in vain. Paine's plain, common sense arguments provided the motivation that was so desperately needed to unite people from all walks of life to stand together in their cause. So why did Paine's words resonate with so many people? In a wordsimplicity. Many writers of that day and age used dense philosophy and Latin to get their point across. Paine made his case for the benefits of independence by using clear, concise language that everyone could understand. Common Sense worked well with the crowds in the taverns, but was sophisticated enough to be given credibility by the Colonial dignitaries.His words lived up to the title, as common sense works on a number of levels.

Improving long-term investment results by bridging the gap between sophistication and simplicity is the point of this book. Much of the financial advice out there these days might as well be written in Latin because it comes across as another language to most investors. The financial crisis from 2007 to 2009 left some lasting scars on investors' psyches. Many don't know how to proceed or whom to trust. My goal with this book is to provide a resource that helps all investors make more informed decisions using simplicity and common sense, two things that are severely lacking in the financial industry, as a guiding framework to help alleviate some of the lasting damage from the market crash. There is an assumption that complex systems such as financial markets must require complex investment strategies and organizations to succeed. This is a false premise that far too many both inside and outside of the industry have come to believe. Most of the advice out there these days works against investors and their goals because those giving it don't have an understanding of the needs and desires of their audience.

I've spent my entire career working in portfolio management. This experience has taught me that less is always more when making investment decisions. Simplicity trumps complexity. Conventional gives you much better odds than exotic. A long-term process is more important than short-term outcomes. And perspective goes much further than tactics. Tactics are useless to investors in a matter of dayssometimes in a matter of hours. But perspective is something that stays with the investor for a lifetime. It allows you to adapt to the changing market and economic landscape. While keeping it simple won't make it any easier to predict the futureno one has a crystal ballit can give you the necessary capacity to make rational decisions, no matter what happens next.

There are two working definitions of perspective and both apply to making better financial decisions:

1. Context: A sense of the larger picture of the world, not just what is immediately in front of us.