“Davidson” on the Investing Noise

This is a great piece of advice from my friend “Davidson”.

The term Ockham’s(Occam’s) Razor is attributed to a Franciscan Friar William of Ockham:

William Ockham (c. 1285–1349) is remembered as an influential nominalist but his popular fame as a great logician rests chiefly on the maxim attributed to him and known as Occam’s razor: Entia non sunt multiplicanda praeter necessitatem or “Entities should not be multiplied unnecessarily.” The term razor refers to the act of shaving away unnecessary assumptions to get to the simplest explanation.

The great mass of material that is presented to us each day on investment analysis could benefit in my opinion by “…shaving away unnecessary assumptions to get to the simplest explanation” There is much more information presented in a single day than any single individual could possibly hope to digest in a lifetime. Most of it is designed to encourage a high level of trading based upon momentary headlines that in most instances are of little long term significance for most of us. This is information overload in the extreme!!

I advise that most are better served by applying Ockham’s Razor. This forces one to step back far enough to gain a wider perspective of market history, manager performance and the actions one can take to monitor and offset risk once it has been identified. The investment process becomes one of locating successful managers and letting them attend to the details while we monitor the broad cycles, historical Return/Risk relationships and parse the deluge of daily reports for specific commentary and investment activity of insightful investors known for their keen sense of investment valuation. Then, by rebalancing vs the Return/Risk assessment as it evolves from our broad analysis, portfolios can be adjusted as the situation appears appropriate.

Even with leaving much of the detail to others, continuously monitoring the market keeps me busy each and every day. In this effort, it is not necessary to perfectly identify market “Bottoms”/”Tops”, it is not necessary to make split-second decisions and determine whether a particular issue is or is not owned by a particular manager. These are details that do not determine manager selection or the Return/Risk characteristics of an asset class. In the portfolio management process the focus is on larger issues, namely the on-going Return/Risk relationship of each asset class.

However, examining the details of our manager portfolios as to what is selected and when does provide some insight to their investment decision making. Understanding the manager’s investment style is important to manager selection. I do the same for a select group of individual company CEOs as to which of these corporate managers are best to monitor for their investment insights. Together the selected group of portfolio managers, CEOs and private investors comprise approximately 300 individuals which is continuously tracked. This information can be used manage an all cap US portfolio depending on individual needs and desires as the US portion of a globally balanced portfolio.

The amount of investment commentary available is enormous. Taking the Ockham Razor approach greatly simplifies the investment process. By allocating the detail to others who have proven themselves skilled, the larger and more important allocation decisions can occur with less attention to the daily market static.

With many calls for the market correcting in the near term, the longer term evidence supports remaining positive and disciplined within this context.

Disclosure (“none” means no position):