K.I.S.S. and Make Up (for Bad Investment Ideas)

The K.I.S.S. principle says to Keep It Simple Stupid. In most areas of life that is great advice. On Wall Street, though, product sponsors go out of their way to create complex offerings for retail investors and institutions (who should know better). These typically charge hefty management fees and commissions. For example, on Oct. 2 Barrons.com posted an article suggesting less-than-simple alternatives to simple index investing. The title is shown below. The assertion that hedge funds have had a banner year clearly did not jibe with the truth. Barron's did clarify that a bit with the sort of comment in a graphic containedin its own column. The graphic in the story said hedge funds have been on average returning 13% this year, but lagged the S&P 500, which returned 20% over the same time. I would ask: When did trailing the S&P by 35% become a banner year. It appears that the only good news on Hedge Fund performance is that it's been less bad in 2021 than during other recent years. The Barron's article went on to suggest five alternatives to hedge funds that employed equally complex strategies. Those funds collectively held billions of dollars of peoples' money. How have they done? Not very well. Year to date, only one of the five was within shouting distance of the major indexes performance. One was negative so far in 2021, a fine year for stocks. Three of the others were in single-digit territory year to date, compared with + 13.72% average for the three major indexes. Keeping it simple would have provided much better returns for investors. Barron's then discussed seven arbitrage funds employing an assortment of different hard to fathom approaches. Did any of them help traders make superior returns? You make the call. Here is how those seven expert strategies did compared with simply buying and holding the S&P 500 exchange traded fund over the identical year-to-day, three-year and five-year periods ending Sept. 22. I translated the longer-term results into cumulative total returns to make it easier to see how pitifully the returns of the arbitrage funds were compared to K.I.S.S-ing. K.I.S.S-ing would have been enormously more pleasurable, as well as much more profitable. Cryptocurrencies are today's hot investment area. That's despite that nobody can make a case for what they are truly worth, if anything at all. I put together the graphic below to gut check peoples' true feelings by offering a tangible item as an alternative to bitcoin. Most individuals would waste no time deciding between these two items in real life. True believers, or simply speculators in bitcoin, though, were choosing exactly the opposite when they plunked down over $47.500 on Oct. 1 for each Bitcoin they were buying. During the 17th century, in the Netherlands, tulip bulbs became investments. They eventually got bid up to outrageous levels. At the peak of the cycle some bulbs were worth more than the price of an average home. In February of 1637, the tulip bulb frenzy abruptly collapsed, leaving speculators financially devastated. I expect we will ultimately see the same final result in every one of today's most popular cryptocurrencies. P.T. Barnum used to say: There's a sucker born every minute. Then he added, And two to take him. Avoid being the sucker. Stick with simple investment strategies that you understand. Your accountant, IRA and 401(k) balances will all thank you later.

K.I.S.S. and Make Up (for Bad Investment Ideas)

Let's look at the principle of keeping it simple -- and how to avoid being a sucker.

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