How “Simple” And “Boring” Can Crush The Market Year After Year…
The investing world can be extremely complicated… if you let it.
Just think about all the economic factors to consider. You have interest rates, the unemployment rate, inflation, bond yields, gross domestic product (GDP), fiscal stimulus, taxes… the list goes on.
Throw in events like natural disasters, trade wars, actual wars, and global pandemics. It’s nearly impossible to keep up with everything.
If it feels overwhelming, that’s because most professional money managers and the financial media want it to be. But when you boil it all down, it’s rather simple. Especially when you’re investing in world-class companies as we do over at my premium service, Capital Wealth Letter.
Here’s what I mean…
Can You Explain It?
If you find it too difficult to explain what the company does in laymen’s terms, then it probably doesn’t belong in your portfolio. For instance, most people use debit and credit cards to make purchases, so we own the company — Visa, Inc. (NYSE: V) — that collects a fee every time your card is swiped. That’s worked out pretty well — we’re up 155% since adding it to our portfolio in December 2016, compared with the S&P 500’s 73%.
I’ll give you some more examples…
It’s mandatory to have home and auto insurance, so we own two of the best property & casualty, “P&C” companies in the world.
Millions of people buy and sell stocks, options, and futures contracts daily. So, we own two of the marketplaces that allow these transactions to take place (one we’ve owned for nearly eight years now — crushing the market by more than two-to-one).
All throughout our Capital Wealth Letter portfolio, you’ll find examples of simple ideas that are easy to understand. Kids toys: check. A top homebuilder: check. World-class oil and gas pipelines: check… I could go on and on.
If that sounds simple, it’s because it is.
Of course, we do a lot of in-depth research on our ideas. And this doesn’t mean we will hold every position without regard to what’s going on in the market. We will continue to capitalize on opportunities that the market presents. But the point is, a lot of investors overcomplicate things.
Why Make It Complicated?
You hardly ever hear Warren Buffett talk about all the external factors that he can’t control like GDP, inflation, and unemployment when he’s talking about his investments. Instead, he looks at a company, how its product or service is serving people, and asks himself if his kid’s grandkids will be purchasing that product.
One of his favorite examples is chocolate. People aren’t going to stop buying chocolate. It’s a product that isn’t going anywhere. That’s a big reason why we own Hershey (NYSE: HSY).
Think chocolate is boring? Think it’s too simple to outperform the market? Think your time is better spent trying to research and understand something that seems a little out of depth for a regular investor? Think again…
We live in a world of complex systems that seem to punish this sort of “simple” thinking. But when things go haywire in the economy and the market, understanding in simple terms what the companies that own do will help you navigate through all the noise.
It will help keep you at ease during times of market volatility and stress.
Of course, there are going to be times when your investment thesis might turn out wrong, or not come to fruition. That’s going to happen, and in that case, simply cut our losses and move on to the next opportunity. But as the U.S Navy states, “keep in simple, stupid.”
The bottom line is don’t let all the external factors associated with the economy and the market overwhelm you. Focus your effort on finding excellent companies with easy to understand businesses. Then, buy them when they’re trading for reasonable prices and hold for the long-run.
P.S. I just released another BIG prediction about cryptocurrencies…
My team and I think cryptocurrencies will surge again in the coming months. But here’s the thing… the big winner won’t be Bitcoin, Binance, or Ethereum. While those cryptocurrencies could do well, we think there’s another one with a lot more upside potential for new investors. It’s 321 times faster than its prime competitor and could surpass it in value…