Simplicity is the key

Simplicity is the key

June 30, 2007

In the world being dominated by algorithms and complex quant models and super secret macro models, simple things can beat the market by wide margin. The FT has a review of The Dhandho Investor – The Low-Risk Value Method to High Returns by Mohnish Pabrai , that is the message of the book.

Third, invest in simple businesses. “If it takes more than a short paragraph,” he says, “there’s a fundamental problem. If it requires me to fire up Excel, it is a big red flag that strongly suggests that I ought to pass.” He likes funeral homes: it is easy to show that demand for their services is consistent. The first Patels had no choice but to forego complex analysis tools.

This guy manages 500 million and has no assistant traders or other employs like most hedge funds have. He has a bed in his office, takes naps in office and has 29% annualized return since inception. Then there are people with Bloomberg terminal, real time data feeds, multi monitors and army of people working for them and can't beat market. At the end of day speculation is very personal skill. Those who get it use very simple techniques and simple ideas.