• What We Do
    • Wealth Counseling
    • Investment Advisory Services
  • Who We Are
    • Our Team
    • Research Roundtable
  • How We Invest
    • Our Fiduciary Pledge
    • Investment Approach
    • Questions To Consider
    • Our Transparent Approach
  • Insights and Research

Insights and Research

Home  »  Investment Philosophy • Peace of Mind • Simplicity   »   Rock Science

Rock Science

By Preston McSwain, June 10, 2015

The old sign sits at the edge of the grass airfield in Katama on Martha’s Vineyard – a simple weather-divining device involving only a stone and some pithy instructions.  It is a little worn but the message has endured.  

Not just because it’s funny, but because it serves as a commonsense reminder to pilots before executing a flight plan:

Take a step back and don’t rely solely on complex models and fancy planning tools.

If the stone is wet, it’s raining, if the stone is white on top, it’s snowing, if the stone is gone…  hurricane.

Some years ago, I was spending an evening at a house, which is across the street from the airfield.  As can happen over Cape Cod and the Massachusetts islands, a thick fog had crept in from the Atlantic.   Just as the sun was going down, we heard an aircraft flying in circles over our house, lower and lower, and finally disturbingly close to the roof, as it attempted to find the Katama airfield in the fog.  Our uneasy anticipation of a plane crash went on for what seemed like an hour.  We eventually stopped hearing the noise and prayed that the pilot had veered off for the lighted runways of the main Martha’s Vineyard airport or across Vineyard Sound to Hyannis.  In the morning, we checked in with the airfield.  Thankfully, no accident had been reported, but everyone had heard the same disturbing sounds.  We all agreed that bold pilots can get themselves in trouble by relying too much on belief in their skill or fancy equipment. 

As the saying goes, “There are many old pilots and many bold pilots, but very few old, bold pilots.”

What does this have to do with investing?

Plenty.

The investment world produces many forecasts and strategies designed on complex models and calculations. Product offices are staffed by PhD’s in math, statistics and physics.  Actual rocket scientists are developing solutions that promise to add alpha and provide protection to help investors weather market conditions.

At Fiduciary Wealth Partners, we keep abreast of the latest ideas and explore new solutions that might help our clients.  As we wrote in our Don’t Be A Sheep blog, however, we try hard to resist the pull of fancy new approaches and try not to run with the herd.

Why?

Because, consistently, the evidence shows that well-worn, simple approaches not only keep up but often outperform.  

Many behavioral finance studies also show that investors are more likely to stick to solutions that are easily understood and that, by sticking to plans, they are more likely to reach their investment goals.

A well done piece comparing the simple to the complex was published by in 2014.  The paper is based on independent academic research and compares data from Morningstar on all balanced funds to U.S. endowment portfolios, which frequently hold a complex array of traditional and alternative investments.

At the end, the researchers came to the following conclusion:

“The majority of endowments would have been better off had they simply invested in low-cost, diversified, transparent public mutual funds.”

By posting this, we are not suggesting that endowments are investing inappropriately based upon their goals (like individuals, every one is unique).

All we are pointing out is that keep-it-simple portfolios can keep up, and in many cases, outperform complex strategies.

At the end of the day, there will always be fancy new products and strategies in the investment marketplace. There are a lot of cool new gauges and instruments, too – analyses by really smart economists and market historians.

Take them all in, to whatever the limit of your tolerance for studying the markets.  But don’t forget the following:

  • If a strategy is so complicated that it can’t be explained in simple terms that you understand, consider passing on it in favor of something you can understand thoroughly enough to sleep at night.
  • Fancy and complex can sound great, but increased complexity can also mean increased opportunity for mistakes or course corrections at the wrong time.

Even though a forecast looks promising, remember that models based on complex theories sometimes break down, especially when fog or unpredictable market storms develop.

Before starting a journey or making a major change in your financial flight plan, take a good look around at what the evidence in front of you is saying.  Take a step back and consider that the best ideas, those that keep us out of trouble and on plan, may come from keep-it-simple “rock science”, not rocket science. 


 

Related Reading:

Transparency, Simplicity, Peace of Mind®

Stay It Ain’t So, Joe

Are Selectors Good at Selecting?

You Can Keep It Simple

 

Preston McSwain
+ posts
  • Preston McSwain
    https://fwpwealth.com/author/preston/
    Transparency, Simplicity and Peace of Mind®
  • Preston McSwain
    https://fwpwealth.com/author/preston/
    Fiduciary Wealth Partners Reading List
  • Preston McSwain
    https://fwpwealth.com/author/preston/
    If We Had A Chief Economist We Would Have to Pay Them
  • Preston McSwain
    https://fwpwealth.com/author/preston/
    Is Trying to Pick Active Managers a Loser's Game?
SHARE
Tags:
Active Management, Forecasting, Investing
RELATED ARTICLES
Recessions – What Should Investors Do?
The evidence may surprise you.
Trillions – Our Talk With Robin Wigglesworth About Index Funds
It seems like we have been continuing to have the same debates over and over for almost 100 years.
Should We Be Tactical?
We should be open and humble about our tactical ability to add value.
All articles

Follow us on social media

Search Our Ideas

Subscribe to Our Posts


Important disclosures

Most Popular

  • The Simple Alternative – Keeps On Winning
  • The Simple Alternative
  • Say It Ain’t So, Joe
  • Are We Baking Portfolios with Bad Ingredients?
  • Crucial Elements in Wealth Management: Simplicity and Transparency

Browse by Theme

  • Fees
  • Fiduciary Duty
  • Investment Philosophy
  • Managing The Market
  • Peace of Mind
  • Performance Measurement
  • Private Investing
  • Quarterly Letter
  • Simplicity
  • Taxes
  • Transparency
  • Uncategorized
  • Values

FWP Logo Dark

Fiduciary Wealth Partners is a 100% employee owned firm that serves clients in a transparent, fiduciary manner.

We do not have any fee sharing arrangements with managers and do not have any broker-dealer conflicts. In addition, you will never see an arbitration clause in our contracts.

Everything we do is focused on assisting trustees, institutions and families with investment consulting, management and overall asset planning strategies.

  • Disclosures
  • ADV
  • Privacy Policy
  • Form CRS

Useful Links

  • Investment Advisory Services
  • Wealth Counseling
  • Our Team
  • Research Roundtable
  • Our Values
  • Questions To Consider
  • Insights and Ideas
  • Contact Us

Contact us

Phone

(617) 602-1900

Email

info@fwpwealth.com

Address

177 Huntington Avenue
20th Floor
Boston, MA 02115

 

View larger map

© 2020 FWP. All Rights Reserved. Fiduciary Wealth Partners Is An SEC Registered Investment Adviser.