In Search of Simplicity
September 15, 2016
Image used with permission: iStock/AlexLMX
In Search of Simplicity
If you’ve watched any home renovation or lifestyle channels lately, you may have come across any one of a plethora of shows which follow homebuyers as they look for the simpler life and do some extreme downsizing. I happened upon one in the spring which showcased a family of five, including 3 t(w)eens, as they went from a 5,000 square foot house in the California suburbs to a 250 square foot “tiny house” on a trailer.
Later in June, I heard a radio interview with Ryan Nicodemus, co-producer of the acclaimed movie “Minimalism: A Documentary About the Important Things.” Ryan chased his dream in corporate America and earned six figures before he reached 30, only to be laid off shortly thereafter. This event left him feeling strangely unburdened from the never-ending race to the top and – from what often comes with financial success – the constant need to acquire more things. He also realized that he had lost focus on what was truly important to him, such as family. So, he simplified his life by ridding himself of everything except for about fifty things. And then he moved in with his mother.
I would venture to say we have all had one – possibly fleeting, possibly lingering – thought of getting rid of our things and searching for a simpler life. It is very easy to get caught up in typical North American consumerism and every now and then have that thought of ‘Whoa, wouldn’t it be nice to simplify things, just a bit?”
That same ‘whoa’ sentiment can also transcend into how a person looks at investing.
Consider how investing has become more complex over the decades. Hedge funds employ elaborate strategies, that, even with full transparency, the average individual investor can’t fully comprehend. Dealers spend millions on salaries for whiz-kid programmers to financially engineer complex structured products. Institutional investors and consultants spend their hours building multi-manager, multi-style, multi-asset class investment programs which result in portfolios with sometimes over a thousand individual security exposures. In portfolio construction analysis they optimize and backtest, analyze M3, the Omega ratio and pain ratio, trying to create a portfolio that has the potential for higher return and lower risk relative to the benchmark. In the institutional investing world, a portfolio of more than ten different asset classes is common.
All this begs the question: just because it’s more complex, is it really better? To answer that question, we conducted our own asset allocation analysis…and you might find the results surprising. The Nexus North American Balanced Fund, with its controlled asset class diversification, has given investors one of the largest return premiums for the risk that it has taken relative to “institutional-style” multi-asset class portfolios, as well as to the less diversified individual asset class indices. This is a testament to the disciplined process, decades of experience and skill in security selection and portfolio construction that our portfolio managers have provided Nexus’s clients over the firm’s near-30 year history.
I guess Warren Buffet had a point when he said, “Investing is simple, but not easy.”