Confusing Simplicity with Ease

Yesterday I had a nice conversation with a very thoughtful investor. He noted that while investing is pretty simple — buy low, sell high — people often confuse its simplicity for ease.

I love this notion. Because over the years, I have come to realize that investment success is predicated on some pretty basic principles: Hard work, thoughtful valuation discipline, strong underwriting and careful portfolio construction. As an investor, this enables you to find unique opportunities and buy investments to sell at a higher price, while ensuring that the distribution of profitable and unprofitable investments in a portfolio, on average, deliver a solid return. This sounds pretty easy, right?

After analyzing the strategies and results of countless public and private investment strategies over the past 16 years, I have come to realize that no matter your strategy or “angle”, making profitable investments, especially above-average investments, is not just hard, it’s extremely hard. The good news is that there are strategies which can make this challenge easier, namely specialization. Employing a narrowed focus, whether it be sector, stage or geography, can meaningfully stengthen the building blocks of investing (hard work, valuation, underwriting). Specialization enables you to work a niche, uncovering riches in the niches.

So, while the seductiveness of investing’s simple nature can make something hard seem easy, there are some basic things that can make a hard thing easier. And what is more fun than winning at something that is hard?