“You just don’t understand.”
When you hear that phrase in a relationship, pay attention. Chances are, you’ve missed something important.
But when you’re looking at an investment and someone tells you this, grab your wallet. Chances are, you haven’t missed a thing. They’re either pulling one over on you, or their model is too complex for its own good.
Over the last dozen years we’ve seen multiple companies tell us that their business was too sophisticated for the average investor to understand: Enron, Worldcom, or even Microsoft. Peter Lynch says that you should invest in firms that any idiot can run–because eventually one will. If the plan can’t be diagrammed in crayon on the back of a napkin, it’s probably too involved.
A lot has been written about the demise of Bear, Lehman, and Merrill, but a big part of the problem was that their firms looked more like Rube Goldberg machines than financial warehouses.
When a partner tells you that you don’t understand, it’s time to listen harder. When someone in the market says the same thing, it mat be time to walk away.
Douglas R. Tengdin, CFA
Chief Investment Officer
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