Dear Fellow Investor,
Do you have a strong preference for simple and understandable businesses? It's one of Warren Buffett's favourite sentiments, and it's one I followed for several years.
But not any more.
As time passed I came to the conclusion that simple businesses were no more predictable than large and complex businesses. And, given that investing is all about the future, predictability is more important than simplicity.
The problem is that a business may be simple in isolation - but they don't exist in isolation. Businesses exist as part of an interconnected web of hundreds, if not thousands of other companies. Each one can have a direct or indirect effect on many others.
In fact, when it comes to predictability, a larger and more complex system (like an ocean liner) in a chaotic environment (like the ocean) may be more predictable than a simple system (like a rowing boat).
You can read the full article which I wrote for the BullBearings website below:
Investing in Warren Buffett's 'simple' businesses may be a bad idea
Taking the ocean liner and rowing boat analogy even further:
If you want excitement then cross the Atlantic in a rowing boat. If you want to be sure of reaching your destination, stick with the ocean liner.
Have a nice weekend,
John Kingham
Editor, UK Value Investor
P.S. FREE book offer - Become a member of UK Value Investor before 30th April 2013 using the two year plan - you will save yourself £100 on the standard price and I will also send you a FREE copy of The New Buffettology. | 