"The art of Jeet Kune Do is simply to simplify" - Bruce Lee

The idea of keep things simple is seductive and tempting.  Who wants to do so many extras and complicated stuff, and it is a great tool in our daily life. We makes plenty of decisions everyday, some important most doesn't, like what to wear, to eat etc. So it makes perfect sense to keep things simple on mundane chores while our mind can focus on important stuff.

Same for investing. The classic example is how Warren Buffett perform back of the envelope calculation to decide if an investment is a Go or No Go. Simplicity at it's finest. We love it. No bullsh*t. Straight forward. Most of all - easy. 

If you have read the book The Outsiders: 8 Unconventional CEOs.. you would have noticed a common pattern that all CEOs possessed (Buffett being one of them). They make important decisions look so simple and easy. No plowing through 500 pages of information; complicated financial modeling or software, no, just 1-2 pages of information. They focus relentlessly on a few key variables, and understand the critical role of assumptions going into those variables. They focus on the important 20% that decides 80% of the outcome and ignore other irrelevant details.

But that's pretty much where confusion starts. I think there is a great misuderstanding between what these superinvestors are trying to teach us about keeping it simple and what we actually think it is. Keeping our life simple i.e. using less gadgets, sleep early etc are the simplification on life itself. This is very different from the context of achieving simplication through mastering a skill, i.e. cooking french cuisine, play golf, chess or investing.  

Put it in the context of investing, to insist that simple is the best & whacking a PE of 10 and call it undervalued is suicide.

Let's take a step back and study these superinvestors. How do they know what is important & what is irrelevant? How can they tell what are key variables and what aren't? How do they know what assumptions to make? 

Bruce Lee is famous as an icon himself in the world of martial arts and as a founder of Jeet Kune Do. He is also famous on life philisophies like "It's not the daily increase but daily decrease. Hack away at the unessential."

So how does Bruce Lee and all these superinvestors actually attain this state of simplication?  

Before Bruce Lee founded Jeet Kune do, which is grounded on the philosophy of 'Simply to simplify', he has to spend the prior 10 years from the first day learning Wing Chun, hacking away the unessential. Warren Buffett plow through several hundred pages of reports and industry publications 8 hours a day, going for years before he can make back-of-the-envelope calculations. It will take Albert Einstein 7 years before the discovery of special theory of relativity in 1905 and another extra 10 years to improve it; an equation famous for it's elegance & simplicity E = mc ². If you look at all these greats across a wide range of fields, they all possess the traits of hardwork and strong ethic. They achieve the state of simplicity through the art of mastery. And to attain mastery in one field, effort is an absolute must. There are no shortcuts.

This applies to investing as well. The beauty of simplicity should not be confused with using a shorthand approach (PE or any kind of multiples are shorthand) just because that is the only approach you know. It should not be used as a justification for investment without applying critical thinking onto the business itself. And it definitely shouldn't create an illusion that simplicity can be easily achieved without hard work. Indeed I believe effort or hard work is one of the most underrated factor when it comes to achieving mastery and simplicity. 

Shorthands approach are great for screening stocks, but to use it for valuation is dangerous and bordering on ignorant. You cannot attain the state of simplicity without going through all the hard work and preparation. No shortcut lessons or tip or hack here, just hard work and persistence. You cannot simplify a skill without first mastering it.

"Preparation for tomorrow is hardwork today" - Bruce Lee