I'm a huge fan of Occam's Razor @edgescape. Similar to the "K.I.S.S principle".

I think that's why you see a lot of very smart people come unstuck with investing -- they seek out complexity. In fact, Buffett (or was it Munger?) has said before the reason more people don't follow their approach is because it was "too simple".

I came across the Steve Jobs quote the other day that resonated with me:

“Simple can be harder than complex: You have to work hard to get your thinking clean to make it simple. But it’s worth it in the end because once you get there, you can move mountains.”

Of course, the key with Occam's razor is, as Einstein said, to "make things as simple as possible, but not simpler" -- otherwise you risk oversimplifying it to the point of losing its essence or accuracy.

@edgescape @Strawman One of my favourite models, that I think someone has quoted on here before (can't remember who) is:

simplicity - complexity - simplicity

I don't know who first coined it, but I've kept it in mind now for about 25 years.

You start with a simple question or problem. You then often need to engage with the complexity and messiness of the relevant issues. This is where reading, research, and analysis can help. You then find the key insight that drives the solution, and you focus on that. The answers are usually a simple idea.

If you stay in the initial "simple" domain, you risk not really understanding what's going on, and being susceptible to first order thinking, or a simplistic or naive decision.

Equally, if you stay lost in the complexity, you might never emerge with an actionable insight. (the "very smart people" who "seek out complexity").

Isn't this an adaptation of Einstein's outlook - as below?

Complexity Does Not Indicate Sophistication or Superiority

 Albert Einstein once listed what he said were the five ascending (bottom to top) levels of cognitive prowess and ‘simple’ is the cream of the crop, it trumps ‘genius’:

 The first level is SMART, INTELLIGENT people are smarter than SMART people…and so on.

 5. Simple

4. Genius

3. Brilliant

2. Intelligent

1. Smart

 Why is simple, the right kind of simple, better than genius?

 Because, you can understand it!

Given 'smart' is the bottom rung, I fear I may not even be on the ladder @PortfolioPlus ;)

And I totally agree @mikebrisy -- I found a quote from Oliver Wendell Holmes that gets at the same thing:

"I wouldn't give a fig for the simplicity on this side of complexity, but would give my life for the simplicity on the other side of complexity"

Thanks everyone for all the discussions and I'm glad I finally brought up this topic. I think I'm starting to think along the same wavelength of the above ideas and starting to look more at the fundamental reasons that determine how a company performs.

Also I would like to stress that I was not ignoring the fact that you need to do some sort of modelling or valuation to validate everything (the complexity part) before you make a decision. But at the same time sometimes you don't get the luxury of time when there could be others thinking along the same line as yourself.

Great topic! The more I delve into investing, the more I realise that a lot of people are looking for complexity and are using fancy logic to connect dots that aren't really connected.

When I was at uni (studying surveying and civil engineering) I realised that there were basically three types of lecturers. The ones who didn't really have a good grasp of the subject. Maybe they'd been asked to fill in or something.

Then there were the ones who knew heaps about the subject and would dive into the nuances and complexities and confuse the shit out of you.

Then there were the lecturers who knew the subject so well, they knew what they could leave out or gloss over and just taught the stuff that was important. These were the people who I learnt the most from and it really gave me a solid grasp of whatever subject it was. Once you got into fourth year, or more likely post grad, then you had to unpick some of it to delve in to the nuance, but you had that solid understanding as a base that allowed to you to see the wood from the trees as it were. Simplicity got the best results.

The other Einsten attributed quote I get a lot out of is:

"Everything should be made as simple as possible but no simpler"

It's related to your simplicity ladder @PortfolioPlus but suggests an almost endless desire to keep simplifying - but don't go too far.

How far is too far will only be knowable with any precision in hindsight if ever but it's a great lens that also fits nicely with @mikebrisy's Simplicity => Complexity => Simplicity model.

I'd not come across that one but that reminds me of the Bezos model of making decisions when you have most but not all (I think he said 85%?) of the information that you would like to have before deciding - i.e. don't get stuck in the complexity.

My investing application of this thinking is that you need to Distill your Due Diligence back into Simplicity so you have a coherent (and ideally) trackable thesis of the vital few factors that should drive an investment decision.

That's the thinking anyway, the consistent execution of this remains a work in progress.

Thanks to @edgescape for prompting this lively discussion of mental models - always helpful to be reminded of this sort of thing.

Another take on the Simplicity => Complexity => Simplicity model is the midwit meme that's been doing the rounds in recent times.

There's a bunch of different examples out there and the below is an investing version but possibly oversimplifies for effect.

Still I think the point of working though unnecessary complexity to get to the other side is well made.

Specifically "Unfortunately, the only way forward is through the messy middle, through a valley of anti-intuition"

Source: https://alchemy.substack.com/p/the-meme-every-investor-needs-to