 | | Lynn Carpenter | | One of the many reasons so many of us hated school growing up was the way the whole process and machinery of education looked at us tender young scholars … and sneered. Schoolbooks have always done a terrible job at taking complex material and disassembling the key points to teach them from the ground up so that learners may learn. The result is that they talk down to kids … and kids know when they are being dissed. Pfft to Dick and Jane and the dog that came with you! As it turns out, life gave me my own chance to be an abuser. I never wrote schoolbooks (well, only once, best forgotten), but my earliest paid writing jobs were to make scientific research understandable to politicians and the “informed public.” I wrote the first several “Reports to the President and Congress on the National Acid Precipitation Assessment Program,” explaining acid rain research. I say “wrote” because the job was to take the science teams’ official reports and turn them into English, which basically meant writing them over again. I did the same for the Council on Environmental Quality (a lake restoration group) and Army value engineers, among others. Exciting stuff, huh? But here’s a test the writers of our abysmal schoolbooks never had to pass - my work had to be done so as to reach the non-scientist reader without offending the scientists by dumbing it down. Scientists are very sensitive on that point. I had to prove you could be simple without being stupid. The secret - and now we come to the "what this means to your investing success” part - is mastering the art of simplicity. It is indeed an art to be simple - I sweated my way to it with the practice of “learned ignorance.” Though I knew a lot, I pretended that I knew nothing when I wrote so I could think of what needed to be explained and how to say it clearly. Nick M. put it well when he commented on an IDE article on charts recently: Your writing style is factual, thought provoking and down to earth which I find quite refreshing. All too often investors are caught with Fundamental Analysis but do not pay attention to Technical Analysis which is equally as important. Traders on the other hand live by TA as it's the difference between a winning trade or a losing one. The question then is what indicators should be used? The answer is those indicators that have meaning to the person executing the trade. I've traded for many years and today I use only 5 or 6 indicators. When I first started I think I was using 10 - 12, talk about overkill….” Nick gives us a perfect example of using “learned ignorance.” He knew a lot about technical trading signals but the results weren’t worth all the confusion. Now he focuses on a much smaller group and finds this works better. But his most important point is that the good trader and the good investor have to start with something that rests in his or her zone of comfort. There are many styles and theories of investing, and frankly, they all work. They all have weaknesses, too. I’m a value investor and recommend that school of thought highly, but I don’t believe it’s an either/or case - value or wrong. For me, value investing was my first zone of comfort because its focus on the health and prospects of the business made sense to me. I had spent many years doing budgeting, costing and pricing services, building teams, planning strategies, and such. Looking at a business strategy and simple measures like P/E came more easily to me than looking at weighted average cost of capital, Sharpe ratios, or stock momentum. Going in somewhat the opposite direction of Nick, I started technical trading with one thing and slowly added new techniques. That’s why I’ve been doing the series on reading trends in charts in my Thursday columns. Technical traders are particularly prone to losing their touch with simplicity and letting their gadgetry overwhelm them. Bollinger bands, PPO, MACD, and all that are good tools, but a good understanding of trends is far more basic and useful. Someone out there is always preaching how their way to trade or invest is the gospel and only enlightened way. It’s not, so don’t worry about belonging to the “right school.” Pick one or two things you feel you can understand most readily, and then master them. Then, when you have found what makes some intuitive sense for you, work it. Think about those one or two things every time you consider an investment. Beat that idea to death! Simplicity is a tough job, but the payoff is great. Respectfully, Lynn Carpenter P.S. To let me know what you thought of today's article, send an e-mail to: feedback@investorsdailyedge.com. INTERNAL ENDORSEMENT Winners Cherry Pick!
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