Abraham Maslow once wrote: “If all you have is a hammer, everything looks like a nail.”
If you only have one skill, you’ll use it to solve every problem. Even if it’s not the best solution.
In other words, if the only tool you have is a hammer, every problem looks like a nail.
I first heard that quote more than 20 years ago. I got it from billionaire investor and Warren Buffett’s business partner, Charlie Munger.
It’s taken from Abraham Maslow’s The Psychology of Science. The quote deals with a concept called the law of the instrument.
Throughout my 35-year career, I’ve seen many analysts run into this dilemma.
They use complex spreadsheets and formulas as their hammer. And if a stock doesn’t meet their measurements, they won’t invest in it.
But I found out early on in my career that you shouldn’t measure a business solely by what you read on paper.
If you do, you’ll overlook important information about companies by investing this way…
When It Comes to Picking Stocks, Complexity Is the Enemy
Despite what Wall Street and the media tell you, investing is actually pretty simple.
It involves putting up a small amount of money today in the hopes of getting back a bigger amount of money in the future. That’s all there is to it!
But for some reason, investors feel that the only way to approach the stock market is to make it as complex as possible.
In fact, simple approaches are often neglected in favor of systems no average person could ever figure out.
The reason being: If it’s complicated, it must work.
That’s one of the main reasons hedge funds are attractive to people. Rich “smart” people invest in hedge funds with super-secret formulas that charge them outrageous fees.
Take a look at the chart below. It shows the percentage-point difference in performance between the Hedge Fund Index and the S&P 500 Index:
Yet for all this complexity shrouded in mystery, the majority of hedge funds have underperformed a low-cost S&P 500 Index fund over the past decade.
That’s why I base the advice I give my own readers on a much simpler approach.
Great Stocks Have 3 Basic Principles
Readers of my Alpha Investor Report research service know that we can find great stock investments using three easy-to-understand principles.
You don’t have to know complicated math or even how to use a spreadsheet to follow along with me.
Instead, all you need to do is:
- Identify markets with long runways of growth.
- Find companies within those markets run by excellent CEOs.
- Buy stocks when Wall Street misprices them.
Then you just sit back, watch your net worth increase and repeat the process over and over.
Of course, if you don’t want to do any of this heavy lifting yourself, I can show you how I do it in the Alpha Investor Report.
This is your opportunity to look over my shoulder. I will meet with industry experts and uncover stocks Wall Street’s mispriced.
If you’re interested in learning more about my service, and a recent stock that just passed through my three filters with flying colors … click right here.
All my best,
Editor, Alpha Investor Report
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