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Outlier’s Path

Simplicity & Clarity

Our Doug Leone was on the Invest Like the Best podcast last week. He addressed various complex topics, shared his wisdom, and spoke simply and clearly. He reminded us of the importance of simplicity and clarity.

We live in an increasingly complex world in a universe that is tending toward more and more disorder. More specifically, the second law of thermodynamics states that the net entropy of any closed system will always increase. With increased complexity, finding simplicity will become more difficult, but Doug won’t let us off the hook. Instead, he suggests using “crystal-clear words and explaining in ways a mere mortal can understand and easily describe.”

Simplicity is not about dumbing things down. On the contrary, Albert Einstein famously said, “everything should be made as simple as possible, but not simpler.” For instance, magical products, such as the iPhone, abstract away all the complexity for the user. Still, under the covers, Apple engineers have fabricated a computing device that rivals much larger machines sitting on desks and laps.

Similarly, the best investment theses are clear and simple to convey to others, but that simplicity and clarity come through hard work by dreaming with the founders, understanding the company’s products and services, sorting through customer references, pouring through reams of data, understanding the strategic position of the company relative to its competitors, determining the quality of the company’s financial engine, and much more. All that complexity is reduced into a powerful investment thesis that can often be stated in one sentence to one paragraph because the thesis is constructed from the clarity of deep thought and diligence that produces a single first-order discovery that pushes you to unambiguously want to invest or not.

As Steve Jobs said, “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.”