Occam's Razor | Discover the Secret to Becoming the Smartest Person in the Room!
Have you ever heard of the philosophy of Occam’s razor? I didn’t either until I spent three years in seminary classes in the late 1980s. But if you use it, you may be the smartest person in the room. Hello, my name is Dave Duley, a 40-year veteran in the financial markets and lead advisor here at Georgia Advisory Group, a full-service financial planning firm located in North Atlanta. In my last video, I delved deep into a specific strategy we have to use to choose the best companies to own and when to buy or sell them. You can check out our website to see the previous one called “Are Stocks Predictable?”.
Certainly, you have heard the saying “keep it simple, stupid.” Now, back in 1285, William Ockham, a philosopher, had his own version of the quote, and it was called Occam’s razor. Now, what exactly was it? The principle gives precedence to simplicity of two competing theories. The simpler explanation of an entity is to be preferred. The principle is also expressed as “entities are not to be multiplied beyond necessity.” Okay, now it seems I’m getting deep here, but hang on for a few more minutes.
You see, in life, and specifically in investing, this approach is really remarkable and can save countless headaches and heartache. I have incorporated it into my financial philosophy and in my day-to-day life. Why? Because it works. The coined phrase “Occam’s” obviously refers to his last name, and “razor” means to shave away those things that don’t matter or are harder to implement into your reasoning and that are not essential. Thus, we keep it simple. Galileo himself, in the sciences, used it constantly to explain many concepts of the heavens.
So, how in the world can we today apply this approach when looking to take on secure retirement or a great plan to build wealth? Over the next two weeks, as you start your day, begin to jot down companies you use every day, all day. Let me give an example. Let’s get started. I got up and I looked at my iPhone first thing in the morning. I made a cup of coffee, went back to look at my iPhone, took a shower, shaved, put on my makeup or cologne, dressed, headed to my car, drove to work, jumped on my PC, ate lunch, went back to the office, drove home, then headed to the gym, made dinner at home, looked at Dave’s YouTube channel, picked up my deliverance, watched the movie, back to my bed.
Now, let’s look at this same day from a company standpoint. Sleep Number, Apple, Dunkin’ Donuts, Coffee-Mate, Colgate, Old Spice, Gillette, Estée Lauder, Polo, Old Spice, Lululemon, Johnny O, Peter Millar, Nvidia, Microsoft, Costco, Hewlett Packard, Nike, Adidas, Amazon, Netflix, Google, and the list goes on. We just looked at our day through companies we regularly do business with. If we compile that over 30 days, then we get our Occam’s razor philosophy, and we shave down what companies are basics and essentials. We look at their competitors in each of those areas. We will find those that have too much competition from price or product. We eliminate them. But those that leave that particular category they dominate, provide great service, and have great management, we keep them. And it’s simple, stupid. We don’t overthink and add unnecessary reasoning to our choices.
Bam! There you have it, a short list of great companies that not only you but most likely your immediate friends and family use every single day. Now, if you multiply that by thousands regionally, we can see where other companies may come into play. But keep it simple. Globally, we see where other companies come into play also. But keep it simple. Own these stocks, and you will outperform the guy who is complicating every choice and overthinking. Hey, it has worked for Warren Buffett, and I bet it’ll work for you and me. As Paul Harvey once said, now you know the rest of the story. Occam’s razor.
I bet you will remember that. Go look him up. Subscribe below, and you’ll continue to get great content. Visit us at our website and look around to see why we continue to be a leader focusing on the road ahead. Until next time.