January 17, 2025
Leo Tolstoy once wrote that "everyone thinks of changing the world, but no one thinks of changing himself.” I'm not sure that's true, as New Year's resolutions generally fall into the bucket of changing yourself. You have to focus on yourself here, making New Year's resolutions for others just isn't polite!
Resolutions tend to sort into things we are going to add, and things we plan to remove. Both buckets can feel difficult to implement. But in finance One Day In July generally prefers removal.
As a young sprite growing up and interested in art, I would draw large scenes using a form of realism. And I would really try to fill the scene - white space meant I hadn't done something; the art wasn't complete. My works would get busy, ending up like a cross between a Richard Scarry children's book and Bruegel the Elder's The Fight Between Carnival and Lent.
Later, my art teachers told me, begged me, to breathe a bit, and give the subject space. The lack of activity on the page also had meaning. I could remove things, and the art would get better.
Your investing works the same way. A la Tolstoy, the first thing most non-indexers should do is consider changing something. They are often stuck at firms or in investments that are sub-optimal, and they need to reach the activation energy level to make a change. This is why New Year's resolutions are great: they help people get through that hurdle.
But the next step is realizing that the positive change could be a complexity subtraction. Most of the time this is the case for new clients at One Day In July. More complexity and activity do not necessarily equal better returns. Not to throw Bruegel the Elder under the bus1, but complexity results in something that can be difficult to understand. Sometimes you need a little less Carnival and a little more Lent.
This approach works as an investor because finance is a broad and complex field. Your investments react to the economy and the news cycle in myriad ways. By simplifying the problem set to fewer items, we understand them well, and the understanding leads to confidence. We want clients to share that confidence with us, because the benefit shows up in periods of deep fear in markets. If you don't understand what you own, your confidence will crack under stress, and if that happens you will struggle to do well as an investor.
Dan Cunningham
1. Ok, ok. He painted this on boards of an oak tree. Just for that I need to cut him some slack.
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