WHAT IS OCCAM’S RAZOR? Occam’s Razor is a principle attributed to William Occam, a 14th century philosopher. He stressed that explanations must not be multiplied beyond what is necessary. Thus, Occam’s Razor is a term used to “shave off” or dismiss superfluous explanations for a given event. This concept is largely ignored within the investment management landscape. This newsletter will “shave off ” popular investment misinformation and present what is important for achieving long-term investment success.
People are a lot like snowflakes. If you don’t look all that closely, we’re all roughly similar. But the closer you start looking, the more different we are. We all have our own unique situations and experiences, and these drive who we are.
This also describes who we are as investors. We can make big, broad, statements about the market – and by extension investors as a group – but every investor is slightly different. In the past, we have talked about how getting the “average” return is actually rare. It’s the same thing with investors. We can very precisely describe the average investor (it’s the market!), but that person doesn’t really exist, and can’t exist. Everyone is different from the average investor in a multitude of ways. Some of these differences are profound, and some are trivial. But they’re always there, and they drive how your investment portfolio should be built.
But just like with snowflakes, there are similarities amidst the differences. Unique doesn’t mean unique. We can still talk meaningfully about large groups of investors, and we can use those commonalities to figure out how our portfolios should differ from the “average investor’s” portfolio.
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Written By: Bob French, CFA
Published By: www.retirementresearcher.com