As investors in our Fund and regular readers of our blogs well understand, we are firm believers in the “elegance of simplicity”. In accordance with Occam’s Razor, why make things more complex if the complexity adds little or no incremental marginal value and only means that there are more things that can, and will, go wrong?

We have had people say to us, ‘if you added a few bells and whistles, your strategy would be even more appealing’, ‘it all seems too simple’ or ‘why if things can be made so simple and understandable do others not do the same?’.

To that end, we thought you might find the following brief clip – “The Dr. Fox Lecture” – extremely illuminating. Just 5 minutes of your time will show you just how the desire for complexity and opacity is a trap for the foolish.

Back in 1970, a group of psychologists wanted to test the response of intelligent people to the machinations of a so-called “expert”, the fabled “Dr. Fox”. As you will see from the lecture clip, an actor was put in place to deliver a highly complicated lecture full of opaque jargon, contradictions and made up facts. He appeared smart, well informed and a master of his topic, in fact an expert. Unfortunately, what the audience did not know is that he was delivering a lecture of meaningless nonsense wrapped in pseudo-scientific jargon.

Despite the dense, complicated and absurd content, the audience ratings for the lecture were fantastic. The audience lapped up the complexity and pseudo-science; they couldn’t get enough of it.

That study, and others that have followed, shows that people actually value complexity, even when they cannot untangle it and do not understand it. In short complexity creates exclusivity (there are only so many of us smart enough to understand, of course) and exclusivity creates desirability (as an advertising and marketing executive well understands).

So, the next time you see a portfolio manager with a complex, multi-faceted, opaque portfolio with lots of moving parts just think of the fabulous Dr. Fox.

 

MONOGRAM CAPITAL MANAGEMENT