Summertime and Investing is Easy
Remember? It wasn’t that long ago when the only thing a phone offered us was a dial tone. No pictures, no apps, no music or video. “Mobile” meant having an extra-long cord.
Considerably before that, in the early 1960s, Nobel laureate in Economics William F. Sharpe was instrumental in forming the Capital Asset Pricing Model (CAPM) and a related mathematical equation called the Sharpe Ratio. The terminology is rarely referenced outside of financial circles, but the practical applications of his life’s work have been essential to every investor seeking to invest with clarity in a busy, buzzing world.
In telecommunications and investing alike, what began as a leading-edge notion has evolved so dramatically in response to new insights that it can sometimes be difficult to see the enduring connections between what a thing was versus what it has become. But just as we primarily use even our latest gadgetry to reach out and touch those who aren’t standing right in front of us, some essential truths continue to steadfastly guide our sensible investing, no matter how advanced our tools, technology and talents for applying these truths may become.
Leave it to a Nobel laureate to best describe these essential truths for us. We encourage you to read his entire interview at SensibleInvesting.tv, but here is an excellent response from Professor Sharpe when asked what he believed were the basic rules of investing:
“There is a rule in real estate that the three most important things are location, location, location. My rule in investments is that the three most important things are diversify, diversify, diversify. And then I’ll give you three more: keep costs low, keep costs low, keep costs low. The simplest way of dealing with it is via a very broadly diversified, very low-cost index fund.”
As phones have become more complex (and cheaper), investing has become less confusing (and often, much cheaper). If an economics professor can make investing this easy, why can’t Wall Street? Maybe it’s because Professor Sharpe doesn’t need to bedazzle you with data to justify a big, fat, commission.