"Everything should be made as simple as possible, but not simpler."
-- Albert Einstein
"Simplicity is the ultimate sophistication."
-- Leonardo da Vinci
"Less is more."
-- Mies Van Der Rohe
Some of the great thinkers in history have understood that simplicity is far superior to complexity, and as investors, we should learn that lesson well. Companies that are so complex that we can't understand them often turn out to be so complex that not even their own managers can understand them.
Great investors understand simplicity
One of Warren Buffett's most famous investments has epitomized the "keep it simple" philosophy. Coca-Cola
Buffett also owns businesses like railroads, carpeting, and Dairy Queen. He understands simple and invests in successful, easy-to-understand businesses.
Steve Jobs brought the "keep it simple" philosophy back to Apple
In restaurants, one of the greatest success stories in recent years follows the same line of simplicity. It doesn't come much simpler than Chipotle
Complexity is the enemy
Contrast Apple's success with Microsoft
Banking is another business that appears simple on the surface but has been full of complex dangers in recent years. If you read any accounts of what went wrong in the financial crisis, like former Treasury Secretary Henry Paulson's On The Brink, you can't help but be amazed at the complex web banks have woven for themselves. JPMorgan's recent "London Whale" debacle is just the latest example of how banks have become so complex that I avoid investing in them altogether.
This complexity has been the downfall of investors over the last five years, but one conservatively run bank in the Midwest has outperformed its more complex rivals. US Bancorp
If you don't understand it, you can't value it
Part of the challenge in investing is valuing companies, something that is only made more difficult by complexity. A fellow Fool tweeted earlier today that Goldman Sachs is trading at a 23% discount to tangible book value, providing upside for investors. But do you trust Goldman's view of what "tangible book value" actually is? As JPMorgan's "profit" showed yesterday, banking is a game of shadows, and book values or paper profits mean very little.
Apple's simple, but it also makes a fortune. Get the latest on the iDevice giant in the Fool's premium report on Apple.
Fool contributor Travis Hoium manages an account that owns shares of Apple and Microsoft. You can follow Travis on Twitter at @FlushDrawFool, check out his personal stock holdings or follow his CAPS picks at TMFFlushDraw.
The Motley Fool owns shares of Apple, JPMorgan Chase, Chipotle, Microsoft, Coca-Cola, and Bank of America. Motley Fool newsletter services have recommended buying shares of Goldman Sachs, Chipotle, Coca-Cola, Microsoft, and Apple, as well as creating bull call spread positions on Apple and Microsoft and a bear put spread position on Chipotle. The Motley Fool has a disclosure policy.
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