Aswath Damodaran: You Have To Keep Investing Simple, But Not Simplistic

Johnny HopkinsAswath DamodaranLeave a Comment

In this interview with Everything Money, Aswath Damodaran explains why investors should keep it simple when investing, but not simplistic. Arguing that investors should only add detail to their analysis when it’s necessary to make an informed decision. Here’s an excerpt from the interview:

Damodaran: I think you have to keep it simple, but not simplistic.

What I mean by that is you’re going to add the detail you need to add. In the case of Nvidia, for instance, you know you need to bring in the AI business explicitly.

I generally try to avoid bringing in detail that I don’t need where I have no information, but if you have information that you need to bring into investing, you need to bring it in.

So if you’re being simplistic and saying, “Look, I’m going to use the P/E ratio. It’s a simple number. I can’t deal with this other stuff. It’s too complicated.”

You’re being simplistic, not simple. So I think you need to bring in as much detail as you need to make an investment, and nothing more.

The problem I have with a lot of investors is they drown in detail.

Especially as they get more technically proficient, the more access they have to data, it’s easy to get drowned in the details and lose perspective.

So you constantly have to step back and say, “Does it make sense for me to add that layer of detail? Does it make me a better investor, or am I just doing this because it makes me feel better?”

A lot of this is psychological.

You feel like you’re in control when you have a lot of data and you do more work, but sometimes you’ve got to let that need for control go and say, “Look, this isn’t helping me as an investor. It’s making me feel more secure, more confident, but it’s really doing nothing for my investing.”

You can watch the entire discussion here:

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