KISS vs KISS

KISS investing stands for keep it simple, stupid. The emphasis is on simple approach that works. "Index investing" is different KISS: keep it stupid, simple. The emphasis is on stupid approach for simple folks. The stupidity of index investing is best illustrated by an analogue of choosing valves for nuclear power plant. The index way of choosing valves for a power plant:

Clearly this is a critical decision with potential to affect people’s lives. Some valves are better than others and will perform better in the future; however, since we do not know which valves are better, we will buy 500 different kinds of valves. These 500 valves will be known as the valve index. Sometimes a valve will fail. If this happens, the failed valve will be replaced by another valve to keep 500 valves in the valve index. Since buying valves is costs a lot of money and we do not know what is the right price for the valves, we will buy some valves this month and more the next month and the months after that until we have a lifetime supply of valves. This time averages the valve cost basis which means the average valve cost is the average valve cost over time. Once we have enough valves to run the power plant, we can sell some of the valves to obtain cash. Since we still do not know the right price for valves, we will sell the valves at whatever price someone is willing to pay for them. This is ok because we will not sell them all at once but we will again do time averaging by selling some this month, more the next, and so on.

The index method of choosing valves stocks for power plant retirement savings:

Clearly this is a critical decision with potential to affect people’s lives. Some valves stocks are better than others and will perform better in the future; however, since we do not know which valves stocks are better, we will buy 500 different kinds of valves stocks. These 500 valves stocks will be known as the valves stocks index. Sometimes a valves stocks will fail be delisted. If this happens, the failed valve delisted stock will be replaced by another valve stock to keep 500 valves stocks in the valve stock index. Since buying valves stocks is costs a lot of money and we do not know what is the right price for the valves stocks, we will buy some valves stocks this month and more the next month and the months after that until we have a lifetime supply of valves. This time averages the valve stock cost basis which means the average valve stock cost is the average valve stock cost over time. Once we have enough valves stocks to run the power plant retire, we can sell some of the valves stocks to obtain cash. Since we still do not know the right price for valves stocks, we will sell the valves stocks at whatever price someone is willing to pay for them. This is ok because we will not sell them all at once but we will again do time averaging by selling some this month, more the next, and so on.

KISS method of choosing valves for nuclear power plant:

We will evaluate the valves based on the performance in comparison to the design specifications. To ensure that our system is robust, we will use multiple different valves in parallel. Building a nuclear power plant takes time and money. We will diligently make the valve purchases when we can get a good price for them. Sometimes the price of a valve may go up. In this case we may sell the valve and replace it with another valve that is cheaper and still gives as the same performance. Occasionally, a valve may fail but this does not affect the nuclear plant as we have multiple valves in parallel. We will just promptly replace the failed valve with another one. Once we have all the valves we need to complete the power plant, we can enjoy the work well done!

KISS method of choosing valves stocks for nuclear power plant retirement income:

We will evaluate the valves stocks based on the performance dividend yield in comparison to the design specifications target income. To ensure that our system is robust, we will use hold multiple different valves stocks in parallel our portfolio. Building a nuclear power plant income portfolio takes time and money. We will diligently make the valve stocks purchases when we can get a good price for them. Sometimes the price of a valve stock may go up. In this case we may sell the valve stock and replace it with another valve stock that is cheaper and still gives as the same performance dividend income. Occasionally, a valve stock may fail but this does not affect the nuclear plant the total income as we have multiple valves stocks in parallel our portfolio. We will just promptly replace the failed valve stock with another one. Once we have all the valves stocks we need to complete the power plant cover our expenses with dividend income, we can enjoy the work well done!

 

 

 

 

 

 

   

 

 

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