Unconventional wisdom: Homer Simpson and a focus on things that never change
Too many investors spend too much time trying to predict the future - but some things remain consistent.
Conventional wisdom is a byproduct of groupthink that presents solutions good enough for the average person while simultaneously not being right for any individual. You follow it at your peril. Each Monday I will challenge the investing norms that just may be holding you back from living the life you want.
Unconventional wisdom: Homer Simpson and a focus on things that never change
“Two things are infinite: the universe and human stupidity; and I’m not sure about the universe.”
- Albert Einstein
I once saw a psychic speak at an investment conference. Although psychic was not his chosen title. He called himself a futurist. He did this with a straight face.
He looked as you would imagine a futurist would look - hipster glasses, tight jeans and the glaringly white athletic shoes which apparently now pass for dress attire. His look had the desired effect and reassured the crowd that he had a grasp on where the world was going. An old lady huddled behind a crystal ball would not do at an investment conference.
He was a very compelling speaker. Which is an important quality when you are predicting something that is unpredictable. The audience was engaged and took copious notes as he informed us about what we would be experiencing in the years ahead.
He was confident and it all sounded plausible. As a bonus there was enough about the future to cause some consternation and eye rolling as the elderly crowd considered the course of societal evolution. The world may be going to hell but at least the audience was going to profit from it.
I was impressed. Not by his ability to predict the future. He didn’t know more than the rest of us. I was impressed that you can earn a living as a futurist. It says less about where we are going and more about who we are.
From the beginning of time humans have yearned to know what is coming. We peer into the misty future to try and discern our fate. A better use of our time than pondering what might change is concentrating on what won’t.
The power of things that stay the same
Apparently, Jeff Bezos is asked constantly about what will change in the next ten years. This makes sense. If people listen to an unknown futurist at a conference they will certainly listen to Jeff Bezos.
He is the founder of Amazon and he has been well compensated for his entrepreneurship. People assume the rich and successful know what is around the corner. But Bezos thinks people are asking the wrong question.
He likes to focus on what won’t change in the future. Bezos built Amazon on the simple notion that people will always want to easily buy things for low prices and get them fast. This seems so simplistic. But sometimes we lose site of the obvious amidst the excitement of change.
Amazon began by selling books but Jeff Bezos didn’t have any special affinity for books. He made a list of 20 different products and ultimately choose books because there was such a wide selection that he could create something unique. There was a limit to the inventory a bricks and mortar bookstore could hold. His internet store had no limit. Books were also easy to deliver and generally weren’t urgently needed.
What Bezos started investing in was the infrastructure needed for customers to easily buy books and get them fast. As Amazon grew he used the benefits of scale to lower prices instead of increasing profits. The fact that Amazon sold books was irrelevant. The important thing was the infrastructure he built enabled Amazon to sell anything. And now they do.
It was no accident that Amazon has become the ubiquitous online retailer. Bezos knew that if you ordered a book over the internet and it was cheap and quickly delivered you would start to be conditioned to order other things over the internet.
There is no glamour in selling books. It is quite boring. And as much as Amazon is seen as a technology company it is really an old-fashioned logistics business concerned with getting items from point A to point B.
Boring and a focus on things that won’t change made Jeff Bezos a billionaire many times over. It has enabled him to live an exciting life. Maybe that is an example we can all following – boring investments for an exciting life.
Boring businesses that take advantage of things that don’t change
What Jeff Bezos was doing was building a moat. All that boringness of warehouses and logistics was creating a cost advantage for Amazon. The huge customer base was creating switching costs and network effects. The customer data Amazon possesses is an intangible asset.
In some ways a moat is about the future. Afterall it is the ‘sustainability’ of the competitive advantage that is the important part. But a moat is really a bet on things not changing. The company currently has a competitive advantage from higher returns on invested capital and higher margins – you are simply opining on if it will continue.
Moats are never going to be that exciting. They typical take some time to develop so in the exciting days of start-ups and new technology they often don’t exist. But finding a moat is the key to long term success. Look for companies that have the following qualities that you think will continue into the future.
Network effect: A network effect occurs when the value of a company’s goods or services increase for both new and existing users as more people use them. Network effect is often found in technology enabled services such as social media, payment platforms, communications platforms, and e-commerce.
Intangible assets: Investors often focus on tangible assets that are reflected on the balance sheet. However, just because something can’t be seen and quantified doesn’t mean it isn’t valuable. Patents, brands, regulatory licenses, and other intangible assets can prevent competitors from duplicating a company’s products or allow the company to charge higher prices.
Cost advantage: Firms with a structural cost advantage can either undercut competitors on price while earning similar margins, or they can charge market-level prices while earning relatively high margins. In general, cost advantages stem from scale from firms that can spread their fixed costs over huge customer bases.
Switching costs: When it would be too expensive or troublesome to stop using a company’s products or services, that indicates pricing power. For some goods and services, it is easy to switch to a competing product. For commonly purchased items competing products may simply be a shelf away. Looks for companies where it isn’t easy.
Efficient scale: When a niche market is effectively served by one or a handful of companies, efficient scale may be present because it is not worth it for competitors to enter the market given the small number of customers.
Basing your investment strategy on things that don’t change
Homer Simpson once described alcohol as “the cause of, and solution to, all of life’s problems”. His quote came in response to a raucous St. Patrick’s Day leading to a ban on alcohol in the fictional town of Springfield.
Homer’s quote is the embodiment of one thing that will never change - human nature. We overindulge in excess and temperance. We create problems like the global financial crisis because by nature we are greedy. We get ourselves out of recessions because we find resolve and ingenuity in the face of fear.
If human nature is the one thing that never changes it should form the basis for our investment strategy. Whether it is tulips, railroad shares, internet companies, or AI the same tendencies to get overly excited about ways to get rich ultimately get us in trouble. The real profits come in the recovery.
Final thoughts
To counteract the impact of human nature and profit from the folly of others requires a focus on the process and not the result. A reader eloquently summed up this view in the following way this week which I think is the perfect advice to profit off things that don’t change:
- If you have a well-thought-out process, results usually range from good to excellent.
- Never be discouraged by a poor outcome—it’s simply another lesson.
- Sometimes a well-considered decision produces a bad result, while a poor decision can by chance yield a good one. The real wisdom lies in knowing the difference.
As a sports enthusiast (tennis, golf, and cricket), I see the same truth play out. The best players rely on rhythm, process, and freedom in their game. They don’t overhit or worry about every shot, yet things tend to work out beautifully. Beginners, in contrast, often try too hard and worry too much about where the ball lands. Investing—and life—are much the same: focus on what you can control, and the rest usually takes care of itself.
A focus on process requires a plan in the form of an investment strategy. Too few investors bother to go through this foundational work so human nature takes over. Next time you find yourself worrying about an unknowable future spend some time fortifying yourself against things that never change.
Comments? Email me at [email protected]
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The book Shani and I wrote is currently in presale which is an important time to show our publisher and book retailers there is interest. If anyone would like to support this project you can buy the book now. Thanks in advance!
Our book Invest Your Way will be released by Wiley on October 9th in Australia.
Invest Your Way is a personal finance book that combines foundational investing theory, real-world application and our own experiences. It is designed to help readers create a financial plan and investing strategy that is tailored to their unique goals and circumstances.
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What i’ve been eating
One book that is unlikely to be carried on Amazon is ‘The American Frugal Housewife’ cookbook, published in 1829 by Lydia Maria Child. That book contained the first known recipe for lobster salad. This recipe formed the basis for the lobster roll when a culinary genius lost to history put lobster salad in a buttered hot dog bun. The fact that lobster was included in a cookbook dedicated to frugality is a testament to evolving tastes.
I’m staying with my in-laws north of Boston in a town called Marblehead. Most visitors to the area head to the neighbouring town of Salem to celebrate another New England tradition of hanging women as witches. I prefer the lobster roll. If you every find yourselves in these parts the best lobster roll can be found at the Little Harbour Lobster Company.
