November 10, 2008

More details are not always better details

Several years ago a stock broker tried to interest me in a complicated “structured” investment product his company put together. I asked to see the prospectus. It took over 100 pages to describe this “product.” I think I understand enough about finance to figure out what the document was saying, but reading it I could never figure out how the thing worked or was supposed to make money. I guess the broker expected me to rely on his judgment and that of his mega-firm (a recipient, since, of several bailouts). Anyway, I fortunately decided to pass on the opportunity. It was among those that lost a lot of its value recently, despite the lengthy verbiage about it being absolutely safe and liquid.

The moral of this episode is nicely summed up by something the artist Georgia O’Keefe said in 1922:

“Nothing is less real than realism…. Details are confusing. It is only by selection, by elimination, by emphasis, that we get at the real meaning of things.”

In other words, if it doesn’t boil down, it may not really be there.

[See the Sept 20 '06 post for more on this theme and how it plays out in Apple’s strategy vis a vis Microsoft.]

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