Why Simple Is Hard: Our Investing Philosophy
The hard-earned lessons behind our exceptional returns...
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Most investors fail not because investing is complicated, but because the simple approach is unbearably difficult to maintain.
I've watched countless sophisticated investment strategies come and go, leaving disappointment and depleted capital in their wake.
At Schwar Capital, we've distilled investing down to what actually works.
Rooted in Simplicity
"Simplicity is the ultimate sophistication." —da Vinci
At its core, our entire investment approach at Schwar Capital is built on a foundation of simplicity.
Wall Street thrives on complexity – exotic products, elaborate theories, and endless commentary masquerading as insight.
Most of it is noise.
The investment industry has a vested interest in making things seem complicated. Complex products command higher fees. Elaborate theories justify active management. Constant commentary creates the illusion that daily market moves actually matter.
We cut through this clutter to focus solely on what drives exceptional returns.
The simple things – buying good businesses at reasonable prices – still work, but they're remarkably difficult to stick with when everyone else is chasing the next shiny object.
Asymmetry and Concentration
Our search for asymmetric opportunities defines everything we do. We're looking for situations where:
If we're right, we make a lot
If we're wrong, we don't lose much
This favourable risk-reward dynamic appears rarely, which explains our concentrated portfolio of just 8-12 positions.
As Buffett says,
"Diversification may preserve wealth, but concentration builds it." —Warren Buffett
When we find something truly compelling, we want it to matter.
The math of asymmetry is deceptively powerful. By capping your potential losses while leaving your upside unconstrained, even a small number of successful investments can drive exceptional long-term returns.
When you own too many stocks, some thing subtle happens. Your best ideas get diluted. Your attention gets scattered. Your edge disappears. You end up knowing a little about a lot, instead of a lot about a little.
After 10-20 stocks, additional diversification barely reduces your risk. It just reduces your returns.
Think about that for a moment.
Every stock after number 10 is essentially just admitting you don't trust your own judgment. The truth about risk isn't what most people think:
Risk isn't owning five great businesses you understand deeply.
Risk is owning fifty mediocre ones you barely know.
"Very few people have gotten rich on their seventh best idea." —Warren Buffett
Yet most portfolios look like a teenager's Spotify playlist: endless additions, no curation.
In a world obsessed with spreading bets thin, concentration is your edge. While others try to own everything, you can focus on knowing something. While they chase breadth, you can pursue depth.
The Power of Patient Capital
In 2022, we bought Meta when others were panic-selling. It wasn't because we had special information – we simply recognised the gap between price and value had become absurdly wide.
Markets reward patience in a way few appreciate.
Our willingness to wait – both for positions to develop and for truly attractive opportunities to emerge – provides a meaningful edge (roughly 600% in this case).
Cash isn't trash; it's a call option on future bargains.
In fact, the hardest part of investing is often doing nothing.
We deliberately resist the natural human bias to act, understanding that constant activity is the enemy of results. As Einstein reportedly said, "Compound interest is the eighth wonder of the world" – and we refuse to interrupt it unnecessarily.
Every transaction incurs both visible and invisible costs – taxes, commissions, spreads, and most importantly, the opportunity cost of deploying capital in anything less than exceptional opportunities.
Finally, we enjoy the process along with the proceeds. Building wealth is a marathon, not a sprint, and maintaining the right temperament through market cycles is as important as any analytical edge.
Being Different vs. Being Right
Being different is only valuable when you're also right. We develop well-reasoned convictions that may differ from consensus, but we never disagree merely to be different.
That's just being stubborn.
True contrarianism comes from seeing what others miss, not from rejecting what everyone sees.
In fact, we often welcome volatility that makes others uncomfortable.
Market turbulence creates precisely the dislocations that patient investors can exploit. When others are paralyzed by uncertainty or retreating in fear, we find our most compelling opportunities.
Again, this isn't about seeking risk for its own sake – it's about recognising that temporary price swings often have little to do with long-term business value. The market's emotional overreactions in both directions create the very inefficiencies that make active investing worthwhile.
Embracing Uncertainty
"It is better to be roughly right than precisely wrong." - Keynes
I've watched countless investors build elaborate models projecting earnings to the penny 20 years out.
It's absurd.
The market is a complex system filled with randomness and "unknown unknowns."
As Nassim Taleb powerfully argues, the most consequential events are often unpredictable Black Swans that no model could have anticipated.
We don't pretend to eliminate uncertainty - we embrace it.
Rather than seeking false precision in our forecasts, we build margin of safety into every position. Aligning with our principle of simplicity, we prefer approximations that acknowledge the limits of prediction over precise estimates that create an illusion of certainty.
Successful investing also requires being alert for the arrival of luck – those rare moments when exceptional businesses become available at irrational prices.
These opportunities don't announce themselves with fanfare; they appear amid pessimism and require conviction to act.
The Triple Engines of Returns
The greatest returns we've achieved have come from a combination of three factors working together:
Earnings Growth: The fundamental driver of long-term value as a business increases its profits over time.
Valuation Expansion: The market's willingness to pay more for each dollar of earnings as perception improves.
Margin Expansion: A business becoming more efficient, extracting more profit from each dollar of revenue.
When these "triple engines" align, remarkable things happen.
A company growing earnings at 15% annually while expanding margins and seeing its P/E ratio increase from 10x to 20x can deliver extraordinary returns that far exceed what any single factor could produce alone.
Importantly, we don't need all three engines firing simultaneously to achieve excellent results.
Even one or two can produce outstanding returns.
But we're constantly searching for those rare opportunities where the potential exists for all three - creating the possibility for truly exceptional performance.
The Hardest Part: Keeping Winners
Perhaps the hardest part of this business isn't finding great investments – it's keeping them.
Anyone can identify a potential multi-bagger; few have the temperament to hold through:
The inevitable volatility
Frustrating periods of price stagnation
The constant bombardment of new ideas
This is why we pay particular attention to founder-led businesses. They typically maintain the long-term thinking that drives sustainable success, unlike hired executives who frequently succumb to quarterly earnings pressures.
Again,
“The big money is not in the buying and the selling, but in the waiting.” —Charlie Munger
The Art of Selling
This section could be a whole post on its own.
Selling is probably the hardest investment skill to master. Anyone in this business long enough will inevitably look back at previous sales with regret.
These opportunity costs won't appear on any statement but compound enormously over time.
While buying great businesses receives the most attention, our selling discipline is equally crucial to long-term returns.
At Schwar Capital, we approach selling through the same lens as buying, but in reverse. The conditions that made an investment attractive initially – quality, valuation, and potential – provide the framework for when to exit.
We sell when:
The original investment thesis breaks down
Valuation becomes detached from business reality
Capital can be redeployed to significantly better opportunities
What makes selling particularly challenging is the asymmetric nature of information.
When buying, we have months or years to study a business before committing capital.
When selling, market developments often demand quicker decisions with imperfect information.
Additionally, the psychological hurdles are formidable. There's the natural tendency to hold winners too long ("let your winners run"), cut winners too early (fear of giving back gains), and hold losers hoping for recovery (avoid acknowledging mistakes).
The most damaging selling mistake isn't missing the exact peak – it's allowing deteriorating businesses to erode capital that could be working harder elsewhere.
Patience should never be confused with complacency. Sometimes the wisest action is doing nothing. Other times, decisive selling preserves capital for tomorrow's opportunities.
The Bottom Line
Nothing I've said here is revolutionary, which is precisely the point.
Investment success doesn't come from discovering some secret formula; it comes from consistently applying time-tested principles when others are chasing shortcuts.
As Howard Marks would say, the most important thing is recognising there isn't just one important thing.
We hope you liked this post and have a great week ahead,
Dom
Schwar Capital
What principles guide your investment philosophy? Have you found certain approaches consistently work better than others over time? Share your insights below - I read + respond to every comment!💡
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Disclaimer: The content provided in this newsletter is for informational purposes only and does not constitute financial, investment, or other professional advice. The opinions expressed here are those of the author and do not necessarily reflect the views of Schwar Capital. Investing involves risk, including the possible loss of principal. Past performance is not indicative of future results. The author may or may not hold positions in the stocks or other financial instruments mentioned. Always do your own research or consult with a qualified financial advisor before making any investment decisions. To read our full disclaimer, click here.
Good stuff Schwar 🤝
Great, I like a lot your contribution.