A Wealth of Common Sense: Why Simplicity Trumps Complexity in Any Investment Plan

By Ben Carlson

Overview

Published in 2015 by Bloomberg Press (Wiley), "A Wealth of Common Sense" by Ben Carlson, author of the popular "A Wealth of Common Sense" blog, makes the counterintuitive argument that individual investors actually have significant structural advantages over large institutions -- advantages that are squandered when individuals try to emulate institutional complexity rather than embracing simplicity.

Key Themes and Arguments

Individual vs. Institutional Advantages

Carlson argues that individual investors' advantages include longer time horizons (no quarterly reporting pressure), smaller asset bases (allowing investment in opportunities too small for institutions), no career risk (fund managers face termination risk for underperformance), and the freedom to do nothing when nothing should be done. These advantages are typically surrendered when individuals adopt complex strategies, trade excessively, or chase performance.

Negative Knowledge

Drawing on the concept of "via negativa," Carlson argues that investment success depends more on avoiding mistakes than on finding brilliant strategies. The book catalogues the most common behavioral errors -- performance chasing, panic selling, overtrading, overconfidence, and failure to rebalance -- and provides practical strategies for avoiding them.

Market History and Perspective

The book uses extensive market history to establish realistic expectations for returns, volatility, and drawdown periods. Carlson demonstrates that bear markets, corrections, and periods of poor returns are normal features of equity investing rather than aberrations, and that investors who maintain their plans through these periods are typically well rewarded.

Risk Management

Carlson distinguishes between volatility (short-term price fluctuations) and genuine risk (permanent loss of capital or failure to meet financial goals). He argues that most investors focus excessively on short-term volatility while ignoring the more dangerous risks of inflation erosion and behavioral self-sabotage.

Simple Investment Plans

The book advocates for simple, rules-based investment plans built around broad diversification, low costs, regular rebalancing, and appropriate asset allocation. Carlson provides evidence that these simple approaches outperform most complex strategies over long time horizons.

Significance

In an industry that profits from complexity, Carlson's evidence-based case for simplicity is both refreshing and empowering. The book is particularly valuable for individual investors who feel overwhelmed by the apparent complexity of modern investing.