Sam Sivarajan is an independent wealth management consultant and the author of two books on investing and decision-making.
In the bustling Italian city of Florence, the Galleria dell’Accademia houses a masterpiece that stands as a testament to the power of subtraction. Michelangelo’s David, a 17-foot, 12,500-pound sculpture, was born from a block of marble that had stymied two other sculptors for more than 30 years.
Michelangelo, however, saw the potential within the stone and, through a process of careful subtraction, revealed the angel within. He famously said, “I saw the angel in the marble and carved until I set him free.”
This story serves as a powerful metaphor for our own lives, where the principle of subtraction is often overlooked in favour of addition. We are naturally inclined to add more features, services or components to our businesses and personal portfolios, often overlooking the potential benefits of simplification.
Consider the Lego bridge-building experience shared by Leidy Klotz in his book, Subtract. He and his son looked at a Lego construction of two pillars and a traverse. Facing a height discrepancy when connecting the traverse to the second pillar, Klotz instinctively looked around for an additional block. However, his son, displaying an innate understanding of subtraction, removed a block from the first pillar, achieving symmetry and completing the bridge.
Klotz conducted similar experiments that shed light on a common human tendency: When prompted to make changes, people overwhelmingly opt for addition. The allure of adding more features, services or components seems inherent, while subtraction remains a less mentally accessible strategy. The default choice of addition aligns with the desire to showcase competence – a form of peer signalling. It conveys a sense of control over one’s surroundings.
Still, the principle of subtraction can prove beneficial, even when applied to our financial practices. It offers a fresh perspective on how we manage our portfolios and households.
The key to better financial outcomes boils down to a handful of core principles: save money, manage risks, have long-term investment horizons, build diversified portfolios, avoid the bandwagon. None of this is rocket science. But it is incredibly hard for most of us to do in the face of all the noise. We want to add – add funds, add investments, add complexity.
Warren Buffett’s first rule is to “never lose money.” Another successful investor, Joel Greenblatt, said: “You size your positions based on how much risk you’re taking. I don’t buy more of the ones I can make the most money on. I buy more of the ones that I can’t lose money on.”
But most investors do exactly the opposite. They add exotic investments, meme stocks, passing fads – all things that whisper the potential of big wins but scream huge risks.
Why? Because there is a better story for the cocktail parties in talking about the big score. Yet the fundamental question for investors is: Would you rather tell a great story or live a great life? The two are, in the investment world, usually mutually exclusive.
Even when it comes to consumer spending, in the face of higher prices, there is a role for subtraction to play. How often does a phone need to be upgraded? How many streaming services do you have? This isn’t to argue for a minimalist lifestyle, although there are certainly merits to that approach. It is to argue for a more thoughtful approach to what should be added and what can be subtracted.
The power of subtraction shows a better way to achieve our objectives that is often overlooked. As investors and consumers are looking ahead to 2024, it might be one tool to help make it a brighter year.
As Leonardo Da Vinci said: “Simplicity is the ultimate sophistication.” In the world of investing and personal finance, less is usually more.
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