Language is a complex entity, as words can hold different meanings for different individuals. While jargon may be inevitable at times, excessive usage of it can lead to confusion and disconnection with the audience. Therefore, clarity should be prioritized, while ambiguity should be avoided.
The desire for simplicity is often exemplified by the ability to explain a concept in a way that even a young or elderly person can understand. Some individuals may express this as "Explain it to me as if I were ten years old," while others commonly refer to explaining a concept to a fifth or sixth grader. The technique is often attributed to Richard Feynman, an American physicist and co-recipient of the Nobel Prize in physics in 1965. A crucial step in the Feynman Technique involves presenting the topic in a manner that a sixth-grade student can comprehend.
At the opposite end of the spectrum, there is the notion of the “Grandma Test,” which suggests that if you are unable to explain a concept to your grandmother, who may not be well-versed in the latest advancements, then either i) your understanding of the subject is not sufficient, or ii) you haven’t dedicated enough time to refining your message to be concise and clear.
Now, let's consider how this concept can be applied to the definition of investing. When it comes to this topic, Ben Graham, widely regarded as the greatest of all time (GOAT), serves as a prominent figure and was also Warren Buffett's mentor. Let’s recall his definition of investing as presented in his seminal work Security Analysis (Sixth Edition), which he co-authored with David Dodd:
An investment operation is one which, upon thorough analysis, promises safety of principal and a satisfactory return. Operations not meeting these requirements are speculative.
Fantastic definition, but… Does it pass the fifth-grade test? Can you explain it to your grandmother? With all due respect to Graham, we don’t think so.
Here is our attempt: