Agile investing?

I’m a big fan of Agile methodologies, an example of which is Simplicity in Extreme Programming: design a system to be the simplest thing that could possibly work. What works can be defined in terms of a technical function, but more importantly providing results of value to the user.

Whilst re-evaluating my investment portfolio in the wake of the Credit Crisis, this rule popped into my mind. I wondered if the finance industry will need to start applying it to their future activities.

The over-use of complex derivative products contributed significantly to the carnage, after all, if you can’t work out the value of an asset it seems obvious that that asset is too complicated. It’s also questionable whether some of these derivative products could ever have ‘worked’.

The complicated nature of these products allowed firms with an expertise in them to generate large profits. However, derivatives and securitized products are also difficult to value; these difficulties would eventually result in many firms having much higher levels of risk exposure than they had intended.

How does this apply to my personal investments? I’m carefully considering whether any aspects of my asset allocation strike me as too clever and what exactly my definition of ‘work’ represents.