Investing is a Mix of Art and Science

MJG

Hi Guys,

Investing successfully is far more difficult than it appears on the surface. Otherwise we would all be millionaires several times over.

Investing is especially challenging because it demands a set of skills and emotional factors that are not constant over time. What characteristics and styles worked in the past are not as dominant in today's marketplace. A changing market environment and flexible thinking to recognize those changes in a timely manner is not an easy assignment.

Financial,writer Morgan Housel examines the mixed requirements of science and art that an investor needs to be successful in that arena. Here is a Link to his recent article on this topic:

http://www.collaborativefund.com/blog/the-art-and-science-of-investing/

There are no answers here except that perhaps we should be very flexible in our attempts to understand the markets. What is popular today will likely not be so popular tomorrow. That's a probable explanation why the list of extraordinary investors is so short. Changing a winning strategy to reflect a changing marketplace demands a discipline that not many of us possess.

Even those in the investment profession are too glued to what worked for them historically. And history does not perfectly repeat itself. Therefore, as a group, these professional experts underperform the market on average. A few exceptions do exist, but even this elite group has a bad period on occasion.

It's never easy.

Best Regards.

BrianW

Good link!

msf

The sentiment seems okay, but I'll quibble with the terminology. Technology is engineering, not science. While medical research is science, doctoring seems more like engineering.

Along that vein, ISTM that investing and calming patients (bedside manner) are crafts, not arts. Practiced skills to be sure, but not arts.

For a counter argument (i.e. that this is an artificial distinction), here's a 5 minute TED talk.
http://ed.ted.com/lessons/is-there-a-difference-between-art-and-craft-laura-morelli

Crash

Holy INSIGHT, Batman! ...Cripes, I've maintained this very approach ever since I began to learn my very first lesson in investing, going back to the 1990s. I listened and read a lot, and made a habit to watch PBS each week when Lew Ruckeyser offered his corny-jokes and puns in his opening monologue for "Wall Street Week." I paid attention AND "read between the lines" as I heard each panelist's weekly contributions. I realized that the first step was to learn how to translate all of the "money-speak" lingo. It helped me to find and identify their professional thought-matrix, even if I did not give it a name, for my own purposes. (The talking heads and guests on CNBC need to be constantly translated in one's head, as they go along, too.) Being able to just know it when I heard and saw it was (and is) good enough--- at least for starters. THEN, I could learn to MAKE something of it all. Along the way, I learned to hear the double-speak underneath the actual words being expressed. "Tax Reform" = making things better for Capital and screwing Labor, for example. Avoiding any talk about the underlying POLICIES being advocated and instead deciding to speak in terms of mechanics of the Market, is the "common currency." It's more politically correct to go about it THAT way, between Talking Head-host and Prestigious Guest.

Examining financial statements and doing analyses are Science. How one uses the information is Art. (All things being equal---and they never are--- why invest in A instead of B, when they look the same in terms of fundamentals? Ding!) One's investing elan needs to be tempered with skill, a certain legerdemain. Thus, I assert, the validity and usefulness of the paradoxes to be found in the likes of The Zurich Axioms. Eh???

Here, you can click on the link that will let you open or download the Axioms via .pdf:
http://r.search.yahoo.com/_ylt=A0LEVr1ArE1YBa0ASO0nnIlQ;_ylu=X3oDMTEyNnJkMjI2BGNvbG8DYmYxBHBvcwMxBHZ0aWQDQjI1ODBfMQRzZWMDc3I-/RV=2/RE=1481514176/RO=10/RU=http://www.forexfactory.com/attachment.php/706430/Zurich_axioms/RK=0/RS=vlCWaQCq0eLSeDxZtls.pv6Awv8-

...I hope it works for you all. ...At the same time, I hasten to add that I've never been able to perfectly follow Max Gunther's advice, here. I doubt it can be done, and I doubt it was ever written with that intention. The attempt would be to confuse the Art with the Science of the whole thing.

Follow-up edit: Crap, that link is dead now. But Yahoo, as a kind afterthought, will allow you to click on THEIR OWN link to the same thing, once you click on my original link. Stupid stuff.

MJG

Hi msf,

I agree with your observation that Housel used rather loose terminology in his article. I make a definite distinction between what I classify as art or craft. Each of us likely differ somewhat in the specifics of those distinctions based on our education and experiences.

I was more uncomfortable with a major factor that Housel did not mention in his otherwise fine article. Sorry that in my haste to post I neglected to identify it. Housel failed to include the luck factor in the referenced article.

In the investment world, as well as just about every human undertaking, luck is a consistent factor. Scientific discoveries are always the product of a mixture of persistence, insights, and lucky eureka moments.

I still felt that the Housel work was a worthwhile post.

Thanks for your post.

Best Wishes.

Crash

@msf makes a valid point or points. Will I follow-up with a reply? I think not. I can't disagree with him. But it just would seem to me to be a case of "apples and oranges," and we'd end-up "talking past" each other. Not because he's wrong and I'm right. It's a matter of basic approach --- to EVERYTHING. There are techno-people, those whose focus is on the concrete, the tangible, the measurable, the observable, in hands-on terms; then there are those whose gifts include what the MBTI labels as "iNtuition." I've referenced this tool here, before, more than once. We live in a world dominated by an outlook which values what is observable, tangible, count-able. It has been shown that MOST folks operate that way. The rest of us do our best to live in this environment as virtual exiles. It's true. Yes it is.

MJG

Hi Crash,

Thank you for your post that reminds us of the Zurich Axioms. Your reference links us to the complete Max Gunther book.

Some folks might be inspired to read this excellent short book, but others might not want to invest the required time. For those, here is a Link to an excellent summary:

http://www.financialsense.com/contributors/joseph-dancy/2012/01/26/the-twelve-axioms-of-investing

Enjoy. Many of us practice at least some portion of this wise investment advice.

Best Wishes.

Crash