Investment Philosophy: On the Philosophy of the Stock Market

Why is the investment method compared specifically to philosophy, and not, for example, to belief, religion, methodology, theory, or knowledge and science? Investment learning and economic growth involve learning about conceptual revolutions and paradigm shifts - just like in philosophy. If so, what is the meaning of the philosophy of learning as an investment philosophy?

The very idea of investment stems from the idea of learning: investment is monetary learning (Source)

The stock market, like cinema, has undergone an accelerated philosophical development, compressing thousands of years of changing schools of thought into a hundred years. On one hand, there is ontology, where value is determined by the true state of the business, so one can profit from (usually emotional) market errors, and eventually the value will converge to the true value. This is the investment philosophy called value investing (Warren Buffett). On the other hand, there is skepticism, where one doesn't believe it's possible to beat the market, or time it, or know the true value of an asset, and therefore turns to passive or conservative investment philosophy, which reduces risks through low correlation between investments (The Conservative Blog). This skepticism reached an extreme with the outbreak of the pandemic crisis, where the "conservative" approach argued against selling passive funds that mimic the entire economy as a whole, even when it was clear that the true value of the entire economy had fallen and we were facing an economic crisis. No external event can affect such skepticism - it is only the deceptive demon [Translator's note: reference to Descartes' "evil demon" thought experiment].

On a third side, as a synthesis between the belief in true knowledge of value and total skepticism about the ability to know, there is epistemology, which believes that what matters is what people think about the value, and that's what really determines the value - its perception. This is the investment philosophy of traders, who try to think about what people will think, and how the market will react, rather than what the true value is. Its extremity, towards postmodernism, is already the approach of gambling and "playing with stocks" - because the value is completely free from any other consideration (this is often also the perception of people who view the stock market as a casino, and therefore stay away from it. In other words - people who truly don't understand how the world works).

Beyond this approach, there is a philosophy that believes value is determined by the graph itself, and that within the value fluctuations themselves - in the numbers themselves - lies the relevant future information about the price. This is the investment philosophy that parallels the philosophy of language, known as technical analysis (whose empirical failure has been proven) and also as algorithmic trading (whose empirical success has been proven). So, what would be the investment method of the philosophy of learning?

First of all, the understanding that there is no ultimate investment philosophy, but that the market develops - that is, not only goes up and down - and even its ways of development are developing. Also, the understanding that all investment stems from analyzing the future, that is, from a direction of learning and development in the world, which is expected in the investor's eyes. Therefore, first of all, we try to learn the future - and from it derive the investment philosophy. There is a need to identify areas of investment, or even companies, that have a high chance (relative to their value) of developing more than other areas - and invest in them. For example, if you have an insight that artificial intelligence is the future, and has already reached the practical stage (meaning we're not talking about a future beyond your investment horizon) - you should invest in companies developing this field. And so for any technology or other development. If you have an understanding that India is going to be the superpower of the future - try to invest in India.

Nowadays it's obvious that what's going to develop in the future is the field of technology, more than all other economies relatively, or than any specific country's economy, and therefore one should invest especially in this field. This is a trivial insight - but it is not expressed in any other investment philosophy. The claim here is not that the value of technology companies is higher or lower than their true value - but that development will occur in their field - learning will be in their field - and therefore one should invest in them. Because learning and development are the source of value. And not any such or other value, which always gives only a current and not future snapshot.

Sometimes, to stay still within the current paradigm and not the futuristic one, they calculate into a company's value its future value increase discounted (from the word present), and claim that it is part of its present value. But this value is a fiction hard to quantify, and the opposite is true conceptually - its value and worth in the present stem only from those future ones. Therefore it's important to invest in learning companies, in learning fields, and what determines the future of the investment is the ability to evaluate this learning (one of the current directions is focusing on growth stocks, namely those that have grown in the past, as a prediction for the future, but this is of course not an entirely reliable direction). The correct way is to identify future growth directions and derive investment insights from them. The various investment philosophies have always tried to be careful of prophecy and "crystal ball" claims, but this is exactly what is needed: an attempt to see and evaluate the future. This is the essence of investment. And if the word prophecy is too big - we'll suggest the word dreaming. And if the word dreaming is too speculative - we'll suggest the most famous words in the stock market: "forward-looking information" - as the definition of learning.