Source: Qilehui
Chapter 6 of "The Grid Theory of Investing" explores the relationship between investing and philosophy. Philosophy is an ancient discipline, and each of us harbors our own personal philosophy. In high school, I recall our teacher defining philosophy as the study of thought—thought drives action, and action, in turn, shapes our lives.
In this chapter, the author actually focuses more on the subfield of pragmatism, as reflected in the title, "Philosophy: A Pragmatic Perspective on Investing." The most important benefit of studying and embracing philosophy is that "you will find yourself having learned to think critically."
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First, "No matter who first articulated them, those philosophical principles are of no use to us unless they are re‑formulated through our own interpretation and filtered by our personal experiences and convictions."
This sentence reminds me of an article I read recently, which argued that the Dao De Jing is largely composed of dogmatic assertions, offering little in the way of reasoned exposition. Even so, shouldn't we ourselves, by drawing on our own experience and reflection, add our own interpretations to these seemingly definitive statements? Whether or not they are truly "dogmatic," without our own filtering and reworking, they are unlikely to have much practical relevance to our lives.
Philosophy is both the simplest and the most difficult of all disciplines. It is simplest in that the questions it seeks to address are those each of us encounters in daily life, and to which everyone brings their own thoughts and perspectives. Yet it is also most difficult because, unlike the natural sciences, philosophy virtually lacks any definitive answers.
If one insists on distinguishing right from wrong, the criterion lies in the outcomes of actions: a philosophy is correct if it leads to sound practice. Otherwise, no matter how eloquently it is articulated or how widely it is endorsed, it holds little practical significance.
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II. In philosophy, there is first an epistemology, which seeks to answer such questions as: "What kinds of things are knowable?"; "What are the constituents of cognition?"; "Under what conditions is a belief justified?"; and "When can we say that something has been truly understood?"
We all know that investing is about earning returns on one's level of understanding, and that understanding itself is the first thing we must grapple with. I've previously outlined "four types of cognitive frameworks essential to the investment world," broadly categorizing them into four distinct kinds; in retrospect, these still offer valuable insights—though they now pertain to more specific areas of knowledge.
Cognition of cognition itself is also a necessary form of reflection. As this passage suggests, attempting to grasp the unknowable will inevitably consume vast amounts of time and effort with little payoff. Of course, this "unknowability" is relative: for instance, two or three thousand years ago, pondering quantum mechanics or employment relations would have offered virtually no practical benefit; it would have been far more useful to study tools like ironware or bronze artifacts.
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III. The key to scientific research lies in discovering new methods for describing observed phenomena.
Understanding theory as a description of phenomena has one major advantage: it enables us to avoid clinging to fixed notions as much as possible. After all, a theory is not the relationships among things or the laws themselves.
The role of "description" is to grasp the disorder manifested by things and, through such understanding, to devise more advantageous courses of action.
As for "disorder," it is important to recognize that intrinsic disorder is far more significant—and far more challenging—than external disorder.
The behavior of stock prices exhibits a certain degree of disorder, which in turn reflects the inherent unpredictability of human actions, the chaotic nature of interpersonal interactions, and the erratic fluctuations of human thought and emotions. If we can, through appropriate modeling, transform this disorder into a measure of order, excess returns will naturally emerge.
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IV. William James's Pragmatism: Asking whether God exists is simply a waste of time.
William James was one of the founders of pragmatism. In his book "Pragmatism," he addresses the question of whether God exists. Of course, he is not concerned with the mere fact of God's existence; rather, he focuses on the question itself—namely, whether holding that God exists or does not exist makes any essential difference to our conduct.
In the investment realm, for instance, when pondering whether "value investing is effective in A‑shares," proponents may see it as viable, while detractors deem it ineffective. Yet from a pragmatic standpoint, debating such a seemingly trivial question—"Is value investing effective?"—is entirely pointless.
The key is to ask: Does believing that value investing works—or doesn't work—make a meaningful difference in our investment outcomes? If you think value investing is effective and can help you achieve more satisfying returns, then believe in its efficacy.
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V. Bill Miller: "The only way to outperform others in the stock market is to interpret the same data differently. To do that, you need distinct sources of information and a different set of experiences."
To endure over the long term in the stock market, one must seek ways to describe the market that differ from those of others. What we often refer to as "betting on the underdog" or "thinking against the grain" are both attempts to find alternative approaches to understanding the world.
This raises another question: how can we develop distinct perspectives? Bill Miller suggests drawing on diverse sources of information and varied experiences. The latter may even prove more important than the former—especially for the average investor, who typically relies on publicly available data, with access to information largely similar across the board. Of course, if we also regard the interpretation of information as a kind of "information channel," then significant differences do emerge.
Different experiences stem from distinct life histories; for instance, in my recent article on Lü Buwei's "opportunity to amass wealth," titled "The Zizhi Tongjian: 'An Uncommon Commodity Can Be a Valuable Asset'—The Key Lies in Seizing These Few Points," I argued that Lü Buwei was able to spot opportunities others overlooked, a skill clearly rooted in his long‑standing involvement in arbitrage.
Of course, there are other ways of articulating "how to achieve difference"; philosophy teaches us the most crucial lesson: no standard is absolute, and no person, thing, or model is ever infallibly correct. This embodies a spirit of critical thinking.
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Editor/rice