Six Blind Men & The Elephant
You have heard the story of six blind men & an elephant, haven’t you. For the uninitiated, it goes like this…
Six blind men touch an elephant at different places – leg, trunk, ear, side, tail and tusk – and describe it from their observation. Each of them could, at best, capture only a partial of the whole.
We all, are figuratively speaking blinded by our parochial perspectives in the way we see and theorise objective reality.
“Our theories are our inventions; but they may be merely ill-reasoned guesses, bold conjectures, hypotheses. Out of these we create a world: not the real world, but our own nets in which we try to catch the real world.” – – Karl Popper, Unended Quest
To add to that, human beings possess deep evolutionary tendencies toward tribalism. We instinctively divide ourselves into groups defined by geography, religion, politics, ethnicity, ideology, and lifestyle. Investing is no exception. Investors segregate into tribes—value versus growth, fundamental versus technical, active versus passive—as if each possessed the whole truth. This is how the Investing segregation looks like:
It is important to note here that each perspective captures an aspect of reality while missing others. To gain a perspective which is a better approximation of reality, you need to zoom out. You need to build a holistic perspective.
Divided by Strategies, United by Principles
While these strategies are divided in their styles, application, effectiveness, and merits – demerits; they are united by universal principles that work across the spectrum. Markets evolve. Technologies change. Regulations change. Strategies come in and out of favour. Principles endure because they describe reality rather than exploit temporary conditions. These principles rise above the individual strategies’ parochialisms. These principles are the fundamental truths that act as guiding rails. They work irrespective of your dominant investing style and prevent you from making myopic mistakes. They help you see the proverbial whole elephant.
Principles yield Philosophy
An Investment Philosophy is a coherent worldview about markets, uncertainty, value creation, and capital allocation, that emerge from of all the principles of successful investing. Principles do not tell you what stock to buy tomorrow. They shape how you think about uncertainty, risk, incentives, time, compounding, optionality, leverage and human behaviour. Together these principles crystallize into an Investment Philosophy—a coherent way of seeing markets. Wisdom has to be accumulated with a multi-disciplinary approach to seeking knowledge. Wisdom is applied knowledge – the broader and deeper the knowledge, the better is the application. Philosophy crystalises from such robust wisdom. It is a set of world-view, belief system and value system that naturally yields a successful Investing Strategy.
The Pyramid of Investing
The universal principles are a bedrock of successful Investing. They are the robust foundation on which a coherent Investing Philosophy is built. The Investing Philosophy, in turn, acts like a scaffolding of the edifice of Investment Strategy.
The Investing Strategy is the natural outcome of a coherent Investing Philosophy, which emerges from the knowledge of multi-disciplinary principles.
Strategy – Visible, Fluid, Dynamic
Philosophy – Enduring worldview, belief & value system
Principles – Fundamental higher level truths
Not the other way around! A lot of people and a lot of investing courses and books start with or deal in Investing strategies only. That tethers these investors in parochial anchors, which prevent them from becoming successful investors.
Here’s The Thing
You don’t jump straight into Investing Strategies or Styles. The path to becoming a successful Investor is long and layered.
A wise investor is first a wise person. Before one becomes a value investor, a growth investor, a momentum investor, or a trader, one must first become a wise thinker. Investing is not primarily an exercise in selecting stocks; it is an exercise in constructing a mind capable of making sound judgments under uncertainty.
Without a solid foundation of the Principles & Philosophy, each investing strategy touches one part of the proverbial elephant. Robust Principles and coherent philosophy help us see the whole elephant and the most optimum way to deal with it. The Pyramid of Investing is irrefutable.
Strategies are the facade of a structure. Philosophy is scaffolding. Principles are the foundation. Build them in the wrong order, and the entire structure becomes fragile.