The 2-Minute Thought: Physicists and Poets in Investing -- Revisited

In a 2014 talk, MIT physicist and novelist Alan Lightman said that in childhood he loved both writing and science.  He wrote dozens of poems exploring a wide range of subjects and experiences and was fascinated by how words could make you feel.  He also scavenged for resistors, capacitors, wires, and test tubes so he could conduct scientific experiments.  When he was 12, he built a single remote control for all the lights in his house.  And he loved math too.  Math was so pure and precise.  It “guaranteed an answer as clean and as crisp as a new $20 bill, and when you found that answer, you knew you were right, unquestionably right.  The area of a circle is πr2.  Period.” 

In contrast, the world of people was full of ambiguity, and as a youth, Lightman found it confusing.  Human behavior could be incomprehensible.  It was hard.  And yet it was the fuzziness and strangeness of human experience that would fuel his future novel-writing and make story-telling rich.

As a physicist and a writer, Lightman has thought a lot about how scientists and artists differ in the way they search for truth.  One thing is that scientists try to name things, while artists try to avoid naming them.

To name something is to define it, purify it, put a box around it, and keep other things out -- so when scientists call something an “electron,” it can only mean one thing.  There’s something very comforting about the control and certainty that comes with naming, but artists don’t do that.  A novelist may call something “love”, but it can mean a thousand different things that individuals can experience in their own way.  “Every electron is identical,” Lightman says, "But every love is different.”

Another thing that is different is that scientists like framing problems in terms of questions with clear answers, but artists don’t.  Scientists break things into smaller and smaller pieces until they have what they call well-posed problems with unequivocal answers.  Artists ask questions that don’t have answers, or questions where answers are complicated by the ambiguity of people. 

Lightman says we need both kinds of questions.  He values both.  And those thoughts should resonate with investors who appreciate the multi-faceted nature of investing -- which is neither science nor art, but requires a bit of both types of inquiry.  In the world of investment, even the algorithmically-oriented must consider that human behavior can be mysterious rather than rules-based.  And even the qualitatively-oriented must have measurements and numerate principles that have the veneer of clarity and definition. We must ask questions with clear answers, and we must ask questions with no clear answers.

New York University finance professor and equity valuation expert Aswath Damodaran has said that at the core of investment, asset valuation is neither science nor art.  It is not science because in science if you put in the right inputs, you always get the right output because there are universal laws.  That clearly does not happen consistently in investing.  And investing is not art either because in art there are some things that can be taught, but also something magical and hard to articulate that separates the great from the average. 

The thing that investing most closely resembles, says Damodaran, is craft – a real skill using established tools that you can get better at with practice.

And regarding the multi-faceted inquiry that investing requires, Damodaran laments that we increasingly live in a world where we need to pick sides – engineer or poet, artist or scientist.  Where are the Renaissance men and women? he asks.  “The best of investing is built on a combination of story telling and number crunching . . . a marriage of numbers and narrative.”

The 2-Minute Thought will be on holiday through Labor Day and return September 6.  Enjoy your summer.