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Philosophic musings and investing….. March 28, 2010

Posted by shaferfinancial in Finance, Uncategorized.
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The Greeks started it and the whole world has dedicated themselves to it; empiricism or rationality.  For someone who has dedicated himself to rational explanations, numbers, etc., it is not without reservation that I admit that this dedication to empiricism has been a red herring when it comes to understanding the world.  I foolishly thought that by simply pointing out the holes in the rationality behind the current state of personal finance, that folks would make rapid adjustments.  But no…….

You see, the financial world is not, nor ever was, a fully rational, empirical project.  No, in fact rationality was merely an shallow veneer that covered the reality of the thing.  You know that the numbers people, the accountants/engineers of the world, were attracted to personal finance because of this veneer of rationality.  But no matter how elegant their approaches were, no matter how much math they used, they never were going to understand the beast!

The issue is out there for everyone to see.  The trajectory of the issue emanates from the Greeks.  The world does not comport to something called rationality, no matter how hard we try to make it.

What was left out, that illusive quality that defines finance, is our internal dynamics.  And our internal cultural dynamics has made a full turn toward emotions over rationality.  You see it in the current movements of the day.  You see it in the way people are behaving, actually have behaved for a long time.

So that leaves us at a juncture between what we hope the financial world is like and what it is really like.  There are folks who recognized this long ago [Graham/Dodd/Buffett] and developed strategies to cope long-term with the realities.  There are folks who decided just to embrace it [momentum/trend followers].

Mistakes I made are varied.  The first is to assume that the average person would get to a point where they would see this reality too.  Secondly, that the financial planning industry would see it and react to it.  Finally, that you could approach it within the same framework [empiricism] that is causing the whole misunderstanding.  Slowly over the last year I have taken steps to alter my approach; beyond numbers to a more metaphysical approach.  I have no proof of this, but I think that Buffett is going through the same changes as his investing approach seems to be morphing into something that is not easily explained by his previously written ideas.

Although, I am not going to forego my fundamental analysis completely, I will lean more on philosophical/psychological methodology than before.  One thing you won’t find me doing is using anger as a platform for my ideas.  I keep angry comments [not that I get tons of them] from the reader because they rarely add anything to the discussions.  That will not change.  But, I will be more encouraging of philosophical discussions or other types of arguments on all things finance. Expect regular posts from me that delve into the psychology of investing.  Expect me to take some unpopular stands about the investing public.  I think it is time to move beyond a purely empirical platform to one that sees finance for what it is.  I wrote a series of posts about the new paradigm of investing almost two years ago.  My opinion is that these were some of my finest posts and were the nascent beginnings of where I need to go.  I will share with you some of my newest programs I am involved in.

Once you lift the veil of empiricism, you find a certain freedom to explore what this thing called finance is really about!



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