One of the more interesting facts about investing is the number of times it is hyphenated with other terms in order to explain what is being advocated. There are the high frequency investors and the long-equity investors; then there are value investors and fixed-asset investors. As any fund manager worth his salt knows, what passes for good investing is hard to pin down, has multiple corollaries, and contains various strains in its methodology.
All things considered, the ingenuity of the human mind in money-making seems; at the very least, equal to that of, well, humanity’s greatest geniuses. For the purpose of this article, we are looking at Thales of Miletus – noted philosopher, broke genius, investigator, thinker, and ask-er of deep questions.
Why is a blog on investments talking of dead Greek philosophers, you may ask. The answer is quite simple: we are at a slight precipice in global finance. The bull has been on a run for nine years or so. Some experts think it might be getting tired, making a slowdown inevitable. Others believe it has still got a lot of fight left in him.
But Hey! Hold On, Hold Strong.
Any way you look at it, the markets have been wobbly; like a teetering child learning to walk. It is the perfect environment for rumours to abound, and the weak-hearted to take drastic actions. But even Bloomberg will tell you that in the most volatile times, the ‘buy and hold’ strategy works best. It might seem contrary to the popular opinion that when things go awry, you must sell and run in the opposite direction. As fast as you can. But there’s data to back this ‘holding on’ theory.
If you had purchased Apple (AAPL) stocks – let’ say 100 shares at its closing price of around $18 per share back in January 2008, and held onto them until January 2019, when the stock climbed to $157 per share, you would have made nearly 900% in just over 10 years. This does not refute the fact that Apple has its bad days in the past decade, and yet…
If you ask a Kristal expert, they will begin by explaining that even if the micro movements in the market are not always satisfactory, the macro is still intact. Caution is advised; but never fear. In the context of American economics this Wall Street Pit puts it article puts it really succinctly when it says that the economy beneath this wobbly market is still pretty strong. Back home in the APAC countries, China-US deals are looking up and there is hope of a reconciliation. Singapore’s Budget has been well received and the country is on track to becoming a major technology hub in the region.
So, every time you hear someone talk of selling – remember Thales of Miletus and his creative and philosophical genius that can guide you in such uncertain times (you thought we had forgotten about him, eh?).
Thales of Who? And Why Should You Listen To Him?
Thales (no, not the HO stock listed on the Euronext Paris) of Miletus – a town in ancient Greece, circa 624/623 – 548/545 BC. Aristotle himself called Thales the first philosopher of the Greek tradition, and he is known to be the first man in western civilisation to indulge in scientific philosophy. He is also the first known man to whom a mathematical theorem has been attributed (Thales’ theorem in geometry).
Legend says that whenever Thales was not busy proclaiming “all is water”, he would parlay his philosophic gifts into business savviness by reserving olive presses at a discount; and this, after predicting a good harvest (if true, he would also be the first known options trader in history).
Here a certain justification seems warranted for carrying this anecdote to its logical conclusion: if creativity became for Thales (the philosopher) a condition of his enterprising spirit, then we can be assured that his fluid musings guided him (the entrepreneur) and consequently engendered his return on investment. He may have been penniless and uninterested in money but his creative spirit led him to wealth, nonetheless. Thales, thus, becomes a mascot for all investors who marry clear, rational thinking with an artistic enterprising spirit.
And the Markets Need More of That Now!
Yes, we all need some Thales-style thinking in our financial lives. In what follows, we will extrapolate from three of his most zen-like principles which we believe all investors would do well to heed in the current scenario:
i) All is water
With these three words, Thales of Miletus inaugurated what we now call western philosophy. Thales proposed that the originating principle of nature was a single element – water. As a statement of physics, this has been demonstrably false so far. Understand though: Thales did not have in mind a scientific hypothesis. Instead, his principle is predicated on the ultimate generalization–that everything is one and the same!
Take-away #1: Not all generalisations are created equal.
When panic sets in, investors often feel the temptation to pawn off as impossibilities (i.e. the absolute generalisation) that which is perhaps just highly improbable. For example, a stock trader would be correct in thinking that the Federal Reserve hiking rates in the wake of very weak employment numbers is highly improbable. But to take this information and use it to judge the impossibility of the stock market rallying as a result, is argumentum ad absurdum. A low-interest environment has historically been a boon to the stock market, while a dismal job market can contribute greatly to exactly the opposite effect.
ii) The greatest is space, for it holds all things
This seems trite at first glance–except that not even Thales himself could have foreseen the significance his dictum would come to play some eighteen centuries later, in a post-Euclidean world. To give you a refresher course, Euclid geometry looks at objects in a two-dimensional space. Like a triangle drawn on the surface of a flat balloon, with similar sides and angles measuring 180°. But blow up the balloon and your triangle changes shape as it enters a spherical, three-dimensional world. This is non-Euclidean geometry. This is space.
Take-away #2: Apply the test of falsifiability when fear strikes.
Consider the statement: the 46th President of the United States just bought a blue-chip stock. As of 2018, this is a meaningless utterance since Trump, the 45th President, is still in office. But it is not entirely false, because a falsehood implies that its negation, “it is not the case that the 46th President of the United States has bought a blue-chip stock”, is true–which it isn’t either.
Fear-stricken investors often do not realize that the paradigm on which they operate can be just as falsifiable. Just ask anyone who bet that gold would be the ultimate safe haven since the crash of 2008–and wait to see how much money they lament losing! So if as an investor, you think of gold as the ultimate hedge in the belief that it has been money for over 5,000 years, you fail the test since this is an argument against which no objection can prevail. But you pass if you appeal to the relation between fiat currency and money, nominal value and… you know, all those topics over which you used to squabble with your Professor of Economics back in college.
Investments do not work like an Euclidean plane where you take two points, make a flat-line correlation, and draw conclusions. You have to look at each in 3-D. At the ‘space’ and not just the individual axioms, just as Thales would have you.
iii) The Intercept Theorem
In plain English, triangles are similar in length if, and only if, their corresponding angles have the same measure. Though mathematical in nature, this is a principle not without its logical implications. Just as the ratios of angles are not distinct from that of the line segments in the comparison, so it follows that one ought only to make analogies where the intended conclusion follows from a real premise.
Take-away #3: Beware of fallacious inferences.
Uncertain scenarios bring out our Fight-or-Flight response. Now, a number of things typically befall an individual entering into this state. He begins the downward spiral by shaking; his heart rate accelerates, and finally he succumbs to what is called tunnel vision–usually in more ways than one. If this were an investor, the Fight-or-Flight response could lead to ever more dire consequences — monetarily speaking. Like making sell decisions on unsubstantiated presumptions. Or falling prey to a false either-or choice, even when a third option exists.
When All Is Said and Done.
If your nerves are on edge because of frequent market changes, then here’s a good way to calm yourself down. Think of why you started the investments in the first place. What you really need to understand is that when you are in it for the long haul, your investments protect themselves against the market. Even if the market prices drop, and you don’t up and run, your investments will pay off by controlling the temporary damage to your portfolio. Some might even say that this may actually be a good time to buy more of your stock. But more of that later.
In a bear market, or a market that vacillates between bear and bull apparently on a whim, many so-called experts will start touting doom-and-gloom scenarios. We have quoted Thales to show you why you shouldn’t always pay heed to them. If you don’t trust the Greek, trust Warren Buffet who has very famously stated that you shouldn’t let world events affect your investing decisions.
The materials and data contained herein are for information only and shall in no event be construed as an offer to purchase or sell or the solicitation of an offer to purchase or sell any securities in any jurisdiction. Kristal Advisors does not make any representation, undertaking, warranty or guarantee as to the update, completeness, correctness, reliability or accuracy of the materials and data herein. All opinions, forecasts or estimation expressed herein are subject to change without prior notice. Kristal Advisors and its affiliates accept no liability or responsibility whatsoever for any direct or consequential loss and/or damages arising out of or in relation to any use of opinions, forecasts, materials and data contained herein or otherwise arising in connection therewith.