Are you interested in seeing much further than the crowd which could give you a thinking edge? For those who do, we might benefit by following Isaac Newton’s example. In a response to Robert Hooke, Newton said that his new discoveries of light were only achieved by standing on the shoulders of giants such as Descartes and Hooke himself.
As investors we benefit from thinking differently, which can translate into better long-term returns than the crowd; who better to stand on the shoulders of than the worldly 17th century math, science, religion, literature and philosophy trailblazer Blaise Pascal. Thankfully for us he wrote down his thoughts in the uncompleted and aptly named book called Pensees (translated: thoughts). We’ll delve into the first section entitled the difference between the mathematical and intuitive mind and how we as investors can learn from it.
“In the one [mathematical] the principles are palpable, but removed from ordinary use; so that for want of habit it is difficult to turn one's mind in that direction: but if one turns it thither ever so little, one sees the principles fully, and one must have a quite inaccurate mind who reasons wrongly from principles so plain that it is almost impossible they should escape notice.”
I attribute the mathematical mind to be the rational left hemisphere of the brain that can help us become better investors. Drawing similarities we need to be rational in the way we go about investing by buying more than we are paying for and waiting. It seems like such a simple concept, but the majority continues not to follow those simple principles. Buying more than we pay for is not removed from our daily lives as consumers but in a market environment it escapes us totally. Investing for the long-term necessitates waiting, which is far removed from our human evolution and ordinary daily use. Even when the gurus with exceptional long-term track records continue to prove that a rational mathematical mind is necessary for investing success, the majority dismiss that they are wrong this time. For those that, as Pascal says, turn their mind ever so slightly towards rationality and grasp the principles fully, they would understand that their intuition might be wrong. I like how Pascal also adds that you would have to be a fool to not understand when the principles are almost impossible to notice. We should not get caught up in our mathematical minds, however.
“And thus it is rare that mathematicians are intuitive, and that men of intuition are mathematicians, because mathematicians wish to treat matters of intuition mathematically, and make themselves ridiculous, wishing to begin with definitions and then with axioms, which is not the way to proceed in this kind of reasoning. Not that the mind does not do so, but it does it tacitly, naturally, and without technical rules; for the expression of it is beyond all men, and only a few can feel it.”
This reminds me of Charlie Munger's description of the man with a hammer syndrome. We’ve all experienced being around another person who is hyper-focused in one subject area and bends reality to fit their mind. Usually those that do this are left in the dust. We investors should always remember not to always put reality into submission. We should look at each investment with “good eye sight” that allows us to see “principles so subtle and so numerous… that some escape notice.”
Pascal undoubtedly had a mathematical mind, but he was also intuitive. Who comes to mind when you think of successful investors or business men and women? Do you think they had mathematical and intuitive minds? When thinking of successful investors my mind first thinks of Warren Buffett (Trades, Portfolio) and Charlie Munger, who also pass as both use their mathematical and intuitive minds. Outsider CEOs such as Henry Singelton also would pass as using his mathematical and intuitive minds. All of the above mentioned were able to build their intuitive minds by not focusing on one specific area. Pascal, Buffett, Singleton and Munger spread their minds over many different fields which aided in their intuition.
If we care to have clear vision and intuition I think the only way we can achieve this is through building mental models over many different disciplines. If we do this, then we’ll be able to quickly and intuitively see things that connect and give us greater vision and intuition. We’ll then have an edge over the strictly mathematical minds who slowly calculate and pass on the opportunity. Also, we’ll have an edge over the strictly intuitive minds who quickly dismiss the opportunity as not a short-term bet.
About the author:
My investment approach tends to gravitate towards buying above average companies at below average prices and holding onto them for 5 or more years. I agree with Charlie Munger and that the pursuit for worldly wisdom is one of the most important aspects of life and investing. I focus on continually building many mental models over multiple disciplines and write about the acquisition of worldly wisdom at www.ElementaryWorldlyWisdom.com.