What investors can learn from Physicist Richard Feynman
I just stumbled upon a very interesting article written by the wise value investor, Sanjay Bakshai. The article is about famous physicist Richard Feynman and how applying Feynmans scientific mindset can be useful for value investors. (Click hear to skip the introduction and read about Richard Feynman’s value investing habits)
Background on Sanjay Bakshai (Via Fundoo Professor)
Sanjay Bakshi – a visiting professor at Management Development Institute, Gurgaon, India, where I teach Behavioral Finance and Business Valuation to MBA students. I am also the CEO of Tactica Capital Management, an investment boutique comprising of me and some of my ex-students. Our niche is deep value investing.
Background on Richard Feynman (Via Wikipedia)
Richard Phillips Feynman was an American physicist known for the path integral formulation of quantum mechanics, the theory of quantum electrodynamics, the physics of the superfluidity of supercooled liquid helium, as well as work in particle physics (the parton model was proposed by him). For his contributions to the development of quantum electrodynamics, Feynman was a joint recipient of the Nobel Prize in Physics in 1965, together with Julian Schwinger and Sin-Itiro Tomonaga. Feynman developed a widely-used pictorial representation scheme for the mathematical expressions governing the behavior of subatomic particles, which later became known as Feynman diagrams.
Article Introduction (Via BFBV Newsletter and Fundoo Professor)
As far as I know, Richard Feynman never bought a stock in his life. If he did, he never talked about it or about his “investment acumen.” But he should have… Feynman was not only a great physicist, he was also a great teacher. Since then, whenever I read Feynman, and watched his videos, I was stuck by two things: (1) How similar were his mental habits to those I talk about in the classroom; and (2) how naive are some of the investment research reports that come across my table created by analysts who seem to know more about the world from a social science perspective than even the greatest scientists know about the world from a science perspective! Surely, the degree of certainty about the worldview of a great scientist should be more than the degree of certainty exhibited by social “scientists”?
Article Excerpts (Via BFBV Newsletter and Fundoo Professor)
“I have approximate answers, and possible beliefs, and different degrees of certainty about different things, but I’m not absolutely sure of anything, and there are many things I don’t know anything about.”
“ The first principle is that you must not fool yourself — and you are the easiest person to fool.”
“Does it not bother you that DCF models use scenario analysis where sometimes all scenarios are the functional equivalents of “groping in the dark”?
“How we analysts fool ourselves so often! How often we just believe what we are told by companies and their self interested agents and convert that nonsense into very nice-looking reports with plenty of pie charts and tables which make the whole thing look so believable!”
“Looking back at the worst times, it always seems that they were times in which there were people who believed with absolute faith and absolute dogmatism in something. And they were so serious in this matter that they insisted that the rest of the world agree with them. And then they would do things that were directly inconsistent with their own beliefs in order to maintain that what they said was true.”
2. Feynman speaks about Uncertainty (Watch Below)