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One of the funniest quotes from Steve Jobs is when he told Bill Gates that Microsoft products would be better if he, Bill Gates, had done more LSD.
Now I'm not recommending you or anyone else do that, but his point, Steve Jobs' point, was that Microsoft products were maybe good technology, but they lacked the artistic feel and polish of Apple products.
Now some people might disagree with that, but Steve Jobs talked about this all the time.
He used to say that Apple was building at the intersection of art and technology.
And Edwin Land, who was the founder of Polaroid, was a huge inspiration on Steve Jobs.
And Edwin Land used to say this as well.
He once said, quote, industry is at its best at the intersection of art and science.
And that, of course, rubbed off on Steve Jobs.
And that was maybe and still is today the defining characteristic of Apple.
Yes, it is amazing technology, but at the same time, and maybe even a higher degree, it is art.
The products are beautiful.
They feel beautiful.
The advertising tells a good story.
That is not technology.
That is all art.
Steve Jobs used to talk about how the iPad was playful and it begged you to pick it up as much as he would talk about its processor and its chips and its performance.
The iPhone, of course, is a technological marvel, but Steve Jobs spent so much time talking about how it felt in your hand and the experience of opening the box.
You know, when the lid pops off and there's a little burst of air, it's so cool.
Steve Jobs' insight, and maybe the most important factor in Apple's success, was realizing that technology is not just a science.
It is just as much an art.
And so many different industries work like that.
Medicine is of course a science.
It is maybe the science that's most important, but the bedside manner of being a good doctor and communicating with your patients, that is an art.
And that is so incredibly important.
Building cars is the science of engineering, but designing cars is the art of curves and lines and beautiful colors.
One other example of this, there was this incredible story from Ken Burns' documentary on the Vietnam War one of the most powerful documentaries you can watch where, during the Vietnam War, Robert McNamara, who was the Secretary of Defense at the time, he wanted to quantify everything.
He wanted to turn war into science.
And so he just had reams and reams of charts and data on every imaginable statistic that took place in the war that you could think of how many troops we had, how many enemy combatants were killed, et cetera, et cetera.
He wanted to make everything a precise statistic.
And somebody from the CIA came in one day and he looked at all these statistics and he said there's something missing from your charts.
And Robert McNamara said, what is that?
And he said, the feelings of the Vietnamese people You could not quantify that to a statistic.
It was an art, but it made all the difference in the world.
And I think so many other fields have an analogy just like that.
This can drive people crazy, because the more important a field is, the more scientific and predictable we want it to be.
So people take scientists seriously because they can rely on them, count on them.
But art is taken much less seriously because it comes and goes in fads.
But most fields... outside of the rigors of academia are both art and science.
And I think that is also true with money, especially if we're talking about investing.
I think with investing, the idea that it is a big part art, maybe more than it is a science can be off-putting and controversial even more than describing something like an iPhone, because investing is taught and thought about almost exclusively in terms of numbers and data and charts and formulas.
And so the idea that it should be a science, that there should be a formula that tells you how to do it, is so appealing.
It's also the case that, because investing is so important and fundamental to people's, You know it's your ability to retire someday or put your kids through college that people don't want to say this is just an art.
It's a floofy little art.
They want to think it's a science because science can get you to places.
Science can take you to the moon.
That's how you want to think of your ability to retire someday.
Is that?
These are very smart people who figured out the rules and they're going to tell you the rules.
But the truth is that there is so much art to investing.
I would say at best, I'm making these numbers up.
I would say investing is probably half science, half art.
It is half numbers and datas and facts and statistic and the rest is art.
And by art, there's a lot of moving parts to that.
Part of art is psychology.
Part of it is emotion, behavior, trends, fads that come and go.
All of that plays a big part in investing.
And yes, investing has numbers and formulas and rules, but the soft stuff that you cannot measure or you can hardly even describe it Like the art of business and the art of investing, makes all the difference in the world.
Gathering information is a science.
Filtering out noise is an art.
Watching the stock market, following the market can be a science.
Understanding what it did and how much it's gone up.
Understanding what game you are playing and what your goals are and how.
What the stock market did this year may or may not be relevant to what you're doing.
That is an art.
It's a totally different skill.
If you are a stock picker, let's say building a valuation model in Excel to tell you how much a company is worth.
That is a science.
But calibrating it to reflect the psychology of uncertainty...
That is an art.
Net present value is a science.
They teach that when you get your MBA.
Identifying the trust and the passion of a CEO running a business, that is an art.
You cannot distill that down to a formula.
Measuring what worked in the past is a science.
Understanding why things are different now, that is very much an art.
All these things are art because you can't measure them or rely on a repeatable set of rules.
So science has formulas, but art has fads.
Science has calculations.
Art has feelings.
Science has laws.
Art has eras.
Science can be taught, but I think art has to be experienced firsthand before you actually get it.
You can spend a lifetime proving the science of why something should or shouldn't be, only to have the art part of the equation completely humble you into the ground.
And isn't that the whole history of investing?
Very smart, very educated people who had a formula and data showing them what should happen next.
And then they get humbled, if not humiliated, into the ground by what I would call the art of investing.
Psychology, behavior, manias, trends, fads, all of that plays a huge role.
So much of what matters here, and when you really understand the art of investing and how it differs from the science, is when you see how much of investing what is purported to be science can contradict itself.
I'll see you next time.
And a lot of this is not even a contradiction.
It comes down to like how much volatility you're willing to endure, what your time horizon is, why and how things were different in the past, why stocks that outperformed used to be cheap.
There was a reason for it and maybe they're not anymore.
Because they're not steel companies and aluminum companies and banks and railroads.
They're technology companies, totally different.
Understanding the nuance of that is an art.
It's not a science that you can cleanly put into a formula.
Some investors out there obsess over brands and intangible assets.
There are other equally smart people who say ignore all of that and only look at the fundamentals, only look at the balance sheet.
Neither of them I think are right or wrong.
You just have to appreciate that each strategy lives in its own context and that market trends come and go like an art.
Warren Buffett once demonstrated this when describing his thesis for investing in Coca-Cola.
He had the numbers in his favor.
That was a science.
Like the profits, the income, the balance sheet, the dividends.
That was a science that worked in his favor.
But he also said that consumers associate Coca-Cola with happiness, which is something that you cannot measure.
He once told a classroom when he was speaking about this idea.
He said, quote forget about share of market.
I'm talking about share of mind.
That statement is as important as it is unscientific.
There's no science to that, but it's a very important statement, right?
Venture capitalist Chris Saka once echoed something similar when he said, quote I have never used a spreadsheet in deciding whether or not to make a seed investment.
Not one.
Venture capital, of course, is a people business where you're looking for passion and boldness.
And there's very little science to that.
It's just a ton of art.
And so no matter how you invest it doesn't matter if you're a novice, if you're investing in index funds, if you're a stock picker I think what's true for everybody is coming to terms with investing being both art and science.
And it exposes a couple of things for everybody.
The first, maybe the most important, is the idea that, no matter how you are investing because it is art and science there are very few experts.
Now science can have experts, experts in medicine and engineering and chemistry, whatever it might be.
Art does not.
Art is subjective.
I think that is very true in investing as well.
No one can fully understand the power of changing moods, changing psychology, shifting expectations, which are hard to even define, what those things mean.
Some investors are better at navigating the ups and downs of markets and psychology than others are, of course, and having that skill, that artistic skill of understanding psychology, can tip the odds of success in your favor.
Some people are worth paying attention to more than others, of course, but there are very few investing experts in the same way that there are say, expert electricians.
It's not quite like that.
And I would say without naming names because I don't want to speak poorly of people but there are very successful investors who are very wealthy and raise lots of money, who go on TV and say things.
And sometimes I think that advice might be true for you Mr, Saying That, but that is terrible advice for so many other people listening to this.
It's not a pure black and white science.
It's an art and something that may have worked in one era for one person might not work in this era for you.
The second thing to keep in mind is that there are many different ways to skin a cat, as the saying goes.
All kinds of investing styles, some of them contradictory, can work.
And this is partly because investors have different goals and partly because markets change over time.
I try not to criticize people's investing styles that I don't understand, for the same reason that I don't criticize art that I don't like.
Maybe it doesn't work for me but it does work for you.
And I think, once you come to terms with that, how much of this field is artistic and just different psychology works for different people.
You become a little bit less cynical and less judgmental about what other people are doing with their money.
And you also become a little bit more immune to other people criticizing what you do with your money.
Because you can say look, maybe in your eyes what I'm doing doesn't make a lot of sense, but it makes sense for me and my family.
And it's what I like doing with money.
Last is that skill is hard to identify.
If I build a machine that makes widgets, you can clearly identify my engineering skill.
But if I make a lot of money from investing, I may have just been lucky at the right place at the right time.
And that soft art part of investing makes identifying skill very difficult.
The solution is to appreciate process over outcome, but that is easier said than done because people like the perceived science of being right.
The art of being able to repeat it time after time is much harder to grasp.
That's it for this week.
Thanks again for listening and we'll see you next time.
