Can we ever understand one another?
Photo: Amshudhagar. Source: Wikipedia
In 1959 English novelist C.P. Snow gave a lecture on “The Two Cultures,” bemoaning the lack of understanding between literary intellectuals and scientists, between science and the humanities. At the time, folks were worried that scientists had never read Shakespeare or Dickens, and that the Atomic Age would usher in a technocratic tyranny, along the lines of Huxley’s “Brave New World.” But to these humanities scholars Snow asked, “Can you describe the Second Law of Thermodynamics? Or what is meant by mass and acceleration?” In other words, can you understand basic physics? The lack of understanding isn’t just on one side.
Snow was concerned that the ignorance of science by people educated in the humanities would limit the benefits of technological progress. His influence was so great in England that he was offered what amounted to a Cabinet post. There was controversy around the idea, but the notion of “two cultures” persists – with much of liberal education trying – and failing – to bridge this gap.
Investors also experience a sort of “two cultures” debate – between value and growth investing. These two approaches are sometimes caricatured. Value investing has been defined as finding half-smoked cigar butts on the street and taking a drag, or as dumpster diving in the stock market. Growth investing, on other hand has been described as “buy high, and sell higher,” or as momentum investing. Value investors are thought of as painstaking, cautious, and obsessed with a margin of safety, while growth investors are portrayed as fun, go-go trendsetters focused on finding tomorrow’s winners that would be “cheap at any price.” The value/growth dichotomy is reinforced by analysis that divides the market into style-boxes: a matrix of small, mid, and large companies that are value, growth, or a mix.
Often the two camps criticize each other, citing academic studies and investment gurus to support their respective cases.
But the purpose of investing is to make money, not score debate points. There’s more than one way to skin a catfish, and there are lots of ways to assemble a profitable portfolio. In fact, there are as many different portfolios as there are investors, depending on return requirements, attitudes about risk, time horizon, liquidity needs, and so on. Every investor has a unique financial and psychological profile. Their investments would no more fit into a style box than they themselves fit into personality-box.
Both growth and value styles have their place in money management—just as humanities and science education do in the University. They key in both cases is to keep growing.
Douglas R. Tengdin, CFA