Tag Archives: art

The Art of Economics

What can art teach us about economics?

Portrait of Joseph Haydn. Source: Royal College of Music

People often discuss the economics of art – how supply and demand can raise the prices of Renaissance or Impressionist works to insane levels, or how ironic it is that great paintings can’t be sold for much while the artists are still alive. But art has something else to tell us about the productive process. There’s a lot that we just don’t understand.

For example, in history we see artistic centers grow and develop – like 5th century BC Athens, or 15th century Florence, or 18th century Vienna – whose artistic achievements have endured for centuries and have had a lasting cultural impact. These communities weren’t highly populous. They had, at their peak, perhaps 100,000 people. But they produced sculpture and paintings and music that billions have enjoyed over the centuries and that have retained an enduring market value.

“Water Lilies” by Claude Monet. Source: Wikipedia

Now, naïve theories of economics say this should not be possible. They didn’t design a more efficient plow or invent anything that improved our economic productivity. Economic value is supposed to reside in the ability to produce a stable and growing cash flow. But there’s something different about the arts where small numbers of highly gifted people can come together in a white-hot center of creativity and innovation that explodes outwards to change the world – arguably more than assembly lines and smart phones.

If we’re trying to figure out what makes Silicon Valley work or how to turn around Detroit or how to maintain London as a financial hub in a post-Brexit UK, we should try to understand Pindar’s Athens or Monet’s Normandy or James Joyce’s Dublin. Because before we can manage wealth, someone has to create it. And creation is a miracle.

Douglas R. Tengdin, CFA

The Compleat Investor

Is investing an art or a science?

Woodcut by Louis John Rhead. Source: Wikepedia

In 1653 Izaak Walton published “The Compleat Angler,” a short book on fishing. In this little treatise he compares angling to mathematics – something that can never be fully learned. There’s always a new approach or a new location or some novel piece of equipment. “But he that hopes to be a good angler,” Walton continues, “must not only bring an inquiring, searching, observing wit, but he must bring a large measure of hope and patience.” He describes fishing as the perfect combination of contemplation and action.

It’s the same with investing. Investors need inquiring minds, hopeful dispositions, and patience. It can take some time for an investment approach to work out. At the same time, we have to be diligent to make sure that the main idea behind our investment thesis hasn’t changed. We can’t afford to be whipsawed by every new fad or fashion that appears—but we can’t ignore how things change over time.

Good investing is both art and science. It’s a science as it applies to investments, but an art as applied to the investor. Each investor is unique, with unique objectives and limitations. Applying the right investment in the right circumstance at the right time is something that—as Walton would say—is satisfying in the result, but also in its application. Investing, like fishing, is a reward to itself.

Douglas R. Tengdin, CFA

Chief Investment Officer

The Learning Discipline

What’s the key to successful investing?

Source: Get Refe

There isn’t one key. There are lots of them: understanding ourselves, diversification, setting good goals, managing risk—the list goes on and on. And there are many fruitful investment styles: value, growth, momentum, factors, index investing. Successful investors have to pay attention to lots of things all the time.

But when you study great investors like Mario Gabelli or Laura Sloate—the blind stock analyst whose blindness forces her to “see” everything differently—one thing stands out: they’re always learning. Whether it’s understanding how new drugs can trick our bodies into fighting cancer or a new quantitative technique for detecting financial fraud, great investors are intellectually curious. They’re interested in everything.

So whether it’s a new translation of Homer’s Odyssey or a recently discovered grove of giant redwoods in California, everything has value. After all, some of these coastal redwoods were seeds when Homer wrote his work. They have something to say about long-term strategies.

Henri Matisse said that the role of an artist is to see old things in new ways. For the investor it’s something similar—seeing old principles applied in new circumstances. And buying great companies at cheap prices.

Douglas R. Tengdin, CFA

Chief Investment Officer