Johann Wolfgang von Goethe
Hans Urs von Balthasar
In the late 18th century, the great German poet and polymath Johann Wolfgang von Goethe proposed a new method for scientific inquiry into nature. Whereas the modern scientific method that had emerged during the preceding two centuries promoted a mechanical, rationalistic study of (inert) natural forms, Goethe’s method emphasized a greater unity between the scientific observer (the subject) and the natural form being observed (the object). Rather than plucking a flower and placing it under a microscope, Goethe the poet-scientist was more interested in observing the living flower in its natural context. His view was that approaching nature in this way would not only result in a greater knowledge of the world, but also a greater self-knowledge.
Drawing from Goethe’s thought, the 20th century Catholic theologian Hans Urs von Balthasar wrote the following:
“For we can be sure of one thing: we can never again recapture the living totality of form once it has been dissected and sawed into pieces, no matter how informative the conclusions which this anatomy may bring to light. Anatomy can be practiced only on a dead body, since it is opposed to the movement of life and seeks to pass from the whole to its parts and elements.”[1]
What do Goethe and Balthasar’s insights have to do with investing? I’d like to propose three main ideas that we can distill from these great thinkers and apply to our lives as investors.
First, I’d like to draw a parallel between Goethe’s humanistic approach to scientific inquiry and the emergence in recent decades of behavioral finance. Just as Goethe was skeptical of the coldly rationalistic methods of modern natural science, pioneering thinkers such as Daniel Kahneman, Amos Tversky, and Richard Thaler have pushed against the rationalistic methods (distilling economic theory into tidy mathematical equations) and assumptions (that market participants are all rational actors) of traditional economics. Goethe’s insight was to approach nature as a living, integrated organism rather than a sterile object to be anatomized. Similarly, behavioral economics integrates the fields of psychology and economics, underscoring the vitality of the market – the fact that it is comprised of multitudes of living, breathing people who often engage in behavior that is not entirely rational. Accordingly, the market cannot be described or analyzed purely in precise, mathematical terms.
Second, the tendency of modern science to move from the whole to the particular – to borrow Balthasar’s description – is akin to the tendency of many investors to focus on the particular rather than on the whole. While this movement toward the particular is helpful in diagnosing the mechanical, physical questions of nature/investing (questions of “how”), it is ineffective in diagnosing the metaphysical questions (questions of “why”). As a financial advisor, I often encounter particular questions, like whether to buy or sell an individual stock. Part of my job is to help clients move away from the particular and toward the whole – that is, to contextualize these “how” questions with their whole financial plan in mind, and remind them of the bigger picture, the “why,” of their financial lives. Ultimately, the “why” questions are what animate and enliven us. They are, to borrow Balthasar’s language, the questions that make our financial lives more like a “living totality of form” than a dead body to be dissected.
Third, Goethe’s emphasis on allowing nature to teach us more about ourselves is a profound point that we can apply to investing. Certainly, one must be scientific and analytical in approaching the task of investing: assessing the risk/reward profiles of potential investments, studying market history, etc. In doing so, we improve our odds of success. However, as any seasoned investor will tell you, no matter how thoroughly you analyze your investments, you cannot control the outcomes of those investment decisions, nor can you predict with exact precision the movements of an ever-changing market. Experiencing the emotional highs and lows of watching our investments gain and lose value can teach us as much about ourselves – our own mental fortitude, patience, fears, values, etc. – as it can teach us about market dynamics. All of us seek to grow the value of our portfolios over time, just as a scientist seeks to grow in his knowledge of the object he is studying. The question that Goethe raises is this: Are we seeking to grow in wisdom as well?
There is much to be said for the methods of modern science and the rational study of financial markets. However, as investors, we can all benefit from the ideas of Goethe and Balthasar as well, who remind us that markets, like nature, are alive and unpredictable; that we should resist the reductionistic tendency of science by moving from the particular to the whole and asking more “why” questions; and that, when we study the market, we should also be attuned to what the market can teach us about ourselves.
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[1] Hans Urs Von Balthasar, The Glory of the Lord: A Theological Aesthetics. I: Seeing the Form (San Francisco: Igantius Press/New York: Crossroad Publication, 1983), 31-2.