Historians of the Future
Every investor makes trading decisions based on what happened in the past – there is no other way. What really interests us is the future though. After all, what happens in the future ultimately determines investment success.
When in doubt, you can always try to reach the pasture… In Human Action, Ludwig von Mises described stock market speculators as akin to ‘historians of the future’. This is without a doubt the most trenchant definition of speculators anyone has ever come up with. What Mises wanted to convey is that the skills of speculators are of a thymological nature, i.e., similar to historians, they have to be aware of the data and have to be able to apply ‘understanding’ in order to be successful in their task. The meaning of understanding in this context is probably best explained by an example: a historian may look at the historical data known about an important historical figure, such as e.g. Quintus Fabius Maximus Verrucosus, best known by his nickname Cunctator (‘the delayer’ – this was originally meant to be an insult). One could simply list all the battles the Cunctator avoided, the guerrilla-type tactics he employed to harass Hannibal’s troops, the battles he decided to join, and so on. But a mere listing of these facts would do little to help us grasp his motives, his personality, the pressures he was subject to, his political goals, his influence on posterity, etc. This is where the historian’s real task begins. If he has the ability to impart a proper understanding of the man and his times, he has succeeded as a historian. The job of speculators is very similar: they have to know the data (which necessarily describe the past) and use understanding in order to so to speak paint an image of the market’s future history before their mind’s eye. And while this future-oriented faculty of understanding is a sine qua non for successful speculation (note that ‘speculation’ actually encompasses all types of entrepreneurial activity, no negative connotation is implied by the term), it could not possibly be applied without knowledge of the data and patterns of the past. [PT]
This post was published at Acting-Man on August 3, 2017.