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Modern Rationality and Ancient Wisdom

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The modern age is largely a product of the Scientific Revolution. Scholars date the beginning of that period to the 1543 publication of the Copernicus treatise, On the Revolutions of the Heavenly Spheres.

Developments in mathematics, physics, astronomy, biology and chemistry changed our view of the world. It seemed that all the secrets of the universe could be unlocked by the scientific method. The idea of reason or rationality arose from this: an objective reality may be discovered by observation, experimentation, and logical thought.

It is comforting to think that everything can be figured out—and probably wrong.

Modern philosopher Nassim Taleb has argued that the role of randomness in our world is underappreciated. There is much that cannot be known until we find out: whether a company will struggle or thrive, whether a market will advance or decline, which bird of two sitting on a branch will be the first to take flight.

Before rationality, going back to ancient Greece, there was wisdom—expressed in the word sophrosyne. This ideal of character included traits such as moderation, prudence, and self-control. Think of it as wisdom.

It strikes us that wisdom helps investors fill in the gaps where rationality fails us. The idea of diversification is a way to deal with uncertainty: if we could rationally determine which holding was going to go up the most, who would need to diversify? And self-control plays a role in our methods. “Avoiding stampedes” takes quite a bit of it, for example.

We are big fans of quantifying the things we can quantify. Doing the math is a large part of our work. Reason—rationality—is key. But it also makes sense to exercise moderation and prudence when facing uncertainty—which is nearly always.

Modern rationality and ancient wisdom are a powerful combination. Clients, if you would like to discuss this or anything else on your agenda, please email us or call.


There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.

No strategy assures success or protects against loss.

We Eat Our Own Cooking

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Last week I was describing an investment opportunity, or ‘table-pounding bargain’ as I prefer to think of it, to a client. The client was not exactly skeptical, but she had a question. “Do you own it?”

This is a brilliant question. ‘Skin in the game’ is an extremely vital indicator. When someone is personally invested in an idea or concept, they are more likely to be focused on the potential for success or possibility of failure. Alleged leaders who do not share in the consequences of their actions are notoriously inept. (Congress and health care, for example?)

Modern philosopher Nassim Taleb (author of The Black Swan) takes it a step further and talks about soul in the game. Perhaps my level of compulsion, commitment to work to age 92, and obsession with your outcomes is evidence of ‘soul in the game.’ I’m not sure how I could possibly be more involved with my work.

Do I own it? Lady, I am loaded down with the stuff. I cannot in good conscience inflict the kinds of concentrations on you that I am willing to face. After all, few of you want to work to age 92 as I do, and between you and me, I am in the best position to knowingly run larger risks. So the most volatile accounts in the shop, upside and downside, are my own.

Let me clarify: we offer no guarantees. The fact that I own the ideas we talk about does NOT provide any tangible value to you. When your account grows, our revenues rise—it is win-win—and that provides an economic incentive to act in good faith. But whether or not I own something is no guarantee of anything.

My purpose in writing this is simply to say we may be right or wrong on any recommendation—but we are always sincere. I want you to know, that idea I’m talking most about, YES I own it!


The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

The opinions expressed in this material do not necessarily reflect the views of LPL Financial.

Investing involves risk, including possible loss of principal.

There is no assurance that the techniques and strategies discussed are suitable for all investors or will yield positive outcomes.