Francis Bacon (1561-1626) made an enormous contribution to science during the 16th and early 17th century, which helped set the stage for the explosion in creative thought we call the Renaissance. Bacon never discovered or invented anything, never uncovered any laws of nature, but he did make a philosophical contribution that laid the path for all future inventions, discoveries and understanding of nature.

Bacon basically described what we today call the ’scientific method’, advocating the experimental method as the most efficient and reliable way of acquiring knowledge of the natural world. Before Bacon, since the days of ancient philosophers, such investigation was performed as an armchair speculation--a mental activity. Bacon led a revolution where investigators began to get their hands dirty to uncover facts and collect data and arrive at inductively reasoned (as opposed to deductively reasoned) conclusions.

Is investing an art or a science? What is art?
Common forms of artistic expression include painting and music. Painting involves colors. Robert Hooke and Isaac Newton showed that white light could be separated by a prism into primary colors. Colors are created by our visual perception of varying wavelengths of light. The primary colors of the rainbow can be combined in infinite combination to create all other colors used by the artist. Colors are science. Music can be reduced to vibration frequencies with only five basic notes repeated through different octaves. Music can be expressed mathematically, and math is the language of science.

Value investors have always looked at investing as a mathematical-based scientific operation. Benjamin Graham searched for stocks using purely mathematical formulas with great success. Graham’s value equations are the foundation of Warren Buffett’s investing method, a student of Graham at Columbia University, and now the wealthiest pure investor on Earth.

There are aspects of investing that appear more artistic than scientific, such as the quality of management, the resilience of a franchise or brand, or the sustainability of a competitive advantage. But these judgments are still best made by viewing them in degrees, or probabilities, which is math, which is science. Non-numerical judgments should be considered on a sliding scale with ’absolutely certain’ at the far right end and ’completely unknown’ at the far left end. These probability judgments are enhanced and refined by mathematical evidence, such as good management moving up or down the scale by evaluation of annual return-on-equity (ROE).

The more scientific your investing method, the more disciplined and successful you are likely to be over the longer term. The language of science is inescapably math-- but fortunately, the math is not complicated for an investor. The Baconian investor gets his or her hands dirty digging out facts and collecting data, building mathematical models for successful businesses, and refining probabilities of success for non-numerical judgments.

Back to Stock Index : Free Stock Market Investment Education