The first post is devoted to clarify why this website is called what it is called. I am one of the strange persons who is always interested in that when I encounter a new organization. Despite the danger of addressing only a small group of like-minded people, I still want to serve them.
I was thinking about a name for my project for an embarrassingly long time. Obviously, I wanted a cool, creative, and mighty name like BlackRock or Citadel. However, I soon figured out that this is beyond the scope of my creativity.
Unsatisfied with the easy way of using my surname, I decided to introduce some logic into the naming process (it is remarkable how many hedge funds are just named “surname founder” + “Capital Management”). Although AGNOSTIC INVESTING still came to me rather randomly, the name combines two points that are important to me:
Now, you might say that the name is rather irrelevant and an entire post about it is way too much. I mostly agree with you. I also thought like that until the point where I needed a name for my website. At least for me, it was not that easy to just come up with something. Therefore, I am happy that AGNOSTIC INVESTING is not just something but also the maxim of what I am (hopefully) going to do here. The only problem is the acronym. If I ever reach the point where people associate AI with AGNOSTIC INVESTING instead of Artificial Intelligence, I know that the website is a success.
It is What I Am Planning to Do
Some months ago, I watched a short video about AQR Capital Management, a large and respected asset management firm. AQR stands for Applied Quantitative Research. Asked on the name, co-founder Cliff Asness replied: “I love it for a very simple reason, applied quantitative research, AQR, is exactly what we do.”1AQR Capital Management; 2019; AQR’s 20th Anniversary; Youtube; URL
When I heard that for the first time, I immediately thought that this makes sense. Especially for non-creative persons like me. So my next problem became to think about what I am planning to do here. At that time, I had a lot of ideas regarding natural language processing of business documents. But a name like “NLP Investing” or “Text Investing” seemed to narrow.
Some weeks later, I was lucky. I came along a paper called “Agnostic fundamental analysis works” (by the way: a great paper that I am probably going to present here at some point).2Bartram, Söhnke and Grinblatt, Mark; 2018; Agnostic fundamental analysis works; Journal of Financial Economics 128, 125-147; URL. The authors try to find an objective way to fundamentally value stocks but this is not the point here. I never consciously thought about the word “agnostic” but I liked the way how it was used in the paper. There may be “right” valuation models and there are almost certainly “wrong” valuation models, but we never really know. Therefore, one of the best things an investor could do is developing an agnostic model that is not perfect but consistent and reliable.
Originally, agnosticism comes from the intersection of philosophy and religion. In most cases, being agnostic is defined somehow like “neither believing that a god exists, nor that a god does not exist”. More generally, agnostics accept the uncertainty surrounding and the limitations of their own knowledge and experiences. That often leads them to deny extreme positions on complicated issues (which makes them somehow boring because they do not stand for something).3Dictionary “Agnostic”, URL.
Well, I do not know much about religion and even less about the philosophy around it, but I found the idea very interesting and, in some sense, perfectly suited for the stock market. The stock market is a place of extremes and confidence: many people claim to have the right forecast, the right model, the right information, the right strategy … I know very few people who really accept the uncertainty of the market and act accordingly. Note the second part of the last sentence. I know a lot of people who accept the uncertainty of the market but still try to fight it.
Okay, everyone who reads this and knows something about asset management and efficient markets now thinks: “Fine, but if you don’t believe in all the forecasts, models, strategies and news, why not invest passively with an ETF and just wait?” Because I believe that it is possible to come up with something better than the standard ETF. But I do not believe that it is going to be easy. Also, I have doubts whether a surprisingly large fraction of the asset management industry is more than just storytelling, marketing, and sales-talent.
To counter all this noise, I believe that being agnostic is a powerful investment philosophy. I do not want to take extremes and restrict myself to one part of the market or one particular strategy. This does not mean that I am against specialization. I have no trouble to run a specialized quantitative strategy while simultaneously buying a single stock based on fundamental conviction. I have even no trouble with just buying a passive ETF if I have the feeling that I cannot compete with other investors.
What I do have trouble with, however, are flawed and anecdotical analyses. I think the agnostic application of the scientific method is a powerful (and necessary) tool to navigate the stock market. Not in the sense of (hopelessly) transforming finance to a natural science, but in the sense of formulating an idea, testing it with data, and throwing it away if it does not hold. Many practitioners claim to do this. But sometimes, marketing and sunk costs seem to override intellectual honesty. Scaling the axes of graphs, choosing different time intervals, creative outlier adjustments – we all know the things that start when the data is not in line with the desired story.
Since I am planning to invest my own money, I have no reason to construct or support a story. In fact, I cannot invest with conviction if the idea does not meet my standards of quality and reasoning. Agnostically looking at facts and data is therefore my only chance and I am happy that the name reminds me of it every day.
I want AGNOSTIC INVESTING to be known as exactly the opposite of storytelling and the usual superficial investing discussions. I will give my best to deliver high quality content for everyone who is seriously interested. This may narrow the audience, but the theme is quality over quantity – always.
It Starts with A
Now begins the nerdy part. Ideally, I wanted a name that starts with A because of alphabetic bias. The idea is simple: people and organizations whose name starts with a letter closer to the top of the alphabet have the odds on their side. For example, academics with surnames that begin with letters close to A tend to receive more citations than others.4Jacobs, Heiko and Hillert, Alexander; 2016; Alphabetic Bias, Investor Recognition, and Trading Behavior; Review of Finance 20, 693-723; URL.
Why is this case? Because most lists are ordered alphabetically and many humans (myself in particular) are lazy by nature. When I look up research on a topic and get a list of articles in alphabetic order, I probably stop searching after the first 5-10 satisfying items. Chances are high, that those are from authors who are closer to the top of the list. The same thing holds for many other situations: lists of applicants, speakers, and even for elections.5The Economist; 2001; As easy as ZYX; URL. There is no difference in business. According to the biography of Steve Jobs, one reason why Apple is named Apple was to get them “[…] a head of Atari in the phone book.”6Walter Isaacson; 2011; Steve Jobs; via goodreads.com, URL.
Hopefully, AGNOSTIC INVESTING will also get to the top of some lists. At least statistically, the chances are better than with my surname which starts with S. We will see if it really helps (my girlfriend still rolls her eyes when I envy her surname that starts with B). But for now, I am happy that AGNOSTIC INVESTING is not only what I am planning to do but is also at the top of the alphabet.
This content is for educational and informational purposes only and no substitute for professional or financial advice. The use of any information on this website is solely on your own risk and I do not take responsibility or liability for any damages that may occur. The views expressed on this website are solely my own and do not necessarily reflect the views of any organisation I am associated with. Income- or benefit-generating links are marked with a star (*). Please also read the Disclaimer.
|1||AQR Capital Management; 2019; AQR’s 20th Anniversary; Youtube; URL|
|2||Bartram, Söhnke and Grinblatt, Mark; 2018; Agnostic fundamental analysis works; Journal of Financial Economics 128, 125-147; URL.|
|3||Dictionary “Agnostic”, URL.|
|4||Jacobs, Heiko and Hillert, Alexander; 2016; Alphabetic Bias, Investor Recognition, and Trading Behavior; Review of Finance 20, 693-723; URL.|
|5||The Economist; 2001; As easy as ZYX; URL.|
|6||Walter Isaacson; 2011; Steve Jobs; via goodreads.com, URL.|