- Vastly different ethical applications
- Imagining the perfect company
It is common in the financial world to see references to different 'investment philosophies', which describe certain styles or strategies of putting capital to work. Growth investing and value investing are two such philosophies, as are strategies focusing on income or, say, market momentum. But unless a fund manager opts to ostentatiously quote Kant in a shareholder update, you are less likely to come across discussions of how philosophical theories interact with investing.
Some might say those managers have a point: look a little closer and there are intriguing lessons on offer here for investors. So, let's put on our philosopher hats and look at some examples of how sages from down the ages can inspire investment decision-making.
Forms and moats
It was famously said by AN Whitehead that Western philosophy "consists of a series of footnotes to Plato", so where better to start than with the ancient Athenian. One of Plato's most well-known doctrines is his theory of forms, which states that behind objects and concepts sit abstract perfect representations of those things. For example, if you wanted to draw a triangle you could only do so because you have some idea of the ideal triangle, out there in the ether, to work from.
The perform form of a company is clearly a bit more difficult to encapsulate, but there are some broad attributes that would apply to an ideal business. It would have a large economic moat to see off potential competitors, consistently growi revenues and returns on capital, and have fat margins and zero debt. In reality, there is no perfect company. But the idea of Plato's forms can be used to take a step back from short-term market trends and fluctuations and think about the ideal long-term characteristics such as these. Many of them apply to market incumbents that have been around for an age – such as Coca-Cola (US:KO) and General Mills (US:GIS), and more modern options such as Games Workshop (GAW). Having an idea of the forms you want to see can also help you pick out the winners of tomorrow.
The greatest good
Fast forward to the 18th and 19th centuries when utilitarianism, most closely associated with English philosophers Jeremy Bentham and John Stuart Mill, took off. The philosophy is summarised by Bentham's statement that "it is the greatest happiness of the greatest number that is the measure of right and wrong". There are a couple of ways this idea could be applied to investment decisions.
The first is to try to identify companies involved in projects that could positively meet the maxim. A sector that comes to mind in the aftermath of the pandemic is healthcare If you want to invest in medical advancements, then a trust like RTW Biotech Opportunities (RTW) may be an option.
Another take is a more contrarian approach to utilitarian investing. It could be argued that investing in oil majors such as Shell (SHEL) and BP (BP) is the right course of action from an ethical point of view. This makes sense if you think it is only the large incumbents that ultimately have the firepower to drive economies in the transition to renewables (helping the greatest number) despite the environmental damage being caused by fossil fuels right now.
The will to power(ful) returns
Sticking with 19th-century philosophy, but looking over to Germany, Friedrich Nietzsche dismissed conventional moral positions and called for a revaluation of all values. He argued for what he thought of as "noble" forms of morality, where the strong dominate the weak and power is of central importance, wanting "not contentedness but more power; not peace but war".
There are obvious parallels here with companies' appetite for change and for expansion. Nor is it a stretch to think that Nietzsche, to this end, would have been sceptical about contemporary environmental, social and governance (ESG) approaches. Instead, he would probably pile into so-called sin stocks across sectors from tobacco to gambling to defence. He would take the chunky yield from cigarette merchants like British American Tobacco (BATS) with few qualms, and buy into Flutter Entertainment's (FLTR) US expansion. He would also top up his holdings in defence companies such as BAE Systems (BA), which are benefiting from a volatile global landscape given Russia's invasion of Ukraine and the ongoing conflict in the Middle East.
The swinging pendulum
Georg Wilhelm Friedrich Hegel, another German, is the most difficult to read of the thinkers mentioned here. But this intellectual giant of the 19th century has important lessons for investors through his philosophy of history. The theory known as the Hegelian dialect says there are three stages to historical development: thesis, antithesis and synthesis. This should make investors consider carefully when such stages will occur, what form they might take, and remind them they need to be ready to act ahead of the market if necessary.
A Hegelian shift is arguably occurring over in the US as we speak, with the free-market dogmas of Reaganomics being supplanted by the state-intervention of Bidenomics. The current antithesis stage has meant a tearing up of the fiscal rulebook and the globalisation narrative, which offers investors opportunities as well as risks. Companies such as Tracsis (TRCS), in our view, are well-placed to take advantage of US economic interventionism. Further up the market cap scale, businesses such as Taiwan Semiconductor Manufacturing Company (TW:2330) are trying to push forwards with manufacturing Stateside (despite project delays) on the back of legislation.
