Recently I read two wonderful books – "Consilience" by Edward Wilson and "Conjectures and Refutations" by Karl Popper. Both Wilson and Popper are among Li Lu's favorite authors. The full list of Li Lu's book recommendations can be found at the end of Li Lu's book "Civilization, Modernization, Value Investment and China." It's a fantastically daunting list.
Needless to say, both Wilson and Popper are deep thinkers and great writers. Both are also very prolific, especially Wilson. His other book, "The Social Conquest of The Earth," is also included in Li Lu's list. I also highly recommend this book, but in terms of inspirational ideas, I prefer "Consilience." It reminds me of Charlie Munger (Trades, Portfolio)'s multi-disciplinary approach.
Karl Popper is also one of Li Lu's favorite authors. Li Lu actually recommended Poppers' other two books - "The Logic of Scientific Discovery" and "The Open Society and Its Enemies." I found Popper's books very inspirational but also a bit hard to comprehend. The reason why I recommend "Conjectures and Refutations" is that it's a collection of Popper's lectures so it's much easier to read. We can get a very good sense of Popper's key ideas from it.
Why do I put Wilson and Popper's books together? Well, while reading them, I noticed that both spent a fair amount of time discussing different schools of Western philosophy, especially points on empiricism and instrumentalism, which inspired me to think about the implications and applicability of these ideas in value investing. This article series is my attempt to explain the linkage between them.
First of all, let me briefly introduce the key concepts and ideas: empiricism, instrumentalism and critical rationalism.
Empiricism is the view that all concepts, or meaningful ideas, originate in experiences, and that all rationally acceptable beliefs or propositions are justifiable or knowable only through experiences. In terms of growth of knowledge, it holds that all human knowledge is derived from experiences. Related to empiricism is the method of induction, which draws inference of a generalized conclusion from particular instances.
Instrumentalism is that view that theories should be used primarily as tools for solving practical problems, rather than as meaningful descriptions of the natural world. Said in another way, instrumentalists don't care about whether the theories correspond to reality, they care about whether they can help to make accurate empirical predictions or resolve conceptual problems.
Critical rationalism is an epistemological idea proposed by Karl Popper. It holds that scientific theories, or any other claims of knowledge, can and should be subject to falsifiable tests. Scientific knowledge can continuously grow because of the replacement of inferior theories by better theories, instead of the mere accumulation of experiences. I would like to note that this is also a key idea of Li Lu's book.
In a broad sense, I view empiricism,instrumentalism and critical rationalism as different attitudes towards knowledge acquisition, different theories of how knowledge accumulates, as well as different definitions of rationality.
As value investing, if properly practiced, is all about knowledge accumulation and becoming more rational over time, the discussion of different methodologies should be an integral part of the framework. Unfortunately, not much has been discussed over this topic.
At this stage, I'm still rather ignorant of the key ideas. I hope you will join me as I share my naïve thoughts and observations from reading the works of the masters, and feel free to share your own thoughts in the comments. What I hope to achieve with this series is to set the ball rolling for the readers who might be interested in the same topic. I welcome all critical comments and suggestions. Hopefully, we can all learn something meaningful from this exercise.
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