a Complete Explanation of Investing

© Matt Pauls
the framework
A complete understanding of Investing is
made up of concepts, fundamental laws
which are supposed to be valid for those
concepts and conclusions to be reached by
logical deduction. It is these conclusions
which must correspond with our separate
experiences; in any theoretical treatise their
logical deduction occupies almost the whole
book.
In this system single experiences must be
correlated with the theoretic structure in
such a way that the resulting coordination is
unique and convincing.
The structure of the system is the work of
reason; the empirical contents and their
m u t u a l r e l a t i o n s m u s t fi n d t h e i r
representation in the conclusions of the
theory. In the possibility of such a
representation lie the sole value and
justification of the whole system, and
especially of the concepts and fundamental
principles which underlie it. Apart from that,
these latter are free inventions of the human
intellect, which cannot be justified either by
the nature of that intellect or in any other
fashion a priori.
These fundamental concepts and
postulates, which cannot be further reduced
logically, form the essential part of a theory,
which reason cannot touch. It is the grand
object of all theory to make these irreducible
elements as simple and as few in number as
© Matt Pauls
The liberty of choice, however, is of a special kind; it is not in any way
similar to the liberty of a writer of fiction. Rather, it is similar to that of a man
engaged in solving a well designed word puzzle. He may, it is true,
propose any word as the solution; but, there is only one word which
really solves the puzzle in all its forms.
possible, without having to renounce the that of a man engaged in solving a well
adequate representation of any empirical designed word puzzle. He may, it is true,
content whatever. propose any word as the solution; but, there
is only one word which really solves the
But in the various branches of business, puzzle in all its forms.
finance, investing, etc., the object is the
theoretical understanding of more or less In the end the choice will be made according
restricted fields of experience which as a to which kind of description yields the
consequence restricts their theoretical foundation of the simplest foundation,
synthesis. logically speaking.
Therefore, the essential is in the aim to In the connection of such a foundation with
represent the multitude of concepts and all the single parts lies its great significance,
principles, close to experience, as principles, but likewise its greatest danger in face of
logically deduced and belonging to a basis, any new factor.
as narrow as possible, of fundamental
concepts and fundamental relations which These logical foundations are always in
themselves can be chosen freely. greater peril from new experiences or new
knowledge than are the branch disciplines
The liberty of choice, however, is of a special with their closer experimental contacts. As
kind; it is not in any way similar to the liberty with any complex and uncertain system, as
of a writer of fiction. Rather, it is similar to is investing, one might suppose that there
 Synthesis
are a number of possible systems of explanation all equally well justified; and this opinion may no doubt be correct, theoretically. But the
empirical evidence has shown that out of all conceivable constructions, a single one has always proved itself decidedly superior to all the rest.
Nobody who has really gone deeply into the matter will deny that in practice the world of phenomena uniquely determines the theoretical
system, in spite of the fact that there is no logical bridge between phenomena and their theoretical principles.

The investor's method involves his using as his foundation, general postulates or principles from which he can deduce conclusions. His work
thus falls into two parts. He must first discover his principles and then draw conclusions which follow from them. The first tasks, namely, that
of establishing the principles which are to serve as the starting point of his deduction is of no easy task.

Furthermore, it is not enough to have a clear conception of the end. One must also have a formal point of view which will sufficiently restrict the
unlimited variety of possibilities. Here the individual will find himself fortunate should he find himself a student of Graham and Dodd.

But one cannot be given simply the end conclusion and be expected to apply it successfully. Only as a result from the pursuit of this end (or
beginning) will the individual attain the correct knowledge and know how needed to use it.

Concepts that have proven useful in ordering things easily achieve such an authority over us that we forget their human origins and accept them
as unalterable givens. Thus they come to be stamped as 'necessities of thought,' 'a priori givens,' etc. The path of rational advance is often
made impassable for a long time through such errors. For that reason, it is by no means an idle game if we become practiced in analyzing the
long common place concepts and exhibiting those circumstances upon which their justification and usefulness depend, how they have grown
up, individually, out of the givens of experience. By this means, their all-too-great authority will be broken.

3/ 3
© Matt Pauls