If all you want is to make a few bucks on a successful day trade, this article is probably not for you. Most of us, though, plan to practice this art of investing -- and I challenge anyone to call investing a science -- for quite a while to come. And if we expect to be successful, we need to hold some core beliefs about how markets work and how companies should be valued.
All of the great investors, after all, approached the market with a particular point of view that was a bedrock for how they selected stocks. And while we can learn much from them, there are also plenty of nuggets of insight from the greatest thinkers throughout history to guide us.
The Socratic method
We start at the beginning with the founder of moral philosophy -- Socrates, famous for what we now call the Socratic method. Around 400 B.C., he would plant himself on a street corner in Athens, pose to passers-by a difficult question like "What is courage?" and then challenge anyone to provide an accurate answer.
If someone claimed that courage is the capacity to endure, Socrates might counter: "But what about obstinacy? An obstinate person has an incredible capacity to endure, but does that person have courage?" Socrates could invariably raise objections that would cause the other person to retract or at least qualify his or her answer.
There were no cut-and-dried answers to Socrates' questions. The point was to demonstrate that most people "think" they know things but haven't really thought them through carefully enough. He wanted to illustrate that everything must be open to question, and that the process of questioning, during which we would continuously refine our answers, is the path to discovering a form of the truth.
Be true to yourself
Socrates was particularly interested in moral questions, such as how people should live their lives. He was the first to teach that people must have integrity in terms of duty to themselves, and he believed that those who could preserve their integrity would come to no long-term harm.
While his method was highly popular among thoughtful Athenians, it also made him a disruptive influence. The authorities, in particular, didn't take kindly to his questioning of established ideas. He was ultimately arrested on charges of corrupting the young and not believing in the gods of the city. True to his beliefs, Socrates refused to recant and was condemned to die by poison in 399 B.C.
What would Socrates be buying?
It seems like a crass question to ask of one of the most renowned moral thinkers of all time, but since you've already invested a few minutes of your precious time in reading this far, hang with me for a few more paragraphs.
I propose that Socrates would probably look for companies that provide products or services that are truly useful to society. He would seek out growth, as evidence of constant questioning and finding better ways to do things. I think he would put a premium on companies that value their employees and would care deeply about honesty, integrity, and what Warren Buffett calls "transparent management." Socrates' portfolio would be small, consisting of perhaps no more than 10 to 15 companies that he knew well and that exemplified his core beliefs. Some examples come easily to mind.
You may find it surprising, but I think Socrates would also be a holder of Google
Back in the 1990s, Socrates would have owned Wal-Mart
To fill out his portfolio, Socrates could very well have a position in Apple
Some Foolish advice
I encourage you to identify your core investing beliefs. Are they growth, innovation, corporate integrity, commitment to excellence? You need to have something more than numbers. A P/E ratio can help you figure out when to buy, but I submit that it lacks the underlying substance to help you decide what to buy, and hold for the long term. For that, you need an investment philosophy.
If you want some help, consider this. With lots more street corners and people in today's world, Socrates would be pretty busy. He would probably seek out some investment advice -- perhaps our Motley Fool Rule Breakers service. That's where you'll find sage advice from a group of dedicated investors who question everything and leave no stone unturned in their search for companies that are poised to become future industry leaders. You can even get a free trial.
Feel free to email me with stock picks you think would fit Socrates well. And so that you don't think all philosophers are boring do-gooders, be on the lookout next week for installment No. 2 -- Machiavelli. We'll investigate how realpolitik, 16th-century style, can lend a shot of power to your portfolio.
For more on the Socratic companies mentioned, check out:
Fool contributor Timothy M. Otte surveys the retail scene from Dallas. He welcomes comments on his articles and owns shares of Wal-Mart but none of the other companies mentioned in this article. The Fool has a disclosure policy.