Core Values Don't Change

Content

Fundamental truths and core principles of investing don't change. Only their application evolves with time, say famed Value Investor Warren Buffett and his mentor Benjamin Graham.

First Principles

A first principle is a proposition that forms the foundation for a body of knowledge. First principles cannot be deduced from other propositions or assumptions.

"As to methods, there may be a million and then some, but principles are few. The man who grasps principles can successfully select his own methods. The man who tries methods, ignoring principles, is sure to have trouble."

Harrington Emerson

In Investing

Benjamin Graham — the founder of Value Investing — taught that the foundation of successful investing was the Margin of Safety.

Graham also wrote:

"The underlying principles of sound investment should not alter from decade to decade, but the application of these principles must be adapted to significant changes in the financial mechanisms and climate."

Benjamin Graham, Introduction, The Intelligent Investor.

Interestingly, Graham also taught his students how his framework could be adapted to changing interest rates, as well as inflation rates.

Graham's most famous pupil — Warren Buffett — has reiterated on multiple occasions that the principles of sound investing have not changed one iota since his mentor first defined them nearly a century ago in Security Analysis (1st edition: 1934).

Buffett On Principles

In the 2018 Balance of Power interview for Bloomberg Markets, Buffett was quoted as saying:

"The principles haven't changed at all... It's exactly what Ben Graham wrote in 1949."

Warren Buffett, Bloomberg Markets: Balance of Power (2018).

Jobs On Values

Steve Jobs explains why the core values that made a business successful should not change. This reasoning would apply to the business of investing as well.

Naval Ravikant on Science

Many of the misunderstandings and misquotes about Value Investing stem from a basic lack of understanding of what science is, and how it works.

Finance, after all, is a Social Science; with its own complexities. Technology itself is nothing but applied science, as Naval Ravikant — co-founder and chairman of AngelList — explains in the podcast below. In his other podcast on How to Get Rich, he also explains that computer programming is essentially applied mathematics.

The podcast covers multiple aspects of Scientific Thinking in general, and is great starting point for anyone wanting to understand its basic aspects and how to approach it correctly.

Some of the concepts covered here that are especially relevant to investing are — why one doesn't test theories without good explanations, and why entrepreneurs have to be rational optimists. The latter would also apply to investors, since entrepreneurs are essentially investors with zero diversification.

The podcast covers the concept of Axioms, or the First Principles referred to above, as well.

Summary
Warren Buffett and his mentor Benjamin Graham emphasize that the fundamental truths and core principles of investing remain unchanged, although their application evolves over time. A first principle is a foundational proposition that cannot be derived from other assumptions. Graham, the father of Value Investing, highlighted the importance of the Margin of Safety as the cornerstone of successful investing. He asserted that while the principles of sound investment remain constant, their application must adapt to shifts in financial mechanisms and climate. Buffett echoes this sentiment, stating that the principles have not changed since Graham's teachings in 1949. Steve Jobs also noted that the core values driving business success should remain stable, a notion applicable to investing as well. Additionally, Naval Ravikant discusses the importance of scientific thinking in finance, which is a social science, and emphasizes the need for rational optimism among entrepreneurs and investors alike. The podcast he features in explores concepts like Axioms and First Principles, underscoring their relevance to effective investing strategies.