This is an excerpt from a great article by Jon Markman at MSN.
Idealists vs. empiricists
That's too deep a subject for me, so I have turned to Brett N. Steenbarger, a professor of psychiatry and behavioral sciences at SUNY Upstate Medical University in Syracuse, New York. An avid investor and observer of investors, he notes that at the heart of any philosophical system, whether financial or spiritual, is an "epistemology," or a theory of the foundation of knowledge. Each individual in the market possesses and depends on their own sets of epistemologies that leads them to determine "what is real and what is not; what to admit as evidence, and what to dismiss," Steenbarger says.
Investors, as philosophers, essentially divide into two camps in his view: the Platonists and the Aristotelians, or the "idealists" and the "empiricists." The first group maintains that knowledge begins with inherent, a priori truths -- e.g., that technology is good, thus all technology stocks are good. The latter group, in contrast, maintains truth is discovered, not uncovered. The empiricist begins with careful observation and categorization of regularities in the market, and then determines lawful relations between them in an attempt to develop theoretical models.
"We are accustomed to thinking of market analysis as defined by the poles of technical and fundamental analysis," Steenbarger says. "But that is a limited construction of reality. Market analysis is more aptly described as a tension between those who work from revealed truths and those who engage in research to discover truths."
Understanding, for the empirical market analyst, is not a given and is not timeless. It must be discovered and then rediscovered. This is hard for idealists to comprehend in much the same way that creationists and Darwinists will never see eye to eye. Says Steenbarger: "Creationists don't merely disagree with the evidence of evolutionists; they deny that the fossil record is evidence. Evidence is what is revealed by the Almighty."
The good doctor goes on to say that empiricists tend to make better investors because of their "desire to discover and know." He adds: " In seeking to master the markets, they participate in the very essence of the heroic quest: the winning of a boon while struggling against mighty forces. Those forces are many: the complexity of the markets, the perverse nature of our own emotions and the savvy competition. Arrayed against those are only the human mind and its capacity to transform data into information."
Steenbarger suggests that at times like these, investors should ask themselves whether they are truly searching and re-searching for truth in the market by looking at hard "statistics on the table" -- or simply relying on lazy opinions and unexamined principles
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