To be a successful investor, it helps to understand people. And nothing does a better job than great literature in providing insight into how individuals act — what motivates them, what unnerves them and what inspires them.
We bet you can find a number of classics on the bookshelves of many investors, books by Burt Malkiel, Peter Lynch, Warren Buffett and Robert Shiller, among others. Here are some other authors who might also improve your investment returns: Jane Austen, Anton Chekhov, Leo Tolstoy and Fyodor Dostoevsky.
Why should you look to literature for investment guidance? Because culture matters. People aren’t organisms that are made and then dipped in some culture, like Achilles in the river Styx. They are cultural from the outset. To know them, read their stories. There is no way to grasp most of what individuals and groups do by deductive logic. Given identical economic opportunities and advice, various cultures respond differently. Human lives don’t just unfold in a purely predictable fashion the way Mars orbits the sun. Contingency, traditions, idiosyncrasy and unforeseeable choices — all of which allow for alternatives — play an indispensable role.
Novels offer a distinct way of knowing. The very shape of the stories they tell, the sorts of events they represent as plausible, effective or important, convey vital, if elusive information. What’s more, reading great literature involves constant practice in empathy. If one hasn’t identified with Anna Karenina, one has not really read “Anna Karenina.”
Reading a great novel, you identify with its characters and spend countless hours feeling from within what it is like to be someone else. You experience the world as someone of a different social class, gender, religion, sexuality, moral understanding or countless other factors that differentiate human experience. And if you are going to bet on how markets will act, you sure better have an appreciation for what drives the actors. In other words, you better be able to put yourself in their place.
If economists learned from great literature, their models would be more realistic, their predictions more accurate and their policies more effective and more just.
Does great literature really do that? It does. As trumpeted a couple of years ago on the front page of the New York Times, “For Better Social Skills, Scientists Recommend a Little Chekhov.” The article reported on a study published in the journal Science showing that after reading literary fiction (as opposed to nonfiction or popular fiction), people did better on tests measuring empathy, social perception and emotional intelligence. If you are looking to develop personal qualities that might just translate into improved investment performance, we suggest you start with those three.
We look especially to literature when trying to comprehend other countries and their markets. When we are asked by our American students how they may best advance their abilities to successfully invest in China, India, Russia and other far-flung nations, we tell them that instead of taking still another course in economics, statistics or mathematics, try the humanities.
Many Americans were thoroughly mystified that after U.S. economic sanctions were leveled against Russia, Vladimir Putin added on his own self-sanctions by barring imports of food. Read Tolstoy, and you can learn more about Russian nationalism and identity than you might imagine.
Princeton University Press
Investing in China? Try the classic Chinese novel “The Story of the Stone.” Japan? How about the 11th-century masterpiece “The Tale of Genji”? India? Start with the “Bhagavad Gita.” Of course, gaining an appreciation of a nation’s art, music, politics, religion and history is also a good idea before you invest there, but there is nothing more illuminating than its literature.
A final thought: Literature teaches us to be humble about our own knowledge. When it comes to people and the markets in which they engage, things are likely to be much more complex than they seem. If economists learned from great literature, their models would be more realistic, their predictions more accurate and their policies more effective and more just.
Great literature provides a window into how the real world actually operates, creating a more nuanced insight into others and engendering a sincere humility in ourselves. That sense of humility doesn’t just mark those with the deepest understanding of humanity; we suspect it is also a characteristic of the best of investors.
Gary Saul Morson is the Lawrence B. Dumas Professor of the Arts and Humanities at Northwestern University. Morton Schapiro is a professor of economics and the president of Northwestern University. They are the authors of “Cents and Sensibility: What Economics Can Learn from the Humanities,” Princeton University Press, 2017.
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