Investing: The Last Liberal Art

ISBN: 1587991381
ISBN 13: 9781587991387
By: Robert G. Hagstrom

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About this book

Offering a picture of investing within the larger world, this title explains how investment managing works by borrowing the big ideas from other complex disciplines: biology, economics, mathematics, philosophy, physics and psychology. In the biology chapter, Hagstrom analyses the central nervous system and the immune system as complex adaptive systems and then draws parallels with the behaviour of the economy and the stock market. In the physics chapter, he explores a mathematical distribution and considers the advantages of scale in relation to the bigger is better models that define the business strategies of Wal-Mart, McDonald's and Home Depot.

Reader's Thoughts

Igor Chalhub

Great book on mental models.


A basic introduction into why its important for anyone with a parochial mindset to open up and explore the depths of what human intellect has to offer... perhaps a bit too elementary if you've already started doing it

Ian Robertson

Investing: The Last Liberal Art contains no direction on how to read a balance sheet, or on how to project earnings into the future and discount them back to today’s value, nor are there arcane financial terms to send readers scrambling for dictionaries. Still, Investing is an essential book for professional and amateur stock pickers who want to excel, portfolio managers preparing to interview prospective analysts, and investors trying to choose amongst the many advisors ready to serve their needs.Hagstrom takes his central premise that a broad education will pay dividends in investment performance from Warren Buffett’s quieter partner, Charlie Munger. Munger, through several speeches and in his book Poor Charlie’s Almanack, contends that to be successful in stock picking “you’ve got to have models in your head ... and you’ve got to array your experiences - both vicarious and direct - on this latticework of models.” Hagstrom takes Munger’s latticework idea and provides both the ‘why’ and the ‘how to’ in a concise, straightforward and entertaining format - a bit like Bill Bryson’s A Short History of Nearly Everything through an investment lens. He covers physics, biology, sociology, psychology, philosophy, literature, and mathematics, and concludes with a chapter on decision making. Hagstrom helpfully appends the reading list for the Maryland’s St. John’s College, where “the entire curriculum is devoted to discussing the great books of Western civilization; [where] there are no separate disciplines or departments, no electives,” and his bibliography is even broader - another excellent source for those wishing to take up his challenge.There is, of course, information directly relevant to investors. In his chapter on Psychology, Hagstrom ponders the question ‘How often should investors review their holdings to be “indifferent to the historical distribution of returns on stocks and bonds?” From pioneering work of behavioural economists Richard Thaler and Shlomo Benartzi, the answer is once per year. When smartphones come pre-loaded with apps allowing us second by second stock valuations, and when larger market swings generate headlines in all media, our instinctual “myopic loss aversion” kicks in and we are driven to suboptimal investment decisions. Without knowing our own psychological predispositions - we feel losses about twice as intensely as gains - it is impossible to correct for them and to achieve superior returns. We should be strategic rather than tactical with our investment portfolios. In his chapter on Philosophy, Hagstrom shifts from individual traits to those of the broader market. “One reason we have such difficulty understanding markets is that we have been locked into an equilibrium description of how they should behave.” “We must remain open minded to accepting new descriptions of systems that appear complex.” Hagstrom’s first point harkens to his chapter on physics, while the second relates to his chapter on biology. Markets are complex systems with many feedback loops, and “the only way to do better than someone else, or more importantly, to outperform the stock market, is to have a different way of interpreting the data that is different from other people’s interpretations. To that I would add the need to have sources of information and experiences that are different.” A broader reading list rather than more Google alerts.For investors trying to sort through investment advisors’ credentials and experience, Hagstrom offers some considerations in his final chapter on decision making. “Having been schooled in modern portfolio theory and the efficient market hypothesis, will [they] quickly and automatically default to [the] physics-based model of how markets operate, or will [they] slow down [their] thinking and also consider the possibility that the market’s biological function could be altering the outcome? Even if the market looks hopelessly efficient, will [they] also consider that the wisdom of the crowds is only temporary?” The latticework that advisors use is just as important as their technical education. “Reading this book requires both an intellectual curiosity and a significant measure of patience,” cautions Hagstrom, perhaps underestimating his audience, but readers will be well rewarded and very likely more successful with their investing. Despite its broad relevance, unfortunately, Investing will likely find audience only with those already inclined towards the Gatsby ideal - “that most limited of all specialists, the ‘well-rounded man’.” (With apologies for Fitzgerald’s gender bias).

Dave Maddock

As someone with a background in humanities and science, I had already figured out most of what this book has to say on my own. But, I can see it being a great introduction to the rest of the bookstore stacks for whoever buys those business/finance/management books like Think and Grow Rich, etc.


This book is more about investing and less about the liberal arts. The chapter on literature is more about literary criticism than about the works themselves. For example, there are endless lessons one can glean from Shakespeare--leadership, research, empathy, diversification, honesty, self-awareness, decisiveness--but there was no discussion of these works, just discussions about talking about Shakespeare.Similarly, the chapter on math was just a repeat of the wisdom of probability and statistics. Ok. I guess. But what about the life-lessons of James Nash--and the Nash equilibrium--that has revolutionized public auctions and many aspects of market dynamics. And what about math as philosophy? Couldn't we get something from Bertrand Russell? "Latticework" was the original title, and seems appropriate: pre-fabricated, designed to obscure what's behind, which is often nothing. This book promises far more than it delivers. Which is sad, because it could say so much more.


Investing is an accessible apologetic for a liberal education. It illustrates the idea that successful investor must develop and incorporate mental models from a variety of disciplines. At the foundation of that development are the thinkers that make up the Western canon. Thinkers from physics, biology, the social sciences, psychology, philosophy, and even fictional literature will help the investor to think critically and develop ways of seeing the world that will approach the world more accurately. It’s hard work, and necessary though not sufficient, to becoming a successful investor. I recommend Investing to all of my former MBA classmates and colleagues in the investment community as a challenge to broaden their reading, thinking, and conversation.

Julian Bu

form instead of substance

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