Sci-Finance
Applying the scientific method to your financial plan
Happy Wednesday,
Judging by the replies I received, last week’s email revealed several tennis players and fans among you.
This week I want to shift gears: from the tennis court to the classroom.
Or maybe the science lab.
I read an entertaining book several years ago titled, Surely You’re Joking, Mr. Feynman.
It’s about the fascinating life of Richard Feynman.
The book contains one of my favorite quotes of all time that applies to so much:
“The first principle is that you must not fool yourself and you are the easiest person to fool.”
Feynman won a Nobel Prize in Physics in 1965.
He was also involved with the Manhattan Project.
Scan his Wikipedia page if you’d like to learn more, or read the book I linked to above.
But among all of Feynman’s accomplishments and accolades, I’d like to draw your attention to this 10-minute YouTube video where he explains the scientific method to a classroom while entertaining them along the way:
If you don’t have time to watch the full 10-minute video above, I beg you to at least watch the first 2-3 minutes.
In these first few minutes, Feynman explains the scientific method.
And he’s also explaining financial planning.
If you’ve read my writing for any length of time, some of this might sound familiar:
First, we guess
Next, we compute the implications of our guess
And then we compare our guess and our computations to our actual experience
This, at a high level, is all there is to financial planning and investing.
If you want to do it right 😉
He goes on to say,
It’s therefore not unscientific to take a guess, although many people who are not in science think it is.
Likewise, while many financial advisors, planners, and investment managers pride themselves on the certainty with which they can make recommendations about an uncertain and unknowable future, they’re all simply making guesses.
I am too.
The difference is that I acknowledge I’m making guesses.
Very few of my colleagues will make this same acknowledgement which seems reminiscent of the folks Feynman refers to in his quote above.
He goes on to discuss what’s likely vs unlikely. These are the probabilities on which we rely to compute the implications of our guesses in your financial plan.
And he touches on other topics including flying saucers, ESP, and astrology which make an almost perfect analogy to the soothsayers and prognosticators that populate much of Wall Street and the financial media.
Watch the video, hit reply, and tell me what you think.
Some other important concepts he addresses in this video:
Our guesses can’t be proven “right” - they can only be proven wrong.
Which implies - and I believe - that financial planning isn’t at all about being right or wrong. It’s about continuous improvement over time.
You cannot prove a vague guess wrong. It needs to be specific.
Just like your financial plan and its underlying goals. Specificity is important in science. And in your financial plan.
He packs quite a lot into these 10 minutes and I’d encourage you to watch all of it.
I don’t want to mislead you into thinking that specificity or precision or “science” is the linchpin to productive financial planning.
It isn’t.
It’s simply about guessing, thinking through the implications of our guesses, and making necessary adjustments based on the actual experience of living our lives.
Lather. Rinse. Repeat.
This is ongoing personal financial planning.
And apparently also the scientific method.
Links & Things
Before we wrap up this week’s email, I’d like to share a very short but thought-provoking article from Derek Sivers. This article really made me stop and think. How about you?
Thank You!
I’m grateful to have you as a reader.
If you have any questions or an idea for a future newsletter, blog post, or YouTube video, I'd love your input.
Just hit reply - I read (and truly appreciate) every email you send.
Until next Wednesday,
Russ