BLOG: What can Sherlock Holmes teach us about investment?

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20/01/2014
While idly flicking through some online book reviews I noticed some glowing praise by Nassim Taleb (of The Black Swan fame) for A Few Lessons From Sherlock Holmes by Peter Bevelin.
BLOG: What can Sherlock Holmes teach us about investment?

Bevelin pulls out a number of thoughts direct from Arthur Conan Doyle’s works to highlight the clarity, simplicity, and logic of Holmes’ work.

While reading this book, I was amazed at the similarities between Holmes’ approach and that of veteran investor Charlie Munger, although that emotion was rather diluted when I later discovered that Bevelin and Munger are good friends.

Bevelin is therefore probably guilty of ‘word-mining’ in searching for quotes to fit some conclusions, but that should not detract from what probably constitutes one of the more interesting and readable quasi-investment books.

The character of Sherlock Holmes was inspired by Dr Joseph Bell, a surgeon and professor of medicine at Edinburgh University who taught Doyle.

Bell believed there were ‘simple requisites’ for physicians and surgeons. They needed ‘senses to notice facts, and education and intelligence to apply them’. Bell thought that, in Holmes, Doyle had ‘created a shrewd, quick-sighted, inquisitive man…with plenty of spare time, a retentive memory, and perhaps with the best gift of all – the power of unloading the mind of all burden of trying to remember unnecessary details’.

It is impossible to do justice to the book in a monthly commentary, so instead I take six of the many themes Bevelin highlights, along with the quotes from Doyle’s work that he uses.

Multi-disciplinary approach:

“Breadth of view… is one of the essentials of our profession. The interplay of ideas and the oblique uses of knowledge are often of extraordinary interest.” (Holmes; The Valley of Fear)

Check the ‘facts’:

“This case is quite sufficiently complicated to start without the further difficulty of false information.” (Holmes; The Problem of Thor Bridge)

Never jump to conclusions:

“We approached the case…with an absolutely blank mind, which is always an advantage. We had formed no theories. We were there simply to observe and to draw inferences from our observations.“
(Holmes: The Adventure of the Cardboard Box)

Invert. Always invert:

“In solving a problem of this sort, the grand thing is to be able to reason backward. That is a very useful accomplishment, and a very easy one, but people do not practice it much. In the everyday affairs of life, it is more useful to reason forward, and so the other comes to be neglected.”
(Holmes; A Study in Scarlet)

Patience:

“I knew that seclusion and solitude were very necessary for my friend in those hours of intense mental concentration during which he weighed every particle of evidence, constructed alternative theories, balanced one against the other, and made up his mind as to which points were essential and which immaterial.”
(Dr Watson; The Hound of the Baskervilles)

Get a different view:

“If only to understanding the opposing wisdom. I am afraid, my dear Watson, that most of your conclusions were erroneous. When I said that you stimulated me I meant, to be frank, that in noting your fallacies I was occasionally guided towards the truth.” (Holmes: The Hound of the Baskervilles)

I offer no deep conclusion or great learnings from the book other than to copy Bevelin’s very last line: “You know my methods. Apply them!” (Holmes; The Hound of the Baskervilles).

Alastair Mundy is portfolio manager of the Investec Special Situations fund

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