It Can’t Be Both: It’s Either Science or Marketing

This is going to sound like it’s coming out of left field, but it isn’t.

It is somewhat related to this day in history (July 16^th).

No, it’s not that it’s the day after my birthday. It’s the anniversary of the liftoff of Apollo 11. Man’s landing on the moon should be the greatest case study of inspiration, project management, and engineering. It already stands as the greatest achievement in the history of mankind.

Think about the above paragraph as you read this column.

Now, on to the real story.

Again, it’s going to sound like I’m coming out of left field, but don’t give up. Keep reading and the dots will coalesce into a constellation that makes it all clear.

I was talking with several colleagues on a Zoom call the other day. We were talking about valuation techniques for publicly traded companies. (That would be “stocks.”) The details are not necessary for this conversation, but it’s sort of important to disclose the context of the following thoughts.

The discussion centered on factors that go into a stock’s valuation. Usually, these would primarily be accounting-based numbers. You know, something like the total worth of all plant, equipment, and inventory, cost of goods sold, net profits, that kind of thing.

It’s boring, but it tends to be fairly reliable (although not with guaranteed proficiency, which makes stock picking more of an art than a science – but that “art vs. science” dichotomy is not relevant to the issue at hand).

Among the factors we talked about were non-financial factors. I called them “marketing.” In fact, academic studies nearly two generations ago showed these factors actually hurt stock performance.

Still, some people are willing to sacrifice value just to feel good. After all, life is more than just how much money you have in the bank.

To distinguish between the “science” of accounting when it comes to valuation and the “feeling” approach people have when purchasing anything (including, sometimes, stocks), I termed this latter method one of “marketing.”

That’s when someone in the meeting politely suggested my thinking might be dated. “What was true 40 years ago may not be true today,” he said. He went on to say he knew hordes of Millennials who place a greater value on their feelings than their bank account.

In short, I was out of sync with the times. He implied the academic studies I cited no longer apply today. The world is a different place, controlled by a new generation; ergo, “past performance does not guarantee future performance.”

Aside from agreeing with the mantra of the Securities and Exchange Commission reflected in that quotation, his thinking was correct.

Yet, at the same time, it was incorrect.

Science is not an immutable edifice. It’s more like an evolving organism. The late astrophysicist Stephen Hawking once said, “Each generation stands on the shoulders of those who have gone before them, just as I did as a young PhD student in Cambridge, inspired by the work of Isaac Newton, James Clerk Maxwell and Albert Einstein.”

Science didn’t end with Aristotle. Galileo proved that.

Science didn’t end with Galileo. Newton proved that.

Science didn’t end with Newton. Einstein proved that.

Science doesn’t end with Einstein. Every day, researchers set out to prove that.

In a sense, to reveal the fraud of another popular mantra, science is never settled.

Once something becomes settled, it becomes dogma. And dogma requires faith. Keeping the faith requires persuasion, inspiration, and, ultimately, motivation.

In other words, “marketing.”

You should never view “marketing” as an evil term in of itself. It can certainly be used for evil purposes (q.v., almost any form of bullying propaganda), but it’s also critical to spread the good word (q.v., almost any form of non-violent religion).

What marketing, is most definitely not, however, is science.

Science represents hard incontrovertible facts. They are tested and they produce consistent results. Over and over the hypothesis is tested. It doesn’t matter the language, it doesn’t matter the nation, and, for that matter, it doesn’t matter the planet. You always come up with the same result.

This is why stock picking is less of a science than you might infer from all those financial numbers. It may look like all that data produces incontrovertible predictions, but it doesn’t. And many a fortune has been lost by those who believed it did.

Science does not permit such frailty.

On the other hand, science is not written in a wall of rock-solid stone. It always changes.

But, here’s the catch. Despite being constantly refined, the fundamental basis of true science remains unchallenged. That’s why, even though Einstein perfected Newton’s Laws of Motion, we still use the same simple math of Galileo’s earlier formulae to describe movement. Technically, it’s not perfect, but we don’t need to be absolutely correct down to the millionth decimal point.

Science tells us how to build a rocketship that can make it to the moon and back. This science is inarguable. Failure to adhere to that science will cause the rocket to explode on the launch pad, the satellite to fall from orbit, the lunar mission itself to fail.

That it didn’t fail stands testament to the grit, courage, and determination of the scientists, engineers, astronauts, and all the others involved in the Apollo project.

You can confidently assert the science of this accomplishment cannot be denied. Why? Because NASA used the same basic mathematics and technology to repeat the event over and over again.

NASA didn’t rely on feelings. It rested its course on the facts.

And we call this “Mankind’s greatest achievement.”

Is this last statement hard science?

No. It’s an opinion. A feeling of many, it may be right, but that doesn’t change its nature. You can’t create a hypothesis and test it. You can only assemble a series of persuasive statements and make your case.

And that’s called “marketing.”