49. Absurd
899 words (4-minute read)
Leonardo da Vinci was insatiable.
In his 2017 biography, Walter Isaacson describes how Leonardo da Vinci (1452-1519) explored the deeper levels of his art:
“As a young painter in Florence, Leonardo studied anatomy primarily to improve his art. His forerunner as an artist-engineer, Leon Battista Alberti, had written that anatomical study was essential for an artist because properly depicting people and animals requires beginning with an understanding of their insides. ‘Isolate each bone of the animal, on this add its muscles, then clothe all of it with its flesh,’ he wrote in On Painting, which became a bible for Leonardo. ‘Before dressing a man we first draw him nude, then we enfold him in draperies. So in painting the nude, we place first his bones and muscles which we then cover with flesh so that it is not difficult to understand where each muscle is beneath.’ Leonardo embraced the advice with an enthusiasm that any other artist, or for that matter most anatomists, would have found unimaginable. And in his notebooks he preached the same sermon: ‘It is necessary for a painter to be a good anatomist, so that he may be able to design the naked parts of the human frame and know the anatomy of the sinews, nerves, bones, and muscles.’ Following another part of Alberti’s creed, Leonardo wanted to know how psychological emotions led to physical motions. As a result, he would also become interested in the way the nervous system works and how optical impressions are processed.” (212-213)
Leonardo’s goal was to capture motion in a painting.
To capture motion, he could have just observed a clothed man walking and painted what he saw. But of course, it wasn’t that simple. Because he was Leonardo.
He wanted to understand psychology because motion can stem from emotion.
He wanted to understand nerves because they control and coordinate movement.
He wanted to understand anatomy because the internal structure of a man determines his external movement.
He did not begin to think about adding clothes (or even flesh) until he had understood and depicted everything underneath. He was relentless in pursuing an understanding of motion so that he could depict it well.
We only see charts.
The investor’s goal is to capture returns.
To capture returns, we can’t stop at the surface. We need to understand what’s happening underneath. Surface-level investing is looking at a stock performance chart and making an investment decision based on a line. A chart is the clothed man. Investments are built like Leonardo’s subjects—they have flesh, bones, muscles, nerves, and psychology behind the draperies.
A stock is just clothing—what matters is what’s underneath it.
Individual muscles and bones work together to drive the movement of the clothed man. A stock is a company that generates profits from revenue streams. The value of its products and services will drive the value of the company.
The nervous system controls and coordinates movement throughout the body. A company’s corporate structure and governance coordinates its various moving parts to achieve profitability.
The motion of the body can come from our psychology. Our personalities can dictate our physical rhythm. Our bodies follow the intentions of the mind. Mission, vision, strategy, and values drive the company in a certain direction. Our emotions can influence our posture. On a happy day, we might be skipping around with joy. On a sad day, we might lay down and do nothing. A company is a collection of people. When they are happy, they are likely to produce strong results for the company. When they aren’t, they can hurt the company.
External factors (like wind or light) can affect Leonardo’s depiction of the clothed man without impacting the real driver of his motion—the body. Macroeconomic factors (like corporate taxes, political environment, regulatory shifts, or interest rates) can heavily influence the value of a security over the course of economic cycles. But they aren’t actually at the core of what moves the body—the underlying products or services.
Investment vehicles (like ETFs or mutual funds) add more layers of clothing. Every ETF is a basket of securities (e.g. stocks or bonds). Securities represent companies. Companies produce revenue by offering products and services. Products are backed by design, strategy, advertising, manufacturing, supply chains, and plenty more. All of these mechanics work together to produce earnings (and returns).
If you think it’s overkill to understand the inner workings of a company in order to make investment decisions about broader vehicles like ETFs, let’s look at one of the most popular ETFs out there—the Vanguard S&P 500 ETF (VOO). VOO’s top ten holdings account for 28% of total net assets. Its top four holdings account for 19.2% of assets—meaning just four companies influence a fifth of investment returns from VOO (a.k.a. “the market”).
An ETF is clothing.
Invest like Leonardo.
If Leonardo were an investor today, he’d study product design, corporate strategy, chemical properties, computer science, RF technology, physics, manufacturing tools and processes, logistics infrastructure, fashion trends, consumer psychology, and everything else under the sun—not stock charts.
It’s sort of absurd to think that investing would require pursuing an understanding of so many different fields.
Leonardo was absurd.
P.S. If you want a (used) copy of Isaacson’s biography, shoot me an email and I’ll mail it to you (first come, first served—if you don’t hear back from me, someone else got to it first.)
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I’d love to hear your thoughts and stories. If you have anything to share, or if there are any topics you’d like to hear more about, please email me at tucker@prevailingwinds.co.
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