Please note that for the purposes of this analysis, I use the Walter Kaufman translation of Nietzsche’s The Birth of Tragedy, as found in “Basic Writings of Nietzsche”.
The Birth of Tragedy (German: Die Geburt der Tragödie) is an 1872 work of dramatic theory by the German philosopher Friedrich Nietzsche. It was Nietzsche’s first major published work, and one that he would later systematically criticize in 1886, stating that it was “an impossible book: I consider it badly written, ponderous, embarrassing, image-mad…” (Attempt at Self-Criticism, The Birth of Tragedy). Despite Nietzsche’s own criticism, scholars and Nietzsche alike acknowledge that it was a “proven book, I mean one that in any case satisfied ‘the best minds of the time’” (ibid.). In The Birth of Tragedy, Nietzsche, originally educated as a philologist, discusses the history of the Greek tragedy and introduces an intellectual dichotomy between the Dionysian and the Apollonian as dialectically opposed worldviews. Nietzsche claimed that life always involves a struggle between these two elements, each battling for control over the existence of humanity. In regards to investors today, I argue that the Apollonian and the Dionysian represent the duality that investing is either a science or an art; though I must note that this connection is slightly abstracted from Nietzsche’s original use of the terms. In other terms, as investors we try to be the most rational and scientific as possible, but we must face up to the realities of the Dionysian-artistic side of investing if we are to be truly successful at it, for the world is not perfectly intelligible and we never have perfect information.
Nietzsche begins this work by setting Apollo and Dionysus as two opposing elements, a duality which serves as a metaphor for the artistic process. Apollo, the Greek god of reason and light, and Dionysus, the Greek god of irrational and chaos, are symbols of this duality, which he elucidates in terms “separate art world of dreams and intoxication” (Section 1, The Birth of Tragedy); within this the duality, dreams, being the Apollonian, and intoxication, being the Dionysian, are isolated. Nietzsche asserts that everything that we see around us is appearance, as it is only a veil behind which lies true reality, as he states that “Philosophical men even have a presentiment that the reality in which we live and have our being is also mere appearance, and that another, quite different reality lies beneath it” (Section 1). All art, therefore, is the manifestation of a worldview by which the artist perceives the underlying reality. For investors, the scientific worldview is represented by the Apollonian and the artistic worldview is represented by the Dionysian, by analogy. In this analogy, the issue of this dialectic is that truth of financial markets cannot be found in either the Apollonian or the Dionysian alone, there is a mysterious underlying and pervading truth.
The Apollonian, according to Nietzsche, is found in dreams (for the artist), which represent the realm of beautiful forms and symbols, an orderly place of light and appearance. Of the Apollonian, Nietzsche writes:
“Apollo, as an ethical deity, exacts measure of his disciples, and, to be able to maintain it, he requires self-knowledge… there occurs the demands “know thyself” and “nothing in excess”; consequently overweening pride and excess are regarded as the truly hostile demons of the non-Apollonian sphere” (Section 4).
The two main precepts of Apollo were “know thyself” and “nothing in excess.” The ultimate irony for this, as Nietzsche believed, was that if one truly knew himself, the Apollonian Greek would have had to look within himself and see the Dionysian suffering at his core. Nietzsche writes, “despite all its beauty and moderation, his entire existence rested on a hidden substratum of suffering and of knowledge, revealed to him by the Dionysian” (Section 4). In terms of investing as art or science, the scientific investor, if he were to truly adhere to the Apollonian precepts, would inevitably have to face the truth of reality; namely that investing cannot be reduce to formula, despite his attempts. Similarly, academics have tried and continue to try to reduce market phenomena to ‘intelligible’ mathematics. No matter how many three-factor, five-factor or n-factor risk models they spew, they have never been able to sufficiently account nor explain why value investing continues to outperform; but if it were truly riskier as they claim, then why does it continue to outperform? Shouldn’t risk erode return if markets were actually perfectly efficient?
The problem of the Apollonian worldview is its demands to make an inherently unintelligible reality intelligible. Nietzsche says that Socrates is the blame for the death of Greek tragedy. Nietzsche ascribes Socrates as having distorted the Apollonian into an “aesthetic Socratism, whose supreme law reads roughly as follows, ‘To be beautiful everything must be intelligible,’ as the counterpart to the Socratic dictum, ‘Knowledge is virtue’” (Section 12). The error is that in the crusade to make everything intelligible, “The Apollonian tendency has withdrawn into the cocoon of logical schematism” (Section 14). Nietzsche refers to this new Apollonian-Socratic individual as the ‘theoretical man.’ This new man that emerged from Socrates’ lust for knowledge, and as such the theoretical man strives uncover reality, attacking appearances with his logic and unflagging faith in the power of the human mind to discover truth. Nietzsche states this as he writes:
“Wherever Socratism turns its searching eyes it sees lack of insight and the power of illusion; and from this lack it infers the essential perversity and reprehensibility of what exists. Basing himself on this point, Socrates conceives it to be his duty to correct existence: all alone, with an expression of irreverence and superiority, as the precursor of an altogether different culture, art, and morality, he enters the world, to touch whose very hem would give us the greatest happiness” (Section 13).
Nietzsche argues that the theoretical man suffers under the profound Socratic illusion that thinking can reach to the depths of being and modify it. The theoretical man strives to make existence seem intelligible, and thus justified because for him, knowledge is virtue. Therefore, the theoretical man asserts that no part of the universe can hold its secrets in the face of his scrutiny, and there is nothing that is fundamentally beyond his logical understanding. For Nietzsche and investors alike, the ability of the theoretical man is obviously far more limited than his dreams.
Nietzsche believed that the Apollonian and the Dionysian ought to exist in a dialectical balance, but when the Apollonian, supercharged by Socraticism, tries to dispose of the Dionysian, which is a fallacy in itself. He writes:
“The voice of the Socratic dream vision is the only sign of any misgivings about the limits of logic: Perhaps – thus he might have asked himself – what is not intelligible to me is not necessarily unintelligent? Perhaps there is a realm of wisdom from which the logician is exiled? Perhaps art is even a necessary correlative of, and supplement for science?” (Section 14)
This concept of the theoretical man is an anathema to Nietzsche, as it suppresses intuition and denies the existence of phenomena beyond individual man’s reach. Nietzsche says that because of the hostility toward the truth of reality, the theoretical man is anti-Dionysian. He writes that “The effects wrought by the Dionysian also seemed “titanic” and “barbaric” to the Apollonian Greek” (Section 4). However, Nietzsche argues that in reality, it is only the Apollonian veil that hides the Dionysian world from the Apollonian Greek. The Dionysian world is all around him, but it is shrouded in glowing beauty that the Greeks in their miserable existence felt necessary to drape around themselves. Nietzsche writes that the theoretical man represents a “womanish flight from seriousness and terror, this craven satisfaction with easy enjoyment” (Section 11). This glowing beauty is both comforting and limiting, and Dionysus mercilessly tears it aside so that we may confront our own primordial natures. Similarly, investors and academics who fall behind a false shield of mathematics find comfort in their numbers and bliss in their intentional ignorance. For if they truly adhered to the original Apollonian principle of ‘know thyself’ they would realize the limits of their logic, and thus acknowledge the presence of the Dionysian.
The Dionysian is the dialectically opposite force to the Apollonian, it is predicated on irrationality, chaos, unintelligibility and instinct. The Dionysian recognizes the brutal truth of reality and embraces in it. In this way, Nietzsche argues that the Dionysian element was what allowed the Greeks to find beauty in tragedy as an art, which is representative of reality as a whole. Whereas Apollo represents the state of ‘measured restraint,’ in which man remains separate from the emotions and illusions that buffet him, Dionysus represents the breakdown of those walls. In Nietzsche’s analysis, the Dionysian represents the negation of the Apollonian. Dionysus enters the field when reason fails, not the other way around. Nietzsche writes that “the Dionysian, as artistic energies which burst forth from the nature herself, without the meditation of the human artist” (Section 2). Because reality exists outside of our will, the Dionysian, which revels in the truth of reality, bursts forth without regard to the artist or investor. For the investor, the Dionysian represents the non-formulable elements of investing and collective human behavior (in financial markets) at large. Thus, instinct is the primordial nature that the Dionysian-artistic investor must come to acknowledge.
Dionysus and Apollo are paradoxically interdependent, despite their mutual opposition. The ongoing battle between the Apollonian and the Dionysian impulses does not result in a static middle ground, but in a constant push and pull. In some places, Dionysus was triumphant, in others, Apollo. Yet, one should not exists without the other, for they are more beautiful together then when the one of the two dominates. Nietzsche writes:
“Through Apollo and Dionysus, the two art deities of the Greeks, we come to recognize that in the Greek world there existed a tremendous opposition, in origin and aims, between the Apollonian art of sculpture, and the nonimagistic, Dionysian art of music. These two different tendencies run parallel to each other, for the most part openly at variance; they continually incite each other to new and more powerful births, which perpetuate antagonism” (Section 1).
Their perpetual strife is resolved in order to make the highest art. And, while their differences may be destructive, they are also necessary to the process. In markets there are forces of order and disorder, they are coupled forces that oppose each other, create antagonism, and are born from each other. Yet one cannot exist without the other for that is the truth of reality, according to Nietzsche. Man can only find salvation in Dionysus, but he requires Apollo to reveal the essence of Dionysus through his appearances. For Nietzsche, art admits the universal suffering, the Dionysian-artist accepts it and assumes it, but transfigures it in the affirmation, in saying Yes to life. Therefore beauty is found in tragedy, just as investment success is found in ambiguity.
While this may seem abstract for most readers today, the core essence of Nietzsche’s argument here is nevertheless still apparent today. Seth Klarman shares a similar opinion in its essence. In response to a questions of whether investing was an art or science in a 2008 interview, Klarman said:
“I would say art first and foremost, craft second, science third. To me, the science of valuing things and of identifying when things sell at a discount is as straightforward as could be. It’s almost a commodity these days; when you hire business school kids, they all know how to do that. There are nuances and places they might make mistakes, but I think that’s the easiest part, albeit for a layperson it might seem like the hardest part” (Seth Klarman, Interview 2008)
Klarman is apt to point out that financial analysis concepts and formula are commoditized and imperfect. Good investors are the ones who understand and embrace that the world is not perfectly intelligible and that we never have perfect information. Thus, Dionysian-instinct, which is partially derived from experience and one’s temperament, must be used to help guide our application of these Apollonian-scientific principles in order to determine and evaluate investment opportunities. The Dionysian-artistic worldview is dialectically opposite to the principles of the Apollonian-scientific worldview in that it affirms the unintelligibility that the Apollonian-scientific seeks to understand and rectify. However, while they are diametrically opposed in principle, they are parallel in application for the investor. That is to say, the prudent investor ought to recognize that both elements are needed together to progress and comprehend reality as best as possible. The truth is that investing cannot just be formula nor just instinct or random. Rather, what makes investing in principle both possible and beautiful is when the Apollonian and the Dionysian elements work together, then investment success will follow.