Please note that for the purposes of this analysis, I use the Maudemarie Clark and Alan J. Swensen translation of Nietzsche’s On the Genealogy of Morality. I use the notation (X:N) to cite passages, where X refers to the essay number and N refers to the chapter.
On the Genealogy of Morality (German: Zur Genealogie der Moral) is an 1887 book by German philosopher Friedrich Nietzsche. It consists of a preface and three interrelated essays that trace episodes in the evolution of moral concepts with a view to undermining moral prejudices, specifically those of Christianity and Judaism. Many scholars consider the Genealogy to be Nietzsche’s masterpiece, though Nietzsche himself reserved that distinction for his Thus Spoke Zarathustra. Since publication, it has significantly influenced many authors – including Bataille, Camus, Deleuze, Derrida, Foucault, Freud, Heidegger, and Sartre, among many others – confirming it as a work of sheer brilliance and power. In the First Treatise Nietzsche created a genealogy of morality by tracing how our modern morality – that of slave morality – overcame the morality of antiquity – that of the noble morality – by the inversion common language of the word ‘good’. I argue that the slave morality is akin to the speculative, short-term, Wall Street oriented, herd mentality that is predominant in financial markets today. Moreover, I claim that the noble morality resembles the prudent investing mentality in the tradition of Ben Graham. Like Nietzsche, I will try to trace the genealogical lineage of ‘investing’ – albeit briefly – to identify how the speculative morality has infected and distorted what it means to be truly and investor in the original sense of the word. Most important for Nietzsche was not to just delineate origins, rather by demythologizing origins we are able to revalue the values associated with them; in this spirit I argue that the perversion of the ‘investing’ has been and remains a most pernicious process.
Before I begin my analysis, a short clarifying remark is in order. Among mainstream sources, Nietzsche is often misrepresented an anti-Semite and a predecessor to Nazism. However, this is not accurate. In fact, Nietzsche heavily criticized anti-Semitism, pan-Germanism, and nationalism. He broke with his editor in 1886 because of his opposition to his editor’s anti-Semitic stances, and his rupture with long-time friend Richard Wagner had much to do with Wagner’s endorsement of pan-Germanism and anti-Semitism – as well as his rallying to Christianity. If anything, Nietzsche was an anti-[anti-Semite] and a ‘good European’ – a term he used to describe himself after he renounced his ties to the German state. One of Nietzsche’s favorite books was in fact the Old Testament. Nietzsche was no doubt an unabashed atheist, though he could be described as spiritual in his own way. Thus, when Nietzsche discusses Judaism in the Genealogy, it is not out of anti-Semitism. Rather, Nietzsche praised the Jewish people for their ability to create new values, though he had certain qualms about the content of these values as applied universally and across time.
Prior to Nietzsche, intellectuals assumed that terms like ‘good’ originated to describe a certain set of characteristics. Instead, Nietzsche noticed that words’ meanings change over time; what meaning they possess today does not indicate what they originally meant to describe. As Nietzsche stated, “the judgement ‘good’ does not stem from those to whom ‘goodness’ is rendered!” (I:2). Nietzsche was trained as a classical philologist, and as such he was intimately familiar with the ancient Greek texts, especially Homer. He noticed that the Greeks had a very different morality than that of the Judeo-Christian tradition. There was only a distinction between good and bad, not good and evil; and what was ‘good’ in Greco-Romans mortality differed from what was deemed Judeo-Christian tradition. In capital markets, there are two distinct moralities, that of investing and that of speculating. Investors make distinctions between prudent investment opportunities and those of speculation – which is to say they begin with return of capital before looking at return on capital. Speculators make distinctions not in terms of upside and downside, they think only of returns on capital.
Nietzsche’s genealogical account began with a hint from language. Noting the different morality of the Greco-Romans, Nietzsche noticed how etymological connections created a genealogical roadmap back in time to the origins of morality. Nietzsche noticed that in the German language, good and bad originated from ““‘the good’ themselves, that is the noble, the powerful, higher-ranking, and high-minded who felt and ranked themselves and their doings as good, which is to say, as of the first rank, in contrast to everything base, low-minded, common, and vulgar” (I:2). As Nietzsche wrote:
“The pointer to the right path was given to me by the question: what do the terms coined for ‘good’ in the various languages actually mean from an etymological viewpoint? Here I found that they all lead back to the same conceptual transformation – that everywhere the basic concept is ‘noble,’ ‘aristocratic’ in the sense related to the estates, out of which ‘good’ in the sense of ‘noble of soul,’ ‘high-natured of soul,’ ‘privileged of soul’ necessarily develops: a development that always runs parallel to that other one which makes ‘common,’ ‘vulgar,’ ‘base’ pass over finally into the concept ‘bad.’ The most eloquent example of the latter is the German word ‘schlecht’ [bad] itself: which is identical with ‘schlicht’ [plain, simple] – compare ‘schlechtweg,’ ‘schlechterdings’ [simply or downright] – and originally designated the plain, the common man, as yet without a suspecting sideward glance, simply in opposition to the noble one” (I:4).
Nietzsche discovered that those who were noble designated themselves as good, which became a term to describe the characteristics of what it means to be noble. From there, bad was a term invented by the noble to describe everything that was not noble; namely that of the common, vulgar, and base. Similarly, if one were to look historically at the term ‘investing’ one would find that it’s meaning as ‘use money to produce profit’ first attested 16th C.E. in connection with the European trade companies, and was probably a borrowing of Italian investire (13th C.E.) from the same Latin root, via the notion of giving one’s capital a new form. ‘Speculating’, on the other hand, was a reactionary term meaning ‘to invest money upon risk for the sake of profit’ or ‘buying and selling in search of profit from rise and fall of market value’ was first recorded in the 18th C.E in connection to land and resource enterprises in the New World. ‘Speculating’ originated in contrast to the principles of ‘investing’, and as discrete terms that denoted separate actions they could coexist. “Outright speculation”, as Ben Graham aptly said, “is neither illegal, immoral, nor (for most people) fattening to the pocketbook. More than that, some speculation is necessary and unavoidable, for in many common-stock situations there are substantial possibilities of both profit and loss and the risks therein must be assumed by someone” (The Intelligent Investor, p.21). The problem arises when speculation is not outright, when it acts under the guise of investing. Indeed, today most investors’ actions are merely speculations in the original sense of the term. This presents a great danger for investors, for the term ‘investing’ is merely a hollow shell and no longer holds much meaning. Words no longer distinguish investments from speculations. I will explain shortly how this development came to be.
For Nietzsche, the noble morality of antiquity was one of self-affirmation and strength. Nietzsche believed that noble morality was one founded on its own principles, after which it created a set of a term ‘bad’ to designate what they were not. As Nietzsche stated, “of the case of the noble one, who conceives the basic concept ‘good’ in advance and spontaneously, starting from himself that is, and from there first creates for himself an idea of ‘bad’” (I:11). In other words, the noble morality was a healthy morality that started from within itself and confirmed those positive traits by designating them as ‘good’. Looking from himself toward others, the noble honored the ones like him, the strong and reliable. From there, the noble holds in contempt everything which he is not; vulgar, unreliable, and weak. Of the noble values, Nietzsche writes:
“The knightly-aristocratic value judgments have as their presupposition a powerful physicality, a blossoming, rich, even overflowing health, together with that which is required for its preservation: war, adventure, the hunt, dance, athletic contests, and in general everything which includes strong, free, cheerful-hearted activity” (I:7).
The noble morality is a strong and rich morality. It affirms the character and the actions essential to the noble. The investing morality is similar. Investing as a word originated to connote the values of prudence, patience, and discipline in the act of deploying capital. Investing thus began as a term of businessmen, where profits were re-deployed into the business venture as a store of value and with the possibility of future value creation. From investing arose its opposite, every form of capital deployment that emerged that was not prudent, patient, nor disciplined – that of speculating, which was driven by the two powerful emotions of fear and greed.
Having established the origin of the noble morality, Nietzsche analyzed the emergence of the slave morality. Nietzsche looked at ancient Judea, when it was oppressed by the Romans and their noble morality, as the birthplace of the slave morality. This morality was predicated as a reaction to the noble morality, a one which sought to deny the nobles their right to valuation. This development was a critical turning point in world history for Nietzsche. As he writes:
“the Jews, that priestly people who in the end were only able to obtain satisfaction from their enemies and conquerors through a radical revaluation of their values, that is, through an act of spiritual revenge… It was the Jews who in opposition to the aristocratic value equation (good = noble = powerful = beautiful = happy = beloved of God) dared its inversion, with fear-inspiring consistency, and it held it with the teeth of the most unfathomable hate (the hate of powerlessness), namely: ‘the miserable alone are the good; the poor, powerless, lowly alone are the good; the suffering, deprived, sick, ugly are also the only pious, the only blessed in God, for them alone is there blessedness – whereas you, you noble and powerful ones, you are in all eternity the evil, the cruel, the lustful, the insatiable, the godless, you will eternally be the wretched, accursed, the damned!’” (I:7).
Nietzsche saw ancient Judea an oppressed but intelligent society. Since the Jewish people lacked the armaments and military strength to overthrow their Roman conquerors, he believed they did the next best thing possible: they took spiritual revenge on the Romans. Through their moral revaluations, ‘good’ no longer meant ‘noble’ but ‘beloved by God’ – and it was none other than those of Judea who were God’s chosen people. Instead of ‘bad’ – which the nobles used to hold those not like them in contempt – they invented a new term, that of ‘evil’. Instead of holding the nobles in contempt, the nobles were deemed ‘evil’ as a way to spiritually punish and condemn them for what they do not do with arms and might. For investors, the spiritual revenge was that of the speculators, who could do nothing more to invert the meaning of ‘investing’.
Nietzsche argues that the motivation and means by which these moralities developed was fundamental to the types of values these moralities created. While the nobles created self-affirming values from themselves and those like them, the slave revolt occurred out of ressentiment (a French term that Nietzsche borrowed, akin – but not exactly – to resentment). Nietzsche writes:
“The slave revolt being when ressentiment itself becomes creative and gives birth to values: the ressentiment of being denied the true reaction, that of the deed, who recover their losses only through an imaginary revenge. Whereas all noble morality grows out of a triumphant yes-saying to oneself, from the outset slave morality says ‘no’ to an ‘outside,’ to a ‘different,’ to a ‘not-self’” (I:10).
Those who were apart of the slave morality were oppressed – and thus not noble – because they were not physically mighty in strength and arms to overthrow their oppressors. Thus, by revaluing their values they acted out of ressentiment, that is, out of hatred. Instead of self-affirming their own values, they denied the characteristics of the nobles and then affirmed themselves post hoc. As Nietzsche continues:
“to the very nature of ressentiment: in order to come into being, slave-morality always need as opposite and external world; it needs, psychologically speaking, external stimuli in order to be able to act at all – its action is, from the ground up, reaction. The reverse is the case with the noble manner of valuation: it acts and grows spontaneously, it seeks out an opposite only in order to say ‘yes’ to itself still more gratefully and more jubilantly – its negative concept ‘low’ ‘common’ ‘bad’ is only an after-birth, a pale contrast-image in relation to its positive basic concept” (I:10).
The slave morality is a fundamentally insecure mentality as it a self-denying mentality. It requires an external stimuli to react against, whereas the noble morality is self-affirming because it says ‘yes’ to itself, to the essential characteristics and actions which makes it noble. The investing mentality is akin to the noble morality in this respect. The investing mentality affirms those traits which it is; prudent, patient, and disciplined. It holds speculation in contempt, but it can still say ‘yes’ to itself and its principles in the absence of all others. Though the investor honors those like them, they are comfortable with themselves as such as they do not seek strength in numbers, not even amongst their own kind. However, the speculator is from the ground up reactionary. As Nietzsche says,“While the noble human being lives with himself in confidence and openness… the human being of ressentiment is neither sincere, nor naïve, nor honest and frank with himself” (I:10). Speculators do not have principles, instead they look to exogenous sources guidance and latch onto whatever drives their emotions of fear and greed the most. On the slave morality, as Nietzsche says, “to make use of my language, it is the herd instinct” (I:2).
The development of speculators is similar to that of the slave revolt. Instead of affirming their own characteristics – that of the herd mentality and of greed and fear – they sought to deny the characteristics of the investors. How did they do this? They did this by revaluing the word ‘investing’. During the booming of the 1920s, everyone thought that they were an investor because the glutinous paper-wealth created by a complete disconnect of fundamentals. However, following the meteoric crash in the Great Depression, speculators – be there many – quickly fell out of favor. During the bull markets of the 1950s and 1960s, the rejuvenated speculators sought to avoid the stigma of the term ‘speculator’ by misappropriating the term ‘investor’ for themselves. These speculators did not adapt to the principles of investing proper, thus the investors found the need to differentiate themselves from the speculators to preserve their values; thus the pedantically, redundant term ‘value investor’ came to be.
The development of the slave morality was not in itself a significant event; rather it was its triumph over the noble morality that marked the turning point of world history. Through the death of the Jesus of Nazareth, the Judeo-Christian ideal triumphed over the Romans. As Nietzsche writes:
“Has not Israel reached the final goal of its sublime desire for revenge precisely via the detour of this ‘Redeemer,’ this apparent adversary and dissolver of Israel? Does it not belong to the secret black art of a truly great politics of revenge, of a far-seeing subterranean, slow-working and pre-calculating revenge, that Israel itself, before all the world, should deny as its mortal enemy and nail to the cross the actual tool of its revenge, so that ‘all the world,’ namely all the opponents of Israel, could take precisely this bait without thinking twice? And, out of all sophistication of the spirit, could one think up any more dangerous bait? Something that in its enticing, intoxicating, anesthetizing, destructive power might equal that symbol of the ‘holy cross,’ that gruesome paradox of a ‘god on the cross,’ that mystery of an inconceivable, final, extreme cruelty and self-crucifixion of God for the salvation of man?” (I:8).
In the Greco-Roman noble morality of ‘good and bad’, there was no conception of guilt, there was only shame. What Nietzsche called the genius of the Jewish people was to make the Romans feel guilt for the death of Jesus, for killing the son of God, who was himself God. By feeling guilt, the Roman’s moral system decayed as the slave morality became more infectious in Roman society as it made them soft and contempt, according to Nietzsche. What was the equivalent turning point for investors? The point at which the word ‘investing’ became so thoroughly maimed and mangled – when he killed it. Who? Buffett. Yes – Buffett killed ‘value investing’.
In Margin of Safety, Seth Klarman tells investors to “Beware of Value Pretenders” (Margin of Safety, p.114). Just as the speculators took spiritual revenge on prudent investors by misappropriating the term ‘investing’ for themselves, the true stroke of genius was when one of our own – one who was supposed to be our greatest – killed ‘value investing’ from the inside. As Klarman notes:
“‘Value investing’ is one of the most overused and inconsistently applied terms in the investment business. A broad range of strategies make use of value investing as a pseudonym. Many have little or nothing to do with the philosophy of investing originally espoused by Graham. The misuse of the value label accelerated in the mid-1980s in the wake of increasing publicity given to the long-term successes of true value investors such as Buffett at Berkshire Hathaway, Inc., Michael Price and the late Max L. Heine at Mutual Series Fund, Inc., and William Ruane and Richard Cunniff at the Sequoia Fund, Inc., among others. Their results attracted a great many ‘value pretenders,’ investment chameleons who frequently change strategies in order to attract funds to manage.” (Margin of Safety, p.114).
Here is where I depart from Klarman, or rather, say what he could not. Buffett, no doubt, has created a wealth of knowledge for investors. But for what he gave, he also took away. Out of his pity, he tried to save common man from outright speculation by simplifying the principles of value investing. With his Buffettisms of “It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price” and “When we own portions of outstanding businesses with outstanding managements, our favorite holding period is forever”, he perverted the Graham and Dodd principles by redefining value in terms of the business quality, rather than the margin of safety. Contrast this definition to that provided by Ben Graham, who in his magnum opus, Security Analysis, provided one of the truest and most enduring definitions: “An investment operation is one which, upon thorough analysis, promises safety of principal and a satisfactory return. Operations not meeting these requirements are speculative” (Security Analysis, p.106). Not only did Buffett undermine the discipline and hard work required to invest prudently, he made value investing seem so simple that he opened the floodgates to all forms of speculation under the guise of value investing. Soon growth at a reasonable price, wide-moat investing, buy and hold, and all the other forms of disguised speculation all misappropriated the term ‘value investing’ for their own. The margin of safety was no longer defined by the relationship between price and conservatively estimated intrinsic value, but was now defined by growth, moats (which is just another guise for growth), and elongated duration (the least overt of the euphemisms for growth). As Klarman writes:
“These value pretenders are not true value investors, disciplined craftspeople who understand and accept the wisdom of the value approach. Rather they are charlatans who violate the conservative dictates of value investing, using inflated business valuations, overpaying for securities, and failing to achieve a margin of safety for their clients” (Margin of Safety, p.114).
Before Buffett, ‘value investing’ still meant something. It represented a tradition; a long heritage of refined prudence and philosophical thought that was as much an imperative for a way of being as much as it was a respectable profession. Once Buffett opened the floodgates to all forms to speculation, the heritage of value investing died with the term. Now value investing has been so far reduced it is considered as merely a ‘strategy’ – as if it is something that can be easily replicated and deployed at will – for most ‘finance professionals’ and ‘asset managers’. The term ‘investor’ died out as much as ‘investing’ became hollow and meaningless. Now there are only ‘finance professionals’ and ‘asset managers’ – amalgamations of terms that are as equally nondescript as their ‘cinvestment’ philosophies. Managing assets is hardly investing these days. Indeed, almost no one invests in the true sense of the word, people only ‘manage assets’; there are no shepherds to guide, only sheepdogs chasing their tails, in the process mindlessly herding sheep from one pasture to the next!
In the genealogy of investing, the term has undergone many transformations. It has gone from ‘investing’ to ‘value investing’, which remains today a stretched-out, hollow, and porous term. With the death of ‘value investing’, those few who remain true to the Graham principles have come up with a new term in order to remain differentiated; an even more pedantic and redundant term – that of ‘deep value investing’. Once this term has been perverted, what is next? Is a return to the original even possible? As Nietzsche says:
“Let us conclude The two opposed values ‘good and bad,’ ‘good and evil,’ have fought a terrible millennia-long battle on earth; and as certainly as the second value has had the upper hand for a long time, even so there is still not shortage of places where the battle does on, undecided… ‘Rome against Judea, Judea against Rome’ – so far there has been no greater event than this battle, this formulation of the problem, this mortally hostile contradiction” (I:16).
As Nietzsche states, there is no greater contradiction between the noble and slave moralities. Similarly, there is no greater contradiction between investing and speculating. Yet, in both cases the reactionary morality – the weaker and petty morality – has infected and inverted the values of the noble morality. How was such a contradiction allowed? How has it been sustained thus far? Who will win? Who has won? To this latter question, Nietzsche answers: “Which of them has been victorious in the meantime, Rome or Judea? But there is no doubt at all: just consider before whom one bows today in Rome itself” (I:16). One does not bow before nobles or the ancestors, in their place stands the Vatican. In terms of investors, Klarman tells us:
“Even today many of the value pretenders have not been defrocked of their value-investor mantle. There were many articles in financial periodicals chronicling the poor investment results posted by many so-called value investors in 1990. The top of the list, needless to say, was dominated by value pretenders” (Margin of Safety, p.115).
Even today, ‘deep value investing’ is being perverted by ‘special situations groups’ and celebrity-activists. These individuals are no more than speculators with a bit of sophistication. Even if they have any prudence, it is equally matched if not surpassed by their lack of patience for they are only care for the return of capital, not the return on capital. As those few remaining investors look from the present to the future, in the words of Nietzsche, “We see today nothing that wishes to become greater, we sense that things are still going downhill, downhill – into something thinner… more mediocre, more apathetic” (I:12).