Valuing is the most difficult of all

 (translated from my Chinese blog)

This is my new project, “Nietzschean Philology”. In each installment, I’ll read a passage from Nietzsche’s original writings. By practicing text analysis, we can enhance our ability to understand the world.

In "We Philologists" Section 8, by raising the issue of “valuation,” Nietzsche points out the inconsistency of choosing a career as a linguist in our current era. Responding to market demands and pursuing true value are two completely opposing ways of thinking. Today, linguists (like all professionals) cannot afford to ignore the market. This goes against the very purpose of their profession. Therefore, at the end of this section, Nietzsche says, “Linguists are not the goal of linguistics.”

It is a great advantage for the true philologist that a great deal of preliminary work has been done in his science, so that he may take possession of this inheritance if he is strong enough for it--I refer to the valuation of the entire Hellenic mode of thinking. So long as philologists worked simply at details, a misunderstanding of the Greeks was the consequence. The stages of this undervaluation are · the sophists of the second century, the philologist-poets of the Renaissance, and the philologist as the teacher of the higher classes of society (Goethe, Schiller).

Valuing is the most difficult of all.

In what respect is one most fitted for this valuing?

--Not, at all events, when one is trained for philology as one is now. It should be ascertained to what extent our present means make this last object impossible.

--Thus the philologist himself is not the aim of philology.

"We Philologists" 8, Friedrich Nietzsche, translated by J. M. Kennedy 

In this passage, Nietzsche raises the issue of “valuation”. Of course, he isn’t referring to the concept of valuation as it’s used in the field of investing. However, from a modern perspective, using investment as an analogy is probably the easiest way to understand his ideas.

Investors hope to buy low and sell high. They buy when the market undervalues an asset, and sell when the market finally realizes its true value. Thus, the problem of investing is always a problem of “my valuation” versus “the market’s valuation”.

My valuation depends on the method I use. Whenever it comes to valuation methods, there’s always disagreement. Some people look at cash flows, some at price-earnings ratios, some others focus solely on technical analysis, ignoring valuation altogether. Everyone comes up with different valuation results. And if we believe that everything has a certain “true value” at any given moment, then everyone’s valuation could be either overestimated or underestimated. This leads to comparisons between different valuation methods and the accuracy of individual valuations.

Furthermore, market valuation, or market price, is essentially the aggregate result of the subjective evaluations of all market participants. However, it doesn’t necessarily reflect the true (objective) value of the asset in question. Many people believe that market prices have a “long-term tendency to return toward their true value.” In other words, they believe that, in the long run, the collective judgment of the market is generally accurate. For investors, this belief is crucial. If market prices have no relation to true value, and if the public’s evaluations can remain incorrect over time, then estimating true value becomes meaningless. You might be able to accurately determine the true value of everything, but the market will ignore your estimates. The market will continue to underestimate some things and overestimate others. As a result, trying to buy undervalued assets or sell overvalued ones will only lead to greater losses.

If there is no real value, or if the market price has no relation to the real value, then investors shouldn’t even try to determine the true value of anything. Instead, they should focus on analyzing how the market responds. In investment terms: Fundamental analysis is useless; technical analysis is king.

For Nietzsche, or for philologists, what’s being evaluated is the “Hellenic mode of thinking”. There are obviously many ways to evaluate this. Nietzsche seemed to believe that there was a correct way to do this, since “the true philologist” could “take possession of this inheritance”. But over the past two thousand years, sophists and philologists have consistently underestimated its value. The reason for this underestimation is that they “worked simply at details”. This shows that: ① Even on a thousand-year scale, Nietzsche didn’t believe in the long-term trend of value restoration. ② The root of market mistakes in long-term valuation lies in the “working simply at details”. In other words, it’s due to an excessive reliance on technical analysis at the expense of fundamental analysis, and a lack of belief in true value or its restoration. This seems to be yet another example of how macroeconomic “expectations become reality”: Value restoration doesn’t happen because people don’t believe in it.

Here lies the difference between investment and ancient studies: The success or failure of investments is always determined by the results. Thus, the fate of investors is in the hands of the market, that is, the general public. But in Nietzsche’s view, the achievements of ancient studies aren’t determined by the market or the public. Even if the market’s evaluations are wrong for two thousand years, it’s still important to correct those evaluations, even if it’s just done by one person in their own mind. This was precisely Nietzsche’s mission.

Nietzsche said that valuing is the most difficult task of all. By this, he surely meant assessing the true value of something, in contrast to predicting how the market will react to something, which is easier. If a person’s goal is to profit from the actions of the masses, then predicting market reactions is more important than assessing true value. Since Nietzsche said that valuation is the most difficult task, then, when it comes to investing, valuation is a tedious and pointless exercise. On the other hand, predicting market reactions is simple and effective. Why bother with valuation at all?

The last sentence implies Nietzsche’s answer: philologists are not the goal of philology. Could philologists possibly be a goal in itself? Only for the philologist himself—as someone who chooses to become a philologist as his lifelong pursuit and goal. Here, the focus of evaluation completely changes: How should one evaluate one’s own life? It is within the context of one’s entire life that market reactions become less important, and the issue of evaluation becomes unavoidable. In this context, issues related to investment or wealth become secondary, existing merely as one aspect of life. Since the ancient issues studied by philologists are always related to the whole of human life (“the entire Hellenic mode of thinking”), Nietzsche believed that, out of loyalty to the discipline itself, it’s necessary to emphasize the evaluation of life rather than market reactions. Nietzsche implies that all previous underestimations were due to an excessive focus on market reactions, at the expense of evaluating life properly. He deliberately emphasized that Goethe and Schiller existed “as teachers of the higher classes,” with the higher classes serving as their patrons or “market.” As for the “sophists of the second century,” they were nothing more than people who incited the masses and manipulated people for their own profit. They stood in direct opposition to Socrates who “love wisdom.”

It reminds me of an internet company I interviewed with once. They specialized in digital mobile games that tricked players into paying money. It was basically just junk games where you could become stronger by paying cash. The interviewer openly said that their main business was “digital marketing.” He said this without any hesitation. To ensure I understood, he added, “In simple terms, it’s just junk mobile games.” What “digital marketing” really means is that the company sells numbers within the games. These numbers can be changed at will in the background, according to the amount of money you pay. It’s just a way of making the system seem less complicated by using complicated calculation rules. Of course, no one really “loves numbers.” That’s why “marketing” is needed—to present these numbers as attractive items like equipment, special effects, and features, and then sell them to consumers.

Those sophists and philologists who specialize in predicting market trends are, in essence, professionals whose main business is “word marketing”. Of course, they don’t really believe in their own rhetoric about justice and equality. Just as digital marketing companies don’t value the numbers in games, words and numbers are merely tools for achieving fame and profit.

So, Nietzsche meant that contemporary philology training are also oriented toward the market, rather than toward true values. As a result, philologists fail to understand how to assess the true value of things. The last sentence seems to imply Nietzsche’s desire to break away from the role of a philologist. In this era, philologists can only gain recognition and achieve self-fulfillment by catering to market demands. This, however, goes against the true purpose of philology—the evaluation of human life. Who really cares about what ancient Greeks actually did in their lives? It’s enough to extract from their culture whatever is aesthetically pleasing, comforting, or dramatic, in order to meet the needs of the masses today. But if one wants to pursue a career that serves both personal goals and some higher purpose so as to be consistent with oneself, then being a philologist, at least according to today’s standards, is an impossible choice.

For those readers who cannot understand this without investing terminology, the translation is as follow: Investors aren’t the goal of investing. If someone wants to be consistent in both their investing and personal lives, achieving success in both areas, then they must not become a professional investor.