Twenty five quotes from Sherlock Holmes for traders and financial analysts:

Some very interesting ones as well. When you actually read social sciences literature from this era, it is quite amazing to see how much more knowledgeable they were then, as compared to today. We have, without a doubt, retrogressed. I stole the article from here, he stole it from somewhere else.

In some of my observations, while I highlight some of the contradictions, I’m actually fairly confident that the author was cognizant of his contradictions, but just used them for artistic effect. I’ll go through each quote individually, as they are quite remarkable.

1) We balance probabilities and choose the most likely. It is the scientific use of the imagination. (The Hound of the Baskervilles, 1902)

Interesting contradiction. “Scientific” and “imagination.” The scientific method, hypothesis, experiment, observation, constituted the methodology of positivism. The “probabilities” would not come from the scientific method, which would either confirm, or refute, the hypothesis. Rather, as is today, the probabilities would be calculated from historical facts, with the empirical data being extrapolated forward.

2) “Data! Data! Data!” he cried impatiently. “I can’t make bricks without clay.” (The Adventure of the Copper Beeches, 1892)

I have no criticisms here, save that again, the author seems to enjoy the current economic methodology espoused by the majority.

3) There is nothing more deceptive than an obvious fact. (The Boscombe Valley Mystery, 1892)

These quotes were chosen by a Fund Manager, so obviously they reflect financial market observations. The obvious “short, or long” that does completely the opposite. Well, of course, financial markets are not “facts” save in historical fact. Financial markets are “markets,” the purpose of which is price discovery. This process, is highly subjective.

4) It is a capital mistake to theorize before you have all the evidence. It biases the judgment. (A Study in Scarlet, 1887)

Theory & Hypothesis. Two terms, that today, are completely misunderstood. A theory, is composed of synthetic a priori deduction. Any inference, based on an axiom, correct in it’s logic, is a true, universal statement.

A hypothesis, is inductive. You reason from unknown causation, moving from observed outcomes backwards, to a postulated cause. The word, rather than theorize, should be hypothesize. Of course, a theory, requires no evidence, that is the domain of positivism. The classic example here would be the statement: all swans are white. True, until a Black Swan is observed. Karl Popper popularised this falsification test to empirical research.

5) It is a capital mistake to theorize before one has data. Insensibly one begins to twist facts to suit theories, instead of theories to suit facts. (A Scandal in Bohemia, 1892)

Sounds like Krugman and other Keynesian economists today.

6) It is an old maxim of mine that when you have excluded the impossible, whatever remains, however improbable, must be the truth. (The Adventure of the Beryl Coronet, 1892)

I like this one. I’m sure it has it’s roots in philosophy, but I can’t for the moment think who, or where, it originated from.

7) One should always look for a possible alternative, and provide against it. It is the first rule of criminal investigation. (The Adventure of Black Peter, 1905)

Essentially the scientific method.

8) I never guess. It is a shocking habit — destructive to the logical faculty. (The Sign of the Four, 1890)

In the context that these quotes were reproduced, viz. financial markets, it rather suggests that there is some underlying “knowledge” to the financial markets. Wrong. Financial markets are about the future. We are all guessing. Some simply guess better than others.

9) It is of the highest importance in the art of detection to be able to recognize, out of a number of facts, which are incidental and which vital. Otherwise your energy and attention must be dissipated instead of being concentrated. (The Reigate Puzzle, 1893)

Which rather complements the previous quote. Certainly valid, and relevant information, correctly analysed, may yield an increased probability…but this still results in a guess. The art of the market is not to guess rightly, or wrongly, it is to assume, and manage risk. If you guess right, you try to maximise your good luck. If you guess incorrectly, you try to minimise your losses.

10) “It is of the first importance,” he cried, “not to allow your judgment to be biased by personal qualities. A client is to me a mere unit, a factor in a problem. The emotional qualities are antagonistic to clear reasoning.” (The Sign of the Four, 1890)

Rather anticipates the formal study of “biases” that are now listed here.

11) “They say that genius is an infinite capacity for taking pains,” he remarked with a smile. “It’s a very bad definition, but it does apply to detective work.” (A Study in Scarlet, 1887)

I agree, genius, is difficult to define, and while being methodical may be a characteristic, it most certainly is not a definition. “Methodical” can be taught and leaned. Genius, just is.

I’ll continue with the rest on another day.

12) In solving a problem of this sort, the grand thing is to be able to reason backward. That is a very useful accomplishment, and a very easy one, but people do not practise it much. In the everyday affairs of life it is more useful to reason forward, and so the other comes to be neglected. There are fifty who can reason synthetically for one who can reason analytically. (A Study in Scarlet, 1887)

13) There is nothing more stimulating than a case where everything goes against you. (The Hound of the Baskervilles, 1902)

14) I consider that a man’s brain originally is like a little empty attic, and you have to stock it with such furniture as you choose. A fool takes in all the lumber of every sort that he comes across, so that the knowledge which might be useful to him gets crowded out, or at best is jumbled up with a lot of other things, so that he has a difficulty in laying his hands upon it. (A Study in Scarlet, 1887)

15) Before turning to those moral and mental aspects of the matter which present the greatest difficulties, let the inquirer begin by mastering more elementary problems. (A Study in Scarlet, 1887)

16) Life is infinitely stranger than anything which the mind of man could invent. We would not dare to conceive the things which are really mere commonplaces of existence. (A Case of Identity, 1892)

17) The little things are infinitely the most important. (A Case of Identity, 1892)

18) You know my method. It is founded upon the observation of trifles. Singularity is almost invariably a clue. The more featureless and commonplace a crime is, the more difficult it is to bring it home. (The Boscombe Valley Mystery, 1892)

19) I never make exceptions. An exception disproves the rule. (The Sign of the Four, 1890)

20) “I am glad of all details,” remarked my friend, “whether they seem to you to be relevant or not.” (The Adventure of the Copper Beeches, 1892)

21) Nothing clears up a case so much as stating it to another person. (Silver Blaze, 1893)

22) “Is there any other point to which you would wish to draw my attention?” “To the curious incident of the dog in the night-time.” “The dog did nothing in the night-time.” “That was the curious incident,” remarked Sherlock Holmes. (Silver Blaze, 1893)

23) Any truth is better than indefinite doubt. (The Yellow Face, 1893)

24) Education never ends Watson. It is a series of lessons with the greatest for the last. (The Red Circle, 1905)

25) We must look for consistency. Where there is a want of it we must suspect deception. (The Problem of Thor Bridge, 1927)

26) Bonus fact: In the stories by Conan Doyle, Holmes often remarked that his logical conclusions were “elementary”, in that he considered them to be simple and obvious. However, the complete phrase “Elementary, my dear Watson” does not appear in any of the 60 Holmes stories written by Doyle.

“You have enemies? Good. That means you’ve stood up for something, sometime in your life.” -Winston Churchill

Quote of the Day

“The best way to destroy the capitalist system is to debauch the currency. By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens.” -John Maynard Keynes

“Some men worship rank, some worship heroes, some worship power, some worship God and over these ideals they dispute, but they all worship money.” —Mark Twain

Talent hits a target no one else can hit; Genius hits a target no one else can see.

— Arthur Schopenhauer