The term “investment science” is not in especially widespread use in the popular media or even in the investment community. Since we use it in our website and brochure, the SEC has asked us to add an insert or footnote to explain its meaning to our readers.

The term “investment science” was introduced in academia by Professor David Luenberger of Stanford University. Professor Luenberger teaches a course by that name at Stanford, and has published an acclaimed textbook with the title, “Investment Science”.  In this book, (which can be reviewed or purchased on Amazon.com) Professor Luenberger defines investment science quite simply as follows:

“Investment Science is the application of scientific principles to investments.”

In fact, in our understanding and usage of the term, “investment science” means virtually the same thing as the term “investment theory”. It indicates a rigorous analytical approach to the subject of financial economics, such as one finds in peer reviewed technical journal articles and textbooks, as opposed to typical articles found in the popular media and in investment marketing materials. Examples of such journals include the Journal of Portfolio Management, the Financial Analysts Journal, the Journal of Financial Economics and the Journal of Finance.

Many of the top researchers who practice “investment science” are professors and/or are affiliated with top universities and research institutions. Some of these whose work I have studied, include Eugene Fama, Kenneth French, Burton Malkiel, Jeremy Siegel, Clifford Asness, Robert Arnott, Robert Shiller, Roger Ibbotson, Rex Sinquefield, Roger Gibson, Peter Bernstein, Aswath Damodaran, Bruce Greenwald, Andrei Schleifer, Josef Lakonishok, Louis Chan, Richard Thaler, N. Jegadeesh, Sheridan Titman, A. Subrahmanyam, W.F.F. De Bondt, I.M.D. Little, David Dreman, Robert Haugen, Barr Rosenberg, Andrew Lo, Bradford Cornell, Robert Vishny, William Sharpe, Robert Merton, Merton Miller, Paul Samuelson, Amos Tversky and Daniel Kahneman.

Some of the landmarks in the historical development of investment science include the introduction of Modern Portfolio Theory by Harry Markowitz in the 50’s, the Capital Asset Pricing Model by William Sharpe and the Efficient Market Hypothesis by Eugene Fama and others in the 60’s, the Three Factor Model of Fama and French in the 90’s, and the evolution of Behavioral Finance starting in the 80’s and 90’s. Modern investment science includes a rich body of theories, models and empirical studies undertaken by academics and other serious researchers in the field of financial economics over the past five decades.

Before closing, we note that use of the term “investment science” should not be taken to imply that there is “scientific certainty or predictability” associated with the work of the practitioners in those fields. All scientific fields are fraught with uncertainty. A positive feature of a “scientific” approach is the use of more precise language and terminology when describing and analyzing uncertainty. A good scientific approach illuminates the nature of uncertainty; it does not eliminate it.