Philosophical Assumptions of Investing
Applied Behavior Analysis (ABA) is built on core philosophical assumptions that guide how we understand and change behavior. Interestingly, these same principles can be applied to investing. Just like ABA uses data-driven methods to create meaningful change, successful investing relies on proven strategies rather than gut feelings or speculation. Let’s break it down.
Determinism: The Market Moves for a Reason
Determinism is the idea that events happen for a reason—they are not random. In investing, market movements depend on business performance, economic conditions, and even investor psychology. If people believe a company will do well, they buy its stock, driving prices up. If bad news spreads, the opposite happens. Understanding that these fluctuations have causes helps investors make informed decisions instead of seeing the market as unpredictable chaos.
Empiricism: Data Over Feelings
Empiricism emphasizes observation and measurement, and in investing, this means looking at real data instead of making decisions based on hunches. Historical trends, financial reports, and economic indicators all provide valuable insights. Just like a BCBA collects data to track progress, investors analyze evidence to make smarter financial moves.
Experimentation: Testing Strategies
Experimentation is key to both ABA and investing. When learning how to invest, you might test different strategies in a low-stakes environment—like a taxable brokerage account where you experiment with different stocks and funds. Sometimes you win, sometimes you lose, but through hands-on experience, you refine your approach and figure out what works best for your goals.
Replication: Predictability vs. Gambling
Replication means that if a strategy works once, it should work again under the same conditions. This is what separates investing from gambling. With gambling, you never know if you’ll get the same result twice—it’s purely luck. But investing, when done wisely, is based on historical patterns. The stock market has gone up over time, as shown in 150 years of data. While short-term fluctuations exist, long-term investing is a replicable strategy for building wealth.
Parsimony: Keep It Simple
Parsimony is all about simplicity over complexity. The best investors favor straightforward strategies—like buying and holding diversified index funds—rather than chasing complicated stock-picking methods or timing the market. Just like in ABA, where the simplest explanation for behavior is often the correct one, successful investing relies on time-tested fundamentals: diversification, long-term growth, and risk management.
Philosophical Doubt: Question the "Experts"
Philosophical doubt reminds us to always question what we think we know. In investing, plenty of so-called “experts” promise get-rich-quick schemes or “foolproof” stock tips. But no one can predict the market with certainty. That’s why it’s crucial to approach any investment advice with healthy skepticism and never invest money you can’t afford to lose. Keep your emergency fund safe, and don’t risk short-term savings on speculative bets.
At its core, both ABA and investing rely on data, analysis, and strategic action. Understanding these philosophical principles helps you make better financial decisions—ones based on logic rather than emotion. Whether you're shaping behavior or growing wealth, the key is to trust the process, stick to the fundamentals, and always keep learning.
