A Developing Thought - Traditional Security Analysis as Scholastic Philosophy

In the same way traditional security analysis sought to justify rationally, ie. put a structure around, what the marketplace already accepted so Scholasticism sought to justify rationally what the church had already accepted.

The main schools of thought during the scholastic period were universalia ante rem (essence precedes existence) and universalia post rem (existence precedes essence) arguing over what came first or what comes first, essence or existence. The same can be applied to security analysis with regard to whether fundamental value comes first or market price comes first.

In the ethical/moral realm scholastics guiding light was summum bonum (absolute good) as the yard stick for devining whether something was good (a relative value basis). In security analysis there is the implied belief that there is some fundamental/intrinsic value based upon some as yet unknown future set of cash flows discounted at an appropriate rate that equals an assets true value (absolute value) which can then be compared to its current market price to determine whether it is undervalued or overvalued.

This is still a developing thought, but one I hope to explore a little more in the future.

Likewise, modern finance (Modern Portfolio Theory, Efficient Markets, CAPM) may be equated with the philosophy trends of the enlightenment (especially Hume's rationalism), and recent developments in finance practice (HFT, quantification, algos) may be equated with quantum physics or existentialism.