Market Anthropology: Flight of the Bumblebee

Monday, September 24, 2012

Flight of the Bumblebee

Arguably the greatest hedge fund manager and market philosopher of the day explains the utility of a comparative/analog market perspective:

“I don’t get caught up in the moment. I’m– I don’t– I think so many people are reactive. I think they see things in a very short-term way. They’re right up against it. If it didn’t happen in your life before– then you’re not paying attention. You don’t think it’s possible. But almost all important events never happened in your life before.And– so I, you know, from my time, you know– monetary system breakdown, 1971, it never happened before. The oil…didn’t happen before. This bank didn’t happen before. So I think it’s, you know, when I’m looking at it, I think these things sort of keep happening over and over again. And then I have this template. So I and then I have these rules. If this happens, then that’s going to happen probably, because it’s all happened before.” Ray Dalio 9/21/2012

Despite the objectivity we strive towards – we all hold strong biases. With weak hands or religious fervor – it is what makes the market. My biases typically arise from studying current momentum signatures (in the charts) and contrasting them with various congruencies in historical markets and trends. I would like to believe that the process mitigates and filters some of my own biases, but like many determinative reasonings – it still has a layer of subjective recognition that perhaps only our quant cousins can present as true penance towards the game’s original sins of cognition. Of course many of us know that even a quants objectivity can still become a hall of mirrors in the right market conditions. Alas, it agains boils down to the age-old philosophical debate of – free will verses determinism, and another poignant example of the astute market philosophies of Oscar Wilde:  

“Life imitates art far more than art imitates life…results not merely from life’s imitative instinct, but from the fact that the self-counscous aim of life is to find expression, and that art offers it certain beautiful forms through which it may realize that energy.”

I am biased, but I believe Mr. Dalio would agree that the satisfaction he gleans from successfully navigating the complicated macro terrain today is spawned more from an artistic and philosophical construct than from a quantitative framework the markets are perceived to be built and traded on. Of course the paradox is the compatibility of perspectives between both the quantitative and qualitative schools of reason and existing in a market seemingly governed by both free will and determinism.

It is a mystery.