One of the laziest conventions in journalism is the daily stock market report. Something went up or down. And, even though it only just happened, the reporter confidently tells us exactly why.
I’ve always found this painful. Teasing out causation from the mass of noise is improbable. Especially with such certainty. Even given sufficient training, tools and time.
But as this passage in The Man Who Solved the Market highlights, it also likely breeds complacence among the retail investors in the audience.
During his time helping to run the Medallion fund, Elwyn Berlekamp came to view the narratives that most investors latch on to to explain price moves as quaint, even dangerous, because they breed misplaced confidence that an investment can be adequately understood and its futures divined. If it was up to Berlekamp, stocks would have numbers attached to them, not names.
Being so certain and deterministic tricks us into believing the market is knowable. After all, these journalists have brought the word from on high. They have revealed the market’s Rube Goldberg nature. Can I not learn these secrets too?
But, similar to how we miss the tiny influences when we reason from personal experience, these sweeping narratives of the market are dominated by a few big themes. They turn chaos into a simple story with characters and events, good and bad. They dismiss all the randomness, which is precisely where consistently successful traders like Renaissance stake their claim.
Another lesson of the Renaissance experience is that there are more factors and variables influencing financial markets and individual investments than most realize or can deduce. Investors tend to focus on the most basic forces, but there are dozens of factors, perhaps whole dimensions of them, that are missed. Renaissance is aware of more of the forces that matter, along with the overlooked mathematical relationships that affect stock prices and other investments, than most anyone else.
That “more” in the last sentence is probably the key. It’s not that they understand the market. But they’re looking at more of it. Well past the simplistic correlations that can be delivered in thirty seconds.
As always my emphasis
I’ve just started reading a mind at play, a biography of Claude Shannon. He’s the “father of information theory”, without which much of the modern world wouldn’t be.
Shannon reminds me of stories about Richard Feynman. Bursting with curiosity, yes, but also sparked with joy at tinkering with knowledge.
I sometimes feel like this is lost in a world where education is sold as preparation for employment rather than rounding someone out or living a fulfilled life.
“His was a life spent in the pursuit of curious, serious play; he was that rare scientific genius who was just as content rigging up a juggling robot or a flamethrowing trumpet as he was pioneering digital circuits. He worked with levity and played with gravity; he never acknowledged a distinction between the two. His genius lay above all in the quality of the puzzles he set for himself. And the marks of his playful mind—the mind that wondered how a box of electric switches could mimic a brain, and the mind that asked why no one ever decides to say “XFOML RXKHRJFFJUJ”—are imprinted on all of his deepest insights”
And here’s a little vignette from Surely You’re Joking Mr Feynman, one of my favourite books:
“…I laid out a lot of glass microscope slides, and got the ants to walk on them, back and forth, to some sugar I put on the windowsill. Then, by replacing an old slide with a new one, or by rearranging the slides, I could demonstrate that the ants had no sense of geometry: they couldn’t figure out where something was. If they went to the sugar one way, and there was a shorter way back, they would never figure out the short way. It was also pretty clear from rearranging the glass slides that the ants left some sort of trail…”
Not only is this Feynman as a child luxuriating in experimentation and learning for its own sake, but also him repeating the story years later. Despite a dismal career as an myrmecologist, that’s how important and formative he thought experiences like this were.
Putting aside personal fulfilment, I wonder how successful Feynman and Shannon would have been had they not “wasted” time building up other adjacent stores of knowledge.
Especially considering how successful they were at bringing new perspectives and slants to established ideas.
As always my emphasis
One reason I love reading history is how often you find reflections of current worries. This isn’t necessarily good, obviously. Some things should have been left in the dust (notably gig-economy feudalism).
But one thing it does offer is perspective
I’ve just cracked open The Invention of News, for instance, and have immediately been slapped with a couple of things that should be familiar.
The first is that information networks in the pre-information age could only be sustainably maintained by the already rich and powerful. These were run either to ensure a supply of valuable information for private consumption, or the lower quality and somewhat biased stuff to influence others.
The next is that early newspapers existed in such an information rich environment, fighting against other practices and needs, that journalism and journalists themselves were not sustainable.
At the beginning of the fourteenth century only the rich and powerful could afford the cost of maintaining a network of couriers; as a result, those in positions of power largely determined what information should be shared with other citizens…
…this was not yet the age of the professional journalist. The information they provided was hardly ever valuable enough to command the exclusive service of one particular paper. Most sold their stories to whomever would have them. It is only with the great events at the end of the eighteenth century–the struggle for press freedom in England and the French and American revolutions–that newspapers found a strong editorial voice, and at that point a career in journalism became a real possibility. But it was always hazardous. As many of the celebrity politician writers of the French Revolution found, a career could be cut short (quite literally) by a turn in political fortunes. At least these men lived and died in a blaze of publicity. For others, the drones of the trade, snuffling up rumour for scraps, penury was a more mundane danger.
As a journalist I feel both of these but am especially interested in how they relate. As the sheer volume of information has increased, and the value captured by new forms of distribution, the value has declined.
Some information, obviously, is still valuable, but it is increasingly chased behind paywalls or funded for other reasons.
And journalists, especially, are finding it tough. Jobs have disappeared and pay slowed. “Exclusivity” doesn’t really mean anything anymore, and so neither does paying.
Will be interesting to see the trends that led away from this, as the industry matured. Can they be recaptured or substituted?
As always my emphasis
I’ve been struggling with the notion of beliefs as the output of a transitory and “swirling mass” of complexity inside each of us. Myriad tiny influences we can neither observe nor prise apart.
But, assuming this theory is valid, the logical conclusion is that the quality of the information you allow in is incredibly important. If that which inspires your System 1 thinking is rubbish, so is your thinking.
From The Hidden Half:
Asked to account for our beliefs and choices, how often would we say it was an unknown nudge from the flotsam of incidentals? ‘I probably only believe this because I pulled the equivalent of a red sock from my mental laundry under the influence of the last thing I heard in a bar. . .’
If the incidentals are so important, unpredictable and seemingly invisible, it’s not enough to swamp the bad with good. The only answer is to be incredibly vigilant about what gets in.
Perhaps this will prove easier than culling the poorly informed and conscious conspirators from our social networks.
As always my emphasis