Today I happened to be thinking back to the discussions a colleague and I use to have about twenty years ago, as he was a fan of the “Random Walk Theory” where the markets are believed to change in value based upon “randomness” rather than order thus rendering them unpredictable. However my argument was always on the other side of the coin, that in fact the markets were “ordered” and therefore could be predicted as the reason for this was that markets aren’t arbitrary as they are made up of “people”. Yes people are predictable and ordered little critters, as in fact unless you jump to the quantum world with strange quarks, muons and the like everything has order as its driven by “people”.
While this “order” might not jump out at us as it is typically mixed with “other” order which we refer to as “noise”, it still is order which our sensory abilities cannot separate. As in the preceding years, many Quant’s (physicists turned computerized stock traders) have proven this to be true and making billions, yes that is billions with a major “B” at the expense of others as keep in mind markets are closed loop so when someone wins, someone loses and with the massive computing power on their side guess what. However the hedge funds are yet for another day, as today its simply the concept of randomness and we humans.
As back to us being “human” even a group of college students from UCLA predicted Bin Laden’s general location back in 2009 using probabilistic based computer models which just goes to show we are “creatures of habit”. So if this is the case why would it not fall to all things we humans interact with? In fact it does as we again “predict” with a high level of accuracy every year the number of highway fatalities which will occur on our roadways, to believe this one as we even project the number of people who will die every year for the incineration of disposable batteries from cancer. As its here that the “Mooreian” growth predicted for semiconductors by Gordon Moore has spilled over from the computer world to that of helping mankind eradicate “randomness” from his life just as penicillin has help eliminate bacterial infections.
However this is my point as man let himself “believe” that bacterial infections where a thing of the past as he moved on, till the super strains started showing up on his doorstep and the value of the antibiotic in the risk reward cycle was called into question. As will the same happen with “randomness” as was the 2008 financial market meltdown “randomness” seeking its revenge for our gloating as in only winning a battle yet believing falsely it was a war? There are clear beliefs and facts to support this as written in prior posts, financial markets are no longer “markets” where individuals can take part collectively in the earnings of a company as in stead they have metastasized into feeding pools for those who can pull the shrouds back on randomness and peek inside to find a tasty morsel.
In all of this it’s clear that we the people now possess an inverted view of randomness and its implications as once like Greek Mythology it held wonder and awe, however today it appears to be more of a yarn best set for reading next to a warm fireplace on a cold winters night…