any way this approach can be used to make money, or is it just a satisfying academic exercise?
You flatter me with your question, and I'll give a serious, if not entirely useful, response: I think so.
The qualification here is probably one of those rambling things I seem to do now and then, except that there is even less reason than usual to take this one very seriously. But I do think we can profit from these exercises, or the lessons from them. And I think this is true even if we don't completely understand the exercises. Most of what rages between the brainy types over my head is exactly that, over my head.
What these exercises - the ones I think I can follow a little bit - do for me is to confirm that certain fundamental principles continue to apply, and that things are not random and arbitrary. The principles are not earth-shattering; they're the ones that most of us subscribe to here.
Mauboussin's article on "network effects" was the first time I'd even heard the term. But I think we all understand it on some basis ("Cast your bread upon the waters ..."). For me, the article gave a real-world and mathematical basis - however limited my understanding of it - to what had been just a touchy-feely idea.
The lesson of another exercise was that people overreact, and that there is a lot to be gained from doing less, slowly. This principle needs a real-world explanation, which is why tekboy's words were so important when he advised against owning more than you can follow diligently enough to weather the scary moments. He said it better (and I'll embarrass him one more time):
Message 14198262
I couldn't begin to define a "complex adaptive system," but again I think we intuitively understand this on some level because we live one. My own example is my annual "budget." I've kept one for years, but it's descriptive, not prescriptive. With simple extrapolation, however, it's also a good predictor.
One thing that my own "complex adaptive behavior" drives me to do is to take vacations. I don't plan them based on cost, but my "budget" tells me with amazing accuracy how much I'll spend. One thing it can't do, however, is predict where or when the vacation will be. So "vacation" is the usual solid investment year after year, but "April in Italy" would have been wildly speculative this year until very shortly before the event.
So, I think this approach can be used to make money, and it's also a satisfying academic exercise as you so aptly put it. It's what draws us back here to this amazing community (even this thread). It also reconfirms my own choices to go (largely) with the "picks and shovels," to which I would also add "ore carts."
This approach doesn't predict anything with the short-term specificity that's necessary to satisfy the trader's spirit in most of us. I suspect that some depraved souls around here would argue that this little demon is properly indulged with options.
It's almost dinner time.
Mike |
