A Bar May Be the Place to Understand Markets

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VennData
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A Bar May Be the Place to Understand Markets

Post by VennData » Wed Feb 08, 2012 1:46 pm

This is why buy, hold and re-balance of a conservative asset allocation of non-correlated asset classes of indices provides the optimal investment strategy and will guarantee you annual out-performance of the average investor...

http://www.sfgate.com/cgi-bin/article.c ... -LZ16I.DTL

...because you don't know what the people are going to do to try to "win" and all the while you will be re-balancing, selling high and buying low, with emotional indifference and using low-cost index funds.

And the analogy is apropos from many of the Bogleheads I've met.

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wintermute
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Re: A Bar May Be the Place to Understand Markets

Post by wintermute » Wed Feb 08, 2012 11:14 pm

I'm sure the (actual) rocket scientists and physicists working on HF blackboxes have already considered this, but maybe markets are like positive and negative feedback loops fighting for domination (as in biological systems). Maybe other complex systems behave that way. Too bad I don't know enough math to try to model that and compare to a fractal model.

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market timer
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Re: A Bar May Be the Place to Understand Markets

Post by market timer » Wed Feb 08, 2012 11:41 pm

Also known as the El Farol Bar problem: http://en.wikipedia.org/wiki/El_Farol_Bar_problem

umfundi
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Re: A Bar May Be the Place to Understand Markets

Post by umfundi » Wed Feb 08, 2012 11:44 pm

Analogies like this are pandering to investors' behavioral fears. They may seem reasonable, but they have nothing to do with reality. In fact, they are a disservice to people who are trying to make difficult, and realistic or practical choices.

Keith
Déjà Vu is not a prediction

pkcrafter
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Re: A Bar May Be the Place to Understand Markets

Post by pkcrafter » Wed Feb 08, 2012 11:49 pm

Thanks, very interesting article, and Mark Buchanan is an interesting guy. Here's a link to some further thought on this subject from Buchanan's blog.

http://physicsoffinance.blogspot.com/
When times are good, investors tend to forget about risk and focus on opportunity. When times are bad, investors tend to forget about opportunity and focus on risk.

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