Date: 2015-12-17
Physics, investments, and my one-sided love
I tend to view my life as an experiment of various sorts. I enjoy putting the puzzle pieces of the world together, and I have always liked natural sciences in general. However, starting from a point of time, my poor memory made me fall behind my peers, and I could no longer keep up with the background knowledge necessary for biology and chemistry, so I was naturally inclined more to physics. I also liked the bit that the theories in physics allow ample rooms for wild imaginations. However, there always has been a mountain called training between me and excellence, so my love for physics has largely been only one sided. Nevertheless, I still like the subject very much; only those who was once in one-sided love knows the ecstasy of it.
Easiness of the experiment of its theories might have been another reason why physics drew me in. I have always been a very curious kid, and there was a period I used to jump perpendicularly in buses because I could not comprehend why I landed on the same spot whenever I jumped even as the bus I was on board was moving. The moment of enlightenment came when I finally fell during the experiment because the bus once stopped suddenly in the middle of the experiment. Due to the accident, some sets of synapses in my brain accidentally connected with each other and the interaction directed me to the possibility of the notion that (1) I might always have been moving along with the bus, attached to it or not, and that (2) I fell because the bus's motion changed even though mine did not. What hard ways I choose to learn. Obviously, I did not even do very well in physics subjects in school because I was jumping on the buses while others were reading about the concept of inertia. It also did not help that I damaged my brain while seeking to prove that my skull is harder than my friends' via knocking my head on theirs. I used to take pride in having the second hardest skull in my elementary school. The one with the hardest skull is doing fine as a programmer, and I still believe in the importance of the hardness of skulls.
The moment I started reading economics, I loved the subject partly because it resembled physics in many ways. This was probably because my bias was at work; when I meet someone who resemble someone I previously know and like, I tend to like the new person groundlessly at the first sight. Sadly, my love for economics was one sided as well; I frequented visiting a number of economics professors I liked, but I was a student with disappointing grades especially vis-a-vis my dedication to the subject. I tend to blame it on my binge drinking that started and stopped in my high school. Drinking seems to have made my artistic creativity sprout, but then it seems to have protected my science brain very well and pretty by minimizing the creases on it. This might be true, because I started showing better performances in papers and projects, while I hardly yielded correct answers in the standardized exams that require training and conventional assumptions.
Jumping from economics to investments, it seems to me that some mistakenly decide to think as if the current situation begs the following question.
Current situation:
Investment community is filled with those who want to empower themselves from technological advancements, and numerous investment teams that makes very scientific approach in investment produce excellent returns. It is also not at all rare for the ones who make artistic approaches to fail.
Question:
Adding to the current trends, given the less systematic nature of the process, why should one still consider so much about the artistic approaches?
I tend to think that the above question is falsely asked because I am in the camp that believes that a theoretical framework cannot be falsified by experiment results as long as the theory itself is still soundly explained by whatever arguments there are. I tend to believe that theoretically sound theories only deserve more attentions instead of being neglected. Furthermore, I also believe that two seemingly antagonizing theories can coexist, with different explanatory powers in different degrees and areas, like how different characters of light can be better explained with two different approaches: wave and particle. Plus, even Republicans and Democrats coexist, and so do Keynesian and Austrian economists. So, let me shift the focus to the operation of theories themselves, to highlight that the relevant theory is safe and artistic approaches in economics and investments are very important.
As much as it is tempting to view the methodologies used in economics and investments as identical to those in physics, seemingly insignificant factors affect the outcomes significantly, and despite the technological advancements, economists and investors are still constantly forced to depend heavily on the conjecture, taking other players' fickleness into consideration. The absence of perfect information in the market place is structural, because independent thoughts and the secrecy relating to the originality of independent investment ideas are very important for markets' functioning. In other words, if perfect information were to be truly available to someone who code for algorithmic trades, the market is probably dysfunctional to a serious degree because the market lacks its integrity. (This is especially true because profit making is not the only goal of trades; the time frame of profit making is also very tricky to assess.) And I tend to think that the predictability of a seriously dysfunctional market is very low, and so it is something to avoid. The fact that investments essentially yield binomial outcomes accentuates the importance of the unavailable details (especially in numerical forms) and conjectures at the moment of the execution. Uncertainty principles narrative is also supportive of this premise.
This in fact reminds me of a water rocket incident from my youth. There was a time I was very much into shooting water rockets made of recycled plastic bottles, rubber blocks, and copper pipes. My two friends and I spent much of 5th grade's afternoons designing, assembling, and shooting water rockets, and we were very confident about the specifications of our rockets because we had researched and experimented very creatively and diligently. However, we did not consider the human factor. On the competition day, as we shot, a kid ran in front of the rocket, and our rocket (of perfection) changed its originally anticipated trajectory. After hitting the kid's head, the rocket landed in a locked tennis court nearby. We were not allowed to enter the tennis court, so our team was disqualified from the competition. I was more angry than sorry for him, (even as I was witnessing one of his eye balls popping out and an ambulance coming to carry him to a nearby hospital), and to this day I am ashamed of my reaction. (I was later told that he was perfectly fine.) Well, anyway, so, the details of the last moments can completely change the outcome, especially if the outcome is something binomial. Therefore, the one who pull the trigger had better be careful. Complete confidence in science is a form of hubris.
While investment analysis in general is a hybrid of the two, the difference in the mindset between those who focus more on qualitative analysis of various sorts and those on quantitative analysis of the market micro-structure and else (especially of engineering backgrounds) does not seem easy to reconcile. These may even be viewed as religions of sorts, so the discussion of this topic should probably be done carefully. So if one stop investment solution company were to be set up, it is very important to emphasize the importance of the mutual recognition of the two groups' respective values, despite the potentially conflicting characteristics of the two camps. Hwang Hee's wisdom is needed.
I only hope that my investments love me back. I can only try.