Thought [1]
Ms. market’s behavior is NOT random, rather its based on caused & effect; Market Behavior is based on human behavior & human behavior is based on human emotions.
first, being just a thought signifies that there is a low probability that it can be realized (as in 2011, but its proven as in 2024), because my whole thesis is based on the fact that no one knows the future, including myself.
Market behavior is based on human behavior and human behavior is based on human emotions .. so the problem boils down to simply … how to quantify human emotions ..? & it has been a decade long journey to get here; so have patience & let’s begin the ride ..!
to begin with, let me spice the thought statement a bit … it should read as, market behavior can be projected over short-term using a simple and stupid model based on human behavior, per the concepts of cycles & perpetuity, but can’t be predicted as practiced by other mortals ..! hopefully, the distinction between the two sets reasonable expectations … moreover, the farther one does a prediction like EOY targets in Jan, bigger is the liar ..!
in business schools, academics teach that stock price movements are impossible to predict as that new information is absorbed almost immediately, which means that the markets are efficient; since the information coming in can not be predicted in advance, market behavior is random … & to me, it seems too easy a statement .. just because you can’t decipher the code, you call it random ..!
being a contrarian, my attempt is to prove that an inverse of the random walk theory is true.
second, any investment manager (person or company) who can’t beat S&P 500; i.e. who can only explain why market went down 5% after the effect, and talks about his behavior as a long-term investor should cease to exist … harsh statement, right ..? because as an investor, if you can achieve the same results yourself, almost @ no cost (or 0.04% to be precise) by buying a low cost S&P 500 mutual fund or ETF, then why pay someone for getting the same returns … and surprisingly, if your manager/fund/ETF doesn’t beat S&P 500, then you are paying them to lose your own money … sounds strange, but it is true & is a typical human behavior; i.e. most of you have been doing all your life with your hard earned money ..!
third, i don’t have a set goal for returns, nor my returns have any correlation with S&P 500’s, & for the financial geeks, it means that there is no set target for alpha … the idea is to develop a process to observe & understand market behavior each day and use a feedback mechanism to improve my models … forever … so, the returns are based on the [current] version of model, hence project-able and consistent … however, the model has been changing due to new learning each day ..!
Mission [1]
To challenge Wall Street’s conventional wisdom using behavioral aspects of finance & promote financial education
the purpose of this website is to fulfill my mission – to promote financial education, so you may learn a few things about human behavior in context of making financial decision against what’s being preached by Wall street firms or even taught in business schools; and NOT to make money …!
to follow the principle of radical transparency as defined by the great Ray Dalio (founder of hedge fund Bridgewater), i have put my research and my blog as a public record … so anyone can access a piece of my mind at no cost and share his / her feedback and opinions with me.
over the years, i have developed a thesis to describe market behavior, which is embedded in this website; so if you are curious, explore & discover.
as you go through various pages on the site, you will find that i talk more about mathematics & science (both freshly developed my own) than economics … why ..?
Vision [1]
humans make financial decision based on emotions, and not economics
traditional economics, taught in schools & colleges, is based on the fact that people act in their self-interest & make rational decisions … if this is true, no one will gamble in Las Vegas, no one will buy a lottery ticket & no one will smoke a cigarette … rather, 40 million people visit Las Vegas each year (2018), 9 states generate more income by selling lottery tickets than sales tax & Phillip Morris is one of the most profitable S&P 500 company .. i.e. many people do not act in self-interest, and hence the markets (as markets are simply an outcome of people’s behavior), don’t behave rationally.
this is where behavior economics comes to rescue, which provides some answers, but the current books/literature on behavior economics only have text in them … there are no formulae / equations to quantify [human as well as market] behavior … separately, physics describes the behavior of physical bodies using mathematical equations … but physical objects have no emotions … they behave exactly same way each time, as described by the equations, but humans react to a given situation based on their current state of emotions & that’s the starting point of my thesis .. & to accomplish that i chose an appropriate location, which is far from Wall Street … mentioned next ..!
Location [1]
this problem stayed in my head for quite some time – to quantify people and markets behavior based on what i learned in
1) finance (fundamental & technical analysis, CAPM, efficient market theory)
2) mathematics (defining problems & building solutions)
3) logic (cause & effect, e.g. testing electrical circuits – if something is happening at point A then something else must happen at point B, due to fundamental laws of physics)
4) debugging computer programs (if the program output is X, then it must (or not) be doing Y)
5) physics (mathematical equations describing behavior of physical bodies)& a connection among all of the above in the context of human behavior is described on this website … moreover, this site talks about my minor successes and major failures so far .. & i have been investing / trading for 20+ years and learning a little bit each day.
caution: if you are looking to validate what you studied in school or learned from other sites, then this site is NOT for you ..! on the contrary, if you have some unanswered questions about financial markets & your own behavior about how you deal with money / finances, and if you would like to learn a different perspective to whatever you know (or don’t know) so far, with your mind and five senses (इन्द्रियां) open, or possibly take help from your 6th, then you are at the right place.
in addition to reading the general and website disclaimer, please read the page “Ms Market & Me” under this menu before going through any other pages, as the material on this site may cause serious mental or emotional distress … just to prepare you, i plan to challenge anything and everything that you know so far … so be warned ..!
also as you read the pages, especially for the first time, chance are high that you wouldn’t agree with me, that’s fine, but try to see IF I am making sense or not
IF I am making sense, keep going, don’t try to agree or disagree with me in the moment.
ELSE IF I am not making sense, write me an email, describe in detail, why? & I will respond.
ELSE IF you simply dis-agree with me, that’s perfectly fine, you will end up giving the reading, but please don’t tell me that I am wrong simply because you dis-agree with me, as the driver of this thesis is the fact that I dis-agree with current practices in the world of finance, which you learned in school & use in your day-to-day life.
BTW, IF you are reading this for the first time, it takes one Year for most people to switch [from dis-agreeing to agreeing with me; so, IF you don’t have enough enough patience, you might as well give up now ..!
Market Behavior
Ms. Market is efficient, but being emotional, she remains unsteady.
she is efficient as she absorbs & reacts to all available information; but she remains unsteady due to continuous flow of new information; on top of that she is emotional; i.e. reacts to your gifts (i mean news) based on her mood ..!
you may find a full description of this statement on Ms. Market & Me page
an expected outcome of this experiment …
that my mind is synchronized with ms. market enough to understand what’s happening now & what happened today, or happening now, as in past tense, but not enough that i become confident to predict what will happen tomorrow, because that’s when i will lose all ..!
drivers of My experiment
following is a set of quotes that have driven my thought process and hence the thesis to describe Ms. Market’s behavior …
“Keep it Simple, Stupid!” ~ Kelly Johnson
because most of the beautiful & meaningful things are quite simple, like E = MC2 (uses only 5 symbols/letters), newton’s laws, google’s search algorithm – all fit on one page and everything else (the whole library or as i call, the fancy stuff) is a “wrapper” or “packaging” around those simple things .. or in reverse, if something is really powerful, it must be simple .. but, see next in conjunction …
“Everything should be made as simple as possible, but no simpler” ~ Albert Einstein
stick with original content and stay away from re-packaged material.
“Price is what you pay. Value is what you get” ~ Warren Buffett
the concept of growth vs value sold at wall street is a BIG “BS”.
“Invert, always Invert !” ~ Carl Jacobi / Charlie Munger
Because it is almost impossible to BS in reverse; ask a suspect to reconstruct the story backwards [twice].
“Be fearful when others are greedy, and greedy when others are fearful” ~ Gus Levy / Warren Buffett
the contrarian principle explained best by Buffett
“Successful investing is anticipating the anticipations of others” ~ John Maynard Keynes
your [biased] opinion about the market means nothing in the trading world, rather you should think about what others are thinking or how emotional they are in this moment.
“It is better to be roughly right than precisely wrong” ~ John Maynard Keynes
as a starting point, but you got to keep going.
“when the facts change, i change my mind” ~ John Maynard Keynes
i know what i know today, & i will know more tomorrow.
market stays in a direction, until she turns around & i will know only when she does.
“You can’t connect the dots looking forward, so you have to connect them looking backwards” ~ Steve Jobs
the best test plan ever [written in one line].
“I have no special talents. I am only passionately curious” ~ Albert Einstein
never stop being curious, and then add passion to your curiosity.
“I am a great believer in luck. The harder I work, the more of it I seem to have” ~ Thomas Jefferson
nothing major or original is built without hard work and sacrifices.
“We think, each of us, that we’re much more rational than we are. And we think that we make our decisions because we have good reasons to make them. Even when it’s the other way around. We believe in the reasons, because we’ve already made the decision” ~ Daniel Kahneman
most people make a decision first, and then figure out a way to justify it.
“Space-time tells matter how to move, & matter tells space-time how to curve” John Wheeler, based on General theory of Relativity by Einstein
is market behavior random or is it traders behavior that end up shaping the market movements ..?
“your body is nothing but the food that you have eaten, your mind is nothing but the thoughts & experiences that you have gathered; and you as a person are nothing but the cumulative actions that you have taken (also known as Karma)” ~ Sadhguru
outcome of MY experiment
after borrowing quotes and philosophies from various smart people (in section above), here are my conclusions about market & human behavior; & challenge to Wall St. practices
“on Wall St, every does their own predictions & has a different answer, which means that others don’t agree with you; in this case, even if you are right, what’s the point?”
in a highly competitive environment (Wall St.), everyone is running with his/her right prediction … if everyone got a different answer in a Math class, who you think is right ..?
“your behavior is based on a cause, and has an effect; which is not to be interpreted as right vs wrong, both right and wrong are subjective as in right & left which are based on where is the zero”
in physics, its defined as a reaction for an action [for physical objects], & better defined as Karma in Bhag.vad.geeta [for humans]
“timing is everything on wall street” … from Hinduism, its cross-point of astrology & palmistry; same as pre-defined cycles & human free-will (action)
against the advice of wall street, look into the best investments by Buffett and see what do they have in common.
“use history (patterns) to understand the present, so you can project into near future, but not to predict the future”
use history to develop the scenarios for the future with probability, but not to predict them with certainly – a subtle difference.
“past is all that you know [& based on that who you are today], to experience & play in present; while Future is simply a dream [that you worry about]“
If you really wanna deal with & live in reality, stop thinking / worrying about future, & knowing that past is unchangeable.
“making a bet when you know your odds is not gambling, rather hoping/believing that your odds are higher [is]; and betting when you know your odds are less than 50% is stupidity”
or hope is not a strategy.
“no competition, no comparison”
compete only with yourself; & enjoy everything in the world, just the way it is … no comparison, no judgements
“go slow, enjoy life and & do not run ahead of yourself”
your growth target, your stress level, your inner peace, your cash balance & expenses should all be in your control.
“best state of mind is when its has nothing to think and nothing to carry/store”
its when there is no storage capacity used & no CPU cycles consumed – a childlike situation that leads to ultimate creativity and problem solving
“i only learn something new in trading, when i lose money & i am still learning”
isn’t this ironic that the days, i make money, i don’t learn anything new.
“logic is reversible, while guesses are absolute”
if you make a decision based on logic, & you didn’t like the outcome, you may try reversing your logic next time; now try the same thing on your guess ..!
[for traders] “you may be right, but Ms. Market may override your thinking; so, don’t fight her; sooner you give up, less you will be hurt”
if you are on the wrong side, close at the earliest, rather than waiting for her to return; then return to drawing board to find out why she is right ..!
“opening determines your losses, while closing sets your gains”
if you understood this line, then you already know half about trading.
“i may not know everything, but if i know, what you don’t know, is very powerful in trading”
there are always novices in any game, it’s very important to know when they are doing something wrong.
“sex and trading have a lot in common … both require two parties & a matching price or barter of expectations ..! “
learning the mysteries of one will lead to success in another.
“you can’t set expectations and observe behavior at the same time; IF you wanna stay objective & learn about something, simply observe, without set expectations“
similar to Heisenberg’s uncertainty principle; IF you really wanna see something in absolute sense; close your eyes, & possibly your mind [as well] ..!
“gap between knowing & doing is a mile wide”
talk is cheap; this is specially true for trading.
“humans have developed computers and not in reverse (at least not yet!)”
use computer/technology wisely, don’t become slave of them & do not look for AI to improve your life
“algos are designed by humans and run by computers, it makes them predictable”
this led to my second life to study human behavior, which is all about emotions, but with logic.
“numbers are emotional and financial calculations are personal”
no wonder prices always remain in motion in stock markets. So, i chose to build a model that doesn’t require any calculations.
“time is the most precious commodity, convertible into money; however, the reverse is not true”
Buffett said it better, ” sex doesn’t get better with age .”
“your mind-set sets your behavior; so your mind is the cause as well as solution to all your problems”
To become successful in life, howsoever you define your success, you need to understand your own mind-set, which sets your behavior & aligning with your mind-set is what’s going to help you.
“in pursuit of perfection, humans use their intellect to perceive and design symmetric solutions; on the contrary, a vast majority of nature’s designs have no symmetry & yet they last forever”
are we building all the wrong solutions, in search of perfection ..? see further details on page Nature/Numbers.
“A Restaurant (reputation, location, ambience, Menu, pricing, Seating/Table location, Service) builds a confidence in you to take a plunge until the Meal is served, but the actual outcome of the Meal is realized based on your mood, your tummy situation, the Ingestion and Digestion process, & a gap to the Next Meal … you can’t be under confident to not take a plunge and over-confident to not act after each Course/Meal … everything happens in real-time, no prediction whatsoever …!”
Site organization
the main ingredients of my thesis are financial markets & human behavior; on the main page, you will find My blog, which is my open diary based on my day-to-day observations of nature, humans & markets, can be accessed through the home page.
at the top of main page, the content is organizes under various chapters as Market & Human behavior (Markets & Humans Menu) & describe them using Nature’s behavior (Nature Menu) in terms of Patterns, Numbers, Shapes (Geometry) & Mathematics with support from Economy & History (Economy & History Menus) in the context of the financial markets.
in 2021, i added a Menu on “Wellness” as i enter into another phase of my life; which has its own “Vision and Mission statements” my cooking experience leading into my curiosity in Ayurveda; plus, my travels, which are key for me to rejuvenate; & finally, about Me – TheVIP menu consists of My Journey from my Childhood; My Accomplishment on this project starting 2014; My Philosophy of life, mainly based on Bhag.vad.Geeta which i studied during my middle school years; My Learning Models – describe how my thinking has changed over the years, how i view The World; & My pet Peeves.
why financial education is important to all ..?
In United States, we live in one of the most prosperous nation in the world, but do you know that:
– our national debt is higher than the GDP; i.e. debt/GDP is higher than 100% (if you don’t know these terms, google them) & we haven’t faced a major war or govt. led expansions lately … most of the debt is spent to fund the benefit programs .. & we have no plans to pay for this debt, except to raise more, which is known as ponzi scheme.
– when a child is born in US, Uncle Sam opens his arms and says, “welcome my dear, you owe us $70,000+” (total debt per citizen) at first, you wouldn’t believe in these facts & numbers, but click on this link & you will get nauseated.
due to advancement in health sciences, the current generation is living a very healthy life in comparison to their parents … people will easily cross 95, and if they retire at 60, they are in the middle of their active life .. i.e. 50% of the active life is still remaining … which means that retirement planning is everybody’s business, as most of us in current generation will spent more years in retirement than in working life, when you may not have any active income … especially if social security and pension funds dry out .
it’s your life .. your money .. your retirement ..!