"He who builds his hope on his desires and desires,
Nineteen times out of twenty will be disappointed. ”
Alexandre Dumas
One
Why is it so hard to get a taxi at night when the weather is bad?
The answer seems obvious: the weather is bad, so there are more people taking taxis.
Thaler doesn't see it that way. He later won the Nobel Prize, and his own fund company made a cameo appearance in the movie "The Big Short".
The study of the above question by one of the founders of behavioral finance answers the title of this article from an interesting angle:
Why is it so hard to make money?
Let's take a look at the taxi problem first:
Most drivers work for taxi companies, rent a car for 12 hours a day, pay rent and pay for their own fuel, and earn the extra money.
This is a very hard job, so many drivers call it a day when they earn enough, for example, set a goal of 200 yuan, finish early and finish early, and run a little longer when they arrive late.
When the weather is bad, there are more people taking taxis, and it is relatively easier for drivers to reach their goals (if you don't take into account the congestion caused by the weather), so they will go home early, and it will be more difficult to take a taxi when there are fewer cars.
The question is, what would happen to the driver's revenue if he adjusted his or her original target strategy?
Strategy A: Regardless of how much you earn each day, fix the working hours of a single day;
Strategy B: The total working hours remain the same, do more on the good days and less on the bad days.
The results show a 5% increase in revenue with strategy A and a 10% increase in revenue with strategy B.
Since there are better options, why don't taxi drivers opt for a higher-paying (and potentially less effortless) strategy?
In this regard, Thaler gave the following explanations: 1. Narrow frame, 2. Risk aversion.
What is a narrow framework? To put it simply, it means "short-sightedness" and "small pattern". Of course, this is only a relative concept, and "short-sightedness" is even a basic characteristic of all human beings.
The "goal strategy" adopted by most taxi drivers is a classic example of a "narrow framework": only the day's earnings are considered, and the length of working hours cannot be adjusted from the overall earnings over a longer period of time.
There are several reasons for this:
1. The state of "scarcity". Drivers have limited savings and have to calculate their daily money to support their families and pay their monthly rent on time. The "scarcity" caused by the problem of food and clothing will always limit the so-called pattern.
2. Simplify the decision-making process. Calculate the day's accounts every day and worry less.
In this way, the driver breaks down a continuous large decision into many discrete, uniform small decisions with clear goals and easy to execute.
It can also be translated as risk aversion, which refers to the fact that when a person is faced with a transaction with uncertain returns, he is more inclined to choose a transaction that is safer but may also have a lower expected return.
For example, a risk-averse investor will choose to keep his money in the bank for a lower but certain interest rate than to use it to buy stocks, taking the risk of loss for a higher expected return. As opposed to risk aversion, there is a "risk taker".
I think sometimes "risk aversion" is a very vague definition, as if to describe a person who is brave and some people are bold in small things and timid in big things. Some people are honest on weekdays, and once they do bad things, they will do something big, like an old house on fire.
For taxi drivers, arranging their work with a certain amount of income per day will be "disgusted" by not being able to achieve their goals for the day.
In order to make more money and rest more, it requires not only professionalism and experience, but also judgment, and the "inner turmoil" of returning home early with less income on a bad harvest day.
Drivers may be more resilient to volatility and uncertainty than hard work.
Two
This is true not only of taxi drivers, but also of investors and policymakers who appear to be smarter and wealthier.
When investors are in a profitable state, they are often willing to sell stocks to lock in profits, and when they are in a loss, they are more willing to continue to hold stocks rather than admit losses. -- Experts call this the "disposition effect".
Peter Lynch calls this an act of plucking flowers and watering weeds.
Research shows that investors, like gamblers, have some kind of "mean reversion" fantasy.
For example, if "big" appears 5 times in a row when guessing the size, the old gambler will be inclined to believe that the probability of "small" will increase in the future. But in fact, on a single basis, the probability of a "small" occurrence this time is still 50%.
Even people who understand probability have a similar illusion: according to the law of large numbers, the probability of "big" and "small" should be 50% each, as long as you guess enough times. In this case, if there is "big" 5 times in a row, there should be some kind of force that causes more small, leveling the probability of "big" and "small", and letting the law of large numbers come into play.
Investors often make similar mistakes, thinking that stocks that have risen for a while are more likely to fall, while stocks that have fallen for a long time are more likely to rise.
This is a classic gambler's fallacy. The dice have no memory, and it doesn't know that it has "big" 5 times in a row, so it has to make a few more "small" to level it out.
So, will the law of large numbers still work? Yes.
But the principle that works, not by leveling, but by the "dilution" of the dice thrown enough times.
Back to the "disposition effect".
Taxi drivers finish work too early on good days and work too bad days, and investors run away when they make a little money, and when they lose money, they want to wait for a rebound.
In addition to mean reversion and sunk costs, the more essential cause of the "disposal effect" is prospect theory (also known as "outlook theory").
Three
The name of prospect theory is a bit like the origin of "information entropy", which is derived by two super smart guys.
Let's take a look at the famous problems of prospect theory:
Question 1: Which one will you choose? will you definitely get $900 or is there a 90% chance that you will get $1000?
Question 2: Which one will you choose? is there a guaranteed loss of $900 or a 90% chance of losing $1,000?
As Kahneman points out, most people choose to be risk-averse in question 1 and get $900.
Although calculating the expected value is the same. But according to Bernoulli's theory of "expected utility", one would think that getting $900 is worth more than getting $1,000 with a 90% chance of getting it. So most people's choice of question 1 is to be expected.
The focus is on question 2, most people are more willing to take risks when faced with a loss, choosing a 90% chance of losing $1,000.
That is, people's perception of "gaining" and "losing" is asymmetrical.
The theory leads to four basic conclusions:
1. Deterministic effect: When in the state of return, most people are risk averse.
2. Reflection effect: When in a state of loss, most people are risk lovers.
3. Loss avoidance: Most people are sensitive to losses compared to gains.
4. Reference dependence: Most people's judgment of gains and losses is often determined by reference points.
As shown in the figure above: the abscissa is the actual amount of money in profit and loss, and the ordinate is the perceived psychological value. The S-curve in the graph is not symmetrical, and the psychological response is much stronger when losing 200 than when making 200.
In an experiment with the "disposition effect", the data showed that the probability of rising stocks being sold exceeded the probability of falling stocks being sold by about 50%.
Kahneman and Tversky call it "loss aversion."
In a nutshell:
1. People are reluctant to take risks when faced with profits, and when faced with losses, everyone becomes an adventurer.
2. Losses and gains are relative to the reference point, and changing the reference point when evaluating things will change the attitude towards risk.
"Loss aversion" explains why we buy stocks and run away after making a little money, and wait for a rebound when we lose money.
However, any theory has its boundaries and scenarios. For example, some people may ask: In this case, the core assets of A-shares have risen in the past few years, isn't it because they didn't take profits earlier, and are they only falling deep now?
We need to realize that behavioral economics explains the nonlinear relationship between "psychological value" and "actual value", but it cannot solve the problem of how to value the "intrinsic value" of stocks.
That's right, jumping out of the narrow frame and valuing asset value over a longer period of time can avoid the "short-sighted loss aversion" that comes with volatility. But that doesn't mean you just have to sleep with "quality assets", what if the assets have deteriorated?
Four
Warren Buffett said: you don't need to be a genius in the investment field, you need to go in the right direction.
He believes that 90% of people are not right to buy stocks, and they want to buy them and then go up next week. It's happy to go up, and it's bad to go down.
According to "loss aversion", even if the decline and increase are the same, the psychological feeling in a bad time may be twice as strong as when you are happy.
Come to think of it, isn't this similar to the "narrow frame" of a taxi driver? and in a sense it could be worse:
After all, the volatility of the taxi business is much smaller than investing in stocks, and drivers setting a daily revenue target may result in less than 5% to 10% less money.
The stock market is inherently full of ups and downs, and there is no such thing as uniformity. But most people still use the "narrow framework" of immediate ups and downs to make decisions.
The benefits of a "narrow frame" are twofold:
1. Divide the long and uncertain decision-making cycle into short, seemingly deterministic small decision-making cycles;
2. Turn the decision-making evaluation that takes a long time to calculate the general ledger into an instant evaluation of "immediate lottery".
The "narrow frame" sets the reference point for how you evaluate things, and also influences your attitude towards risk, which in turn puts the person in the instinctive pleasure of instant gratification.
Warren Buffett's secret: consider what the company will do in the next 20 years. Once you make a decision over a longer period of time, it becomes a good thing for the stock price to fall after buying it, and you have the opportunity to buy more shares.
If a taxi driver is willing to stretch his decision-making cycle, he can do some intertemporal substitutions: do more when business is good, and go home early when business is bad.
Capital has the characteristics of intertemporality, which is more full of unevenness, so it is more dependent on intertemporal decision-making.
However, our genes still retain the "memory" of the jungle era, and our ancestors did not like to be eaten by wild beasts, so they had to eat food as soon as possible, and drank water as soon as they could. Even if there are no tigers to eat us now, there is still fear, fear of loss, and desire to get something good right away.
Therefore, the "narrow framework" and "risk aversion" of human decision-making behavior lead to the following results:
1. We avoid facing the unpredictability of the future in some uncertain way, which may be the reason why human beings "invented" probability very late;
2. We like to meet the desires and needs of the moment, and we enjoy the satisfaction of completing the "small goals" immediately;
3. We like fragmented and uniform things in front of us, and hate overall and uneven things in the future, so we overestimate the present and underestimate the future;
4. We will overreact to things that are extremely unlikely to happen, and we will be slow to respond to things that are moderately and highly probable;
5. We drift with the tide in the long river of time, and are not sensitive to "intertemporal replacement";
6. We have more disgust for "disgust" than for "like".
Let's talk about making money, maybe we can use "time, space, probability, and psychology" to explain "why it's so difficult to make money":
1. Time. We are constrained by instant gratification, hoping that the stock will rise when we buy it and fall when it is sold, and we are too anxious. We are keen on short-term trading and underestimate long-term returns;
2. Space. We lack a sense of the big picture, we are not good at discovering secrets from the whole chessboard, we only look at the part, we only focus on the feet and ignore the distance, we only look at what we want, and we ignore more options;
3. Probability. We are too deterministic, too trying to summarize the rules from randomness, and we always fall into the gambler's fallacy, thinking that the "laws" in the finite data will last forever. We apply the experience of the past to the future;
4. Psychology. We are willing to do anything to escape volatility. And when volatility occurs, the intensity of aversion when the stock falls 10% is two or three times greater than the intensity of happiness when it rises 10%. So, we plucked the flowers and watered the weeds.
Five
After learning about the wisdom of the world's brightest economists and investors, are we one step closer to the "Holy Grail of Investing"?
Since it is wrong to "pull out the flowers and water the weeds", then wouldn't it be better to "pull out the weeds and water the flowers"?
Maybe it's not that simple.
Let's make an interesting assumption:
If a person always loses every time he buys stocks, and is called the "reverse stock god" by the circle of friends, then if you follow his operation every time to "reverse the operation", is there a high probability that you will make money?
The problem may be more complicated than it seems. First, the assumption turns "buying and selling stocks" into a coin flip. There are several features of a coin toss:
1. Either positive or negative, the very small probability is erected, and all the possibilities of the coin have a closed result, which is boundary;
2. The probabilities of positive and negative are symmetrical, ignoring the results of erection, it can be said that positive and negative are the other side of each other;
3. Keep tossing coins, and the result will be closer and closer to the result of the law of large numbers, and the future is certain and convergent.
But our real world, including simulating the real-world stock market, is not the same as flipping a coin, and I compare them one by one as follows:
1. The possibilities of the real world, like the Big Bang, are constantly bifurcating and extending, and all possibilities are like parallel universes that are constantly dividing;
2. We are accustomed to saying that the antonym of good is bad and the antonym of good is evil. This dualistic approach is not complete. Just as the antonym of fragile is not strong, but antifragile. The opposite of doing evil is not to do good, but not to do evil. The antonym of love is not hate, but forgetting;
3. The uncertainty of the real world will become more and more chaotic. Everything in the universe is becoming more and more disordered, and everything will eventually pass away.
People often quote only half of the "famous quotes", and the same is true of Peter Lynch's "don't pull out the flowers and water the weeds". His exact words are as follows:
Some investors are always accustomed to selling the "winner" - the stock whose stock price is rising, but cling to the "loser" - the stock whose stock price is falling, this investment strategy is as stupid as pulling flowers and watering weeds;
Others, on the other hand, are not much clever at selling the "loser" – the stock whose share price is falling, while clinging to the "winner" – the stock whose stock price is rising.
You see, Peter Lynch meant to say: that's not right, that's not right.
It's like someone asks you to guess a coin, and you say it's either heads or tails or vertical, and the guy says, "Neither." You angrily ask him to open his palm and find that the coin is still spinning......
Why is it not right at both ends? Peter Lynch's explanation is:
The reason why both strategies fail is that both view current stock price changes as indicators of changes in the company's fundamental value.
As we can see, the current stock price changes don't tell us anything about the changes in a company's development prospects at all, and sometimes the stock price changes in the exact opposite direction of the fundamental changes.
Six
Almost all attempts to find the "Holy Grail of Investment" are a sword.
Therefore, this article will not follow the "narrow framework" and "risk aversion" to explore how to make money easier.
Peter Lynch's meaning is very clear --
Step 1: Don't pull out flowers to irrigate weeds, and vice versa;
Level 2: How do you identify flowers and weeds?
Level 3: How can you recognize this better than others?
Level 4: What if the irrationality of the market ignores your value judgments? For example, people just think that weeds are worth more than flowers.
I'm quite uneasy about the statement that money is the realization of cognition. Broadly speaking, this is true, but in the real world, it misleads too many people.
If we say that money is the realization of knowledge, everyone will laugh it off.
But why does it make sense to replace "knowledge" with "cognition"?
Maybe knowledge is like a cat, cognition is like a ghost, it's easy to draw a ghost, it's hard to draw a cat.
Cognition refers to the process of people acquiring knowledge or applying knowledge, or the process of information processing, which is the most basic psychological process of people.
It includes sensations, perceptions, memories, thinking, imagination, and language, among others. The human brain receives information input from the outside world, and after the processing of the mind, it is converted into internal mental activities, and then dominates human behavior, which is the process of information processing, that is, the cognitive process.
To say that wealth is the realization of cognition is too general, too broad, and too simplistic. According to this logic, it is all correct and meaningless to say that "wealth is the realization of human beings" or "wealth is the realization of knowledge and action".
Thaler, Kahneman, Tversky, Lynch, Warren Buffett and others are the smartest people on the planet, their theories are concise, vivid, and direct to the essence of things, which can be called the peak of "cognition".
However, these perceptions do nothing to help make money, they can only help you to self-reflect after not making money.
Better yet, it's to make people realize that making money is hard. So, just don't mess around.
You might say that the phrase "money is the realization of knowledge" is a necessary condition, not a sufficient condition.
Unfortunately, most people make most of their money by luck, not by knowledge.
Again, this sentence will mislead many people. One is Xiaobai, and the other is smart people. The former is fearless, and the latter considers himself "not ignorant."
As a simple example, can you use the current kind of "cognition" to do math problems and play chess?
Every year at the end of the college entrance examination, a large number of people discuss composition, and very few people discuss mathematics or physics. "Composition" is like a generalized "cognition", and everyone has the impulse and illusion to participate in the guidance. However, no matter how good your cognition is, you will still be able to face math problems.
Come to think of it, it's much harder to invest than in mathematics (which isn't the top research). How can investments be monetized by "cognition"?
I've always had the following opinions:
All precise games (including those that are thus called learning) require solid and arduous basic skills;
On the other hand, everything that does not require basic skills, or can reach the pinnacle by "enlightenment", is all witchcraft.
The addiction and abuse of metaphysics that can only be understood and cannot be spoken, is the great enemy of science and reason.
Today's popular "cognition" is just another package of "enlightenment".
Seven
Investment experience, and success experience, is as impartible as orgasm.
Someone asked at the shareholder meeting: If you were to choose only one stock to fight high inflation, what would you choose?
Warren Buffett replied:
"The best thing you do is do something exceptionally well. With or without financial benefits, people will give you something they produce in exchange for what you can provide, and one of the best investments is to develop yourself.
Do what you are good at and become a useful person to society, so you don't have to worry about money depreciating due to high inflation. ”
You see, this guy who is the best at choosing stocks, "unexpectedly" can't even recommend a stock.
The above paragraph is by no means a bowl of illusory chicken soup that "the best investment is yourself".
Warren Buffett says that because the player is the biggest card in his hand, especially for the decision-makers of capital.
Everyone has their own circle of ability, and other people's good cards are not necessarily your good cards.
Another implication of this statement is that there is no holy grail in investing. At least so far.
That's where investing is hard and where it's fun. Investing is more like Poker than Go. In fact, Go is more desperate for professional gamers than Depo.
I once chatted with a friend who is a professional investor and talked about how he was a layman about investing. I'll give you an analogy: for example, when it comes to Go, I'm barely getting started as a hobbyist. The measure is that as long as I continue to spend time, I have a way to improve my Go level along a certain curve. For example, do life-and-death problems, play multiple games, and use AI to review.
But for investment, I didn't find a way to cultivate, I couldn't find that curve. If I can't make money, how can I earn that money?
Overemphasizing the "professional" side of investment seems to be a bit stereotyped, and it is a bit of an attempt to find a causal linear relationship.
Many times people say that investing is more like art, and Warren Buffett also said that investment does not require a "high IQ", and there is no "stock trading" in universities. It seems that reason, patience and common sense (or vice versa, "passion, ambition and imagination") are the key.
I've always been curious and wary of things that can only be understood.
When I was learning chess when I was young, I watched Masaki Takemiya's "cosmic flow", and I felt magnificent, like a romantic knight. Later, I listened to the evaluation of professional chess players that Masaki Takemiya's basic skills are extremely solid, and his killing and officials are at the top level. Otherwise, how can you "wave"?
Looking at Buffett, who served us chicken soup, behind his kind appearance, he is actually a fighter who has fought for life. He has been in business since he was a child and has experienced all kinds of business experience; he has a solid foundation in economics and mathematics, and has a deep insight into finance and industry; he has made countless "bets", just like Jordan who has played many actual battles; he is cold-blooded by nature, and he is not bound by seven emotions and six desires when placing bets; he only loves to invest in one thing in his life, and focuses on it every minute and every second.
To become a stock god, you need "professional + cognitive + muscular + anti-human", as well as very, very good luck.
Even so, he would buy the "wrong" IBM and then simply admit the mistake and liquidate the position. But he was "right" and went on to buy Apple aggressively, taking almost half of the market value of his stock holdings (excluding shares in private companies).
What's even more rare is that he has been moving forward all his life. For decades, he said the same thing, always speaking only the most basic common sense, similar to "If you don't eat, you will be hungry, and if you don't drink water, you will be thirsty." --It's old-fashioned, but hardly goes out of style.
Buffett also did not try to summarize his principles and formulas. In his eyes, the possibilities for investing are limitless, and the possibilities for Berkshire are limitless.
"It's infinite in size, it has an ever-expanding canvas and I can paint what I want. ”
Eight
Thaler expanded his research from New York taxi drivers to the stock market, and in doing so, he explained the "mystery of the stock price premium."
Over the past century, U.S. markets have far outperformed bond returns. Is it because of the compensation that the market gives to the adventurous?
Thaler found that investors, like taxi drivers, use a "narrow framework" to evaluate their returns. They frequently calculate their profits and losses. Because of the psychological effect of "loss avoidance", too frequent evaluations can make the parties very uneasy.
Stocks are volatile, and staring at them every day is like a person on a boat staring at the waves below the side of the ship, which is extremely dizzying.
So even if there is a better expected return on equity (about 7% annualized), people will give up their probability rights and prefer to hold only Treasury bills with returns of less than 1%.
The narrowness of the mental account limits the growth of our imagination and wealth.
Interestingly, Musk, the nemesis of Warren Buffett and Munger, also tweeted a very "value investment" suggestion:
"Buy shares in a few companies that you believe in their products and services. Don't sell until you think their products and services are starting to go bad, and don't panic because of market volatility. This will help you in the long run. ”
If I don't tell you that this is Musk's post, maybe you will think that this is Buffett.
And Bezos, who has been scolding Musk for a long time, also forwarded a passage from Investor Personality:
"A whole generation of entrepreneurs and tech investors built their entire view of valuations in the second half of a phenomenal 13-year bull market. For many people, the process of 'unlearning' can be painful, surprising, and unsettling. ”
In my circle of friends, I also saw a senior investor friend who sighed that after enjoying more than 40 years of reform and opening up, he thought it was the normal state of life, but in fact it was not. The river of time always has its ups and downs.
Bezos responded to Gurley's above quote:
"Most people grossly underestimate the extraordinariness of this bull market. The bull market did make many people gain Changhong, until the bull market is no longer there. The market will educate people, and the lessons can be painful. ”
It is the consensus of Warren Buffett, Musk, and Bezos to understand the world, respond to the world, and change the world with a larger time frame.
They have very different styles and don't treat each other well on weekdays. But if they sit at the same table, maybe they'll have a good chat and even have a few drinks.
After all, "smart, rational and sincere" are common and scarce.
Nine
Thaler really cashed in on his cognition. In addition to receiving more than $1 million in Nobel Prize money, the performance of his UBVLX has been calculated from December 28, 1998, the fund's inception date, to the end of September 2017, with an astonishing return of 832.44%, and the return in the past five years has also been okay.
The secret of the fund in which Thaler participated, using a "contrarian investment strategy" to earn excess returns from the irrational behavior of investors. The company's website says:
The craziest thing is that you think that humans act logically all the time.
Instead of doing those complicated analyses, he makes judgments based on the results of behavioral economics, such as finding that the CFO of a company suddenly doubles his stake, which is very likely to be an important sign that a company is improving.
He also participates in another fund, and Kahneman also participates. This is not necessarily to say that behavioral economists are all very profitable, perhaps because they are all Jews.
Of course, it is highly likely that Thaler contributed fame and wisdom to the fund, and there are other professionals who operate it.
Even so, very few economists and university professors can use "cognition" to monetize their wealth.
If we have to talk about cognition, perhaps the most important thing is to break the framework of cognition and maintain openness.
In 2013, economists Fama, Hansen and Schiller were awarded the Nobel Prize in Economic Sciences.
Interestingly, Fama and Schiller have always been "hostile":
- Fama is a member of the Chicago School, the University of Chicago is known as the stronghold of free market economics, and Fama is known for proposing the "efficient market hypothesis";
- Schiller, one of the founders of behavioral finance, believed that there were predictable laws for some irrational deviations.
Fama's theory is that changes in asset prices cannot be predicted because prices fully reflect all available information. It was his ideas that contributed to the rise of index funds. Economist Burton Malkill explains:
"Portfolios selected by blindfolded monkeys projecting darts onto the financial pages of newspapers are as good as those carefully selected by experts. ”
Fama doesn't even believe in the existence of bubbles, because asset prices reflect all the information available.
Schiller, on the other hand, is known for predicting the dot-com bubble of 2000 and the housing bubble of 2008, and his research on market inefficiencies and human irrationality proves that stock prices are more volatile than corporate dividends. He argues:
"Mass psychology is perhaps the main reason for the change in the overall price level of the stock market. ”
The awarding of that year's economics prize to both the "opposite" Fama and Schiller represents the attitude that "the field of economics has not yet agreed on a fundamental and important question of how markets work".
Max of Oaktree Capital reconciles the views of Fama and Schiller:
Efficient market theory is not the whole truth of financial markets, and it is true that mainstream markets are becoming more efficient, but ineffectiveness will always be there.
He believes that outstanding investors are able to beat the market precisely because they are adept at finding inefficiencies in efficient markets.
According to our tradition, the "harmony of yin and yang" like Max is simply "obvious", and Fama and Schiller are the naïve drills.
At this point, perhaps we need to revisit the relationship between philosophy and science, especially those that have a bird's-eye view of everything from above.
As early as the 5th century B.C., the ancient Greek philosopher Leukieb proposed the theory of atomism: everything is made up of atoms. His student Democritus said that the atoms were "so small that we can't perceive them...... They, or these elements...... so that visible, perceptible matter" can be formed.
"Atomism" seems to have amazing foresight and insight. But scientists believe they just happened to bump into part of the truth.
Physicist and Nobel laureate Steven Weinberg said:
"These early atomists seemed quite ahead of their time, but [the monists] were 'wrong,' and the atomic theories of Democritus and Leuchipber were 'right' in a sense, and that right or wrong didn't matter to me......
If we don't know how to calculate the density, hardness, or electrical conductivity of matter, how far can we go in understanding nature, even if Thales or Democritus tell us that stones are made of water or atoms?"
Albert Einstein and Infield used a metaphor to describe the "Greek dilemma":
Explorers of the natural world in ancient Greece were like: someone who wanted to understand the mechanics of a watch so badly could only stare at the dial and the rotating hands, listening to the ticking sound of the watch, because the lid could not be opened anyway. If he is still clever, he can draw a diagram of the movement to explain everything he observes.
But he ...... You may never be able to compare a real movement with a drawing you have made. He felt that such a comparison was not only impossible, but also meaningless.
To be precise, Einstein was against "mashing paste". They want to open the black box and see what is going on.
Fama and Schiller's views are not the opposite side of the coin. They may have each discovered a gear inside the watch. We can certainly say that the watch is holistic, a system, the result of the combined action of multiple gears. But if you don't open the watch and explore the true structure of the movement, this kind of philosophical thinking is meaningless.
Just like Tu Youyou's discovery of artemisinin and dihydroartemisinin, she was inspired by traditional medicine and used modern scientific methods to extract the active ingredients for the benefit of mankind.
I'm not trying to say that science kicks philosophers in the ass all the way, as Feynman did, and that would lead to "scientific fundamentalism." Philosophical thinking like Soros and lowering his profile to call himself "financial alchemy" is also a commendable attitude.
Instead, those who dogmatically embrace ETFs and core assets, desperately looking for formulas where randomness and probability should be left to them, are the equivalent of carving on the planks of the sea, ignoring the huge waves and icebergs. -- It's a quest for the illusion of certainty.
Talk about Samuelson, a staunch defender of the "efficient market theory" and his belief that "no one can beat the stock market." But he bought shares in Warren Buffett's company early on, and he made a lot of money until he died in 2009.
Warren Buffett has always ridiculed the "efficient market theory", but the only investment advice he has ever given to the public is to buy index funds.
Here are some attitudes we can learn from this:
- I have my own opinions, but I can also be wrong.
- My theories (beliefs) work in one part, and my opponents may have another angle;
- Go deep into the essence without falling into the trap of the locals, and get a bird's eye view of the whole picture, but don't use the so-called holistic view to make a fool of yourself.
From the perspective of worldly wisdom, Samuelson bought Buffett's stock and did some kind of hedging:
- If Buffett succeeds, Samuelson will make a fortune;
- If Warren Buffett fails, the efficient market theory is strongly proven.
Ten
Some things, such as "ordinary people don't trade stocks", and some other common sense, require people to "experience it for themselves" in the last generation (usually 10-20 years).
By the time he realizes it, it may be too late (or not courageous) to do it again, and from then on he will fall into doubt and sink into nothingness.
Often, these intergenerational wisdom depends on being passed down from generation to generation, and needs to be based on collective contemplation.
I have seen a post-90s generation talk about his experience of buying stocks:
He is very smart and understands that "buying stocks is buying companies". Therefore, two star companies of Chinese concept stocks with good tracks were selected, "the total market is broad and growing, and the company model is also very new".
He also understands that a good company needs a good price, so he buys when it falls, and buys more and more when it falls, "Such a good company has fallen tenfold, where else can it fall?"
This young man also understands the expected value and odds, and thinks that if he buys wrong, he will return to zero at most, and he will earn several times if he buys right.
So what's wrong with Ta?
That's right, Tu Youyou got inspiration from folk prescriptions. She and her team selected about 2,000 antimalaria-related prescriptions, screened and focused on 380 possible prescriptions for 200 Chinese herbal medicines, and finally identified the antimalarial drugs extracted from Artemisia annua.
The initial extraction of the active ingredient failed because the Chinese herbal formulas at that time required decoction, and the high temperature would destroy all the artemisinin. She then used ether to extract Artemisia annua, which was purified through a series of purifications to obtain artemisinin.
As shown in the figure above, artemisinin is an organic compound with a molecular formula of C15H22O5 and a relative molecular weight of 282.34.
Tu Youyou's achievements did not rely on the conjectures of ancient Greek philosophers, but on scientific methods and a large number of experiments, and experienced countless failures.
The post-90s Ta above knows a lot of investment terms, knows the "track", knows the probability, and knows that "I am greedy when others panic".
However, knowing a term is completely different from understanding a concept, it is completely different from knowing a principle, knowing a principle is completely different from seeing the mechanism behind it, and there is a long way to go from seeing the mechanism behind it and applying it in the real world.
The young man above eventually cut his flesh and left. Ta's reflection on himself is: he didn't escape when he should have fled to the top, he didn't stop his loss when he should have stopped his loss, he was optimistic because he was too easily fooled by the institution, and when he was pessimistic, he was too emotional.
These reflections may only go from one extreme to another, and they are still stuck in the stage of "holding a watch and not opening it, guessing how the gears inside work and how they don't".
But in my opinion, the most serious problem is not the understanding of young people that "investing is hard", but the following:
For the rest of his life, he no longer believed that a person could achieve a prosperous life by thinking and laboring, and he began to feel that everything was just fate, and he grew old and lived a life of self-pity.
This is also a "narrow frame" thinking trap. Life is a long time, and 10 years is just a small part of it. In the next 10 years, when the market is bad, we will call it a day and go home early, rest, be patient, and wait, and when the next 10 years are good, we will work a little longer and take out a bigger basin to catch the pie that falls from the sky.
People may indeed be "an insignificant little fish under the tide of the times", but we can break the "narrow frame", make intertemporal decisions from a longer cycle, and be a long-lived fish who learns to surf.
At last
For me, the joy of writing (or thinking) lies in its unexpected randomness.
At first, I just wanted to think about "narrow frames" and "risk aversion".
The continuity of decision-making is often overlooked.
Most of the time, life hangs in the balance. We have to move forward in grayscale, act when the conditions are not available, give when there is no result, fantasize about the fruits of summer in the cold winter and sow for it.
It's very, very hard.
For the sake of certainty, people are willing to pay the price of any uncertainty. Some of my friends, no matter how smart, hardworking, and ambitious, want to achieve excess returns with stability as the bottom line.
In other words, every day you have to earn money, and then you have to make a fortune. I don't think there's anything wrong with this mentality, it's better than breaking the bank and gambling to start a business. Moreover, this kind of feeling and judgment is very personal, for example, in Musk's eyes, we and other laypeople are cowardly salted fish.
People's fascination with and dependence on uniformity and certainty takes many forms. The novices stay at the surface of the concept, and the smart people go to the algorithm and the Holy Grail. However, once they fail to realize that the real world is made up of infinite possibilities that are constantly exploding, they fall into the trap of pursuing certainty.
This article's superficial approach to the behavioral economics of Sayler, Kahneman, Tversky, and Schiller is a tribute to the "rational study of human irrationality." The study of birth and the practice of accession to the WTO can be played in parallel with great interest, and the precision of numbers and the ambiguity of psychology can also describe each other.
From the "loss aversion" curve, when we are afraid of failure, remember to reduce the intensity of our inner feelings by two to three times, don't be too afraid, and be optimistic.
There is no holy grail in investing. Again, I explored science and human ignorance. "My life has an end, and there is no end to knowledge. With the end of the end, there is no end, and the one who has become the knower is gone. ”
Why is it so difficult to make money? Because of the law of entropy increase, because our luck in the past few decades has been too good and too rare, we should always "return", because investment requires "professional + cognitive + muscle + anti-human", and very, very good luck.
But don't doubt the future because of failures and losses at a certain stage. Especially young people, you have enough time to achieve "intertemporal substitution" and not waste the pain of your youth.
The key finding of the "Prospect Theory" is that human beings perceive the world as a whole by "comparison".
The last paragraph of The Count of Monte Cristo reads:
There is neither happiness nor pain in the world; Only those who have experienced misfortune can experience the greatest happiness.
Alexandre Dumas thus appealed: Morel, we must experience the pain of death in order to experience the joy of life. So, my beloved children, enjoy the joy of life!
However, pain and pleasure are not symmetrical. As a result, many people in this life have experienced a trough and then give up on the subsequent peak.
Only time is the true asset of life. The Count of Monte Cristo waited 14 years in prison for revenge, and the protagonist of The Shawshank Redemption took nearly 20 years to dig a dog hole leading to a beautiful beach.
It took Buffett 60 years to wait for an opportunity to buy Alleghany Corp, a property and casualty reinsurer, for $11.6 billion in all-cash, at the age of 92.
The future is long, and you are still young.
Never forget. Before God has made his decision, all human wisdom is contained in these four words: "wait" and "hope."