Daily Speculations

The Web Site of Victor Niederhoffer & Laurel Kenner

Dedicated to the scientific method, free markets, deflating ballyhoo, creating value, and laughter;  a forum for us to use our meager abilities to make the world of specinvestments a better place.

 

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8/24/04:
An Olympian Race by James Sogi

"The defining feature of a complex adaptive system is its ability to learn." (Pascale, Surfing the Edge of Chaos.) Does the market learn? It is a complex adaptive system. The List calls it the 'Mistress'. There are adaptive elements in the system. There are the market participants, but the market has a separate being apart from the participants, above and beyond the companies, the exchanges, the commodities, the currencies the governments, the banks that make up the totality of the market. There is a ghost in the machine that is more than the sum of its parts. Institutions take on a life of their own, companies, schools, clubs, even our own list, have a life that is more than the sum of its parts. Each of us is more than a bag of bones. A family is more than a mother, a father and children. A country is more than a collective of people. So the market has a life of its own. What is its nature, does it learn? There is the cynical view, that the function of the market is to transfer wealth to its organizational and structural elements. There is the classical view that the market effectively distributing capital to the most efficient uses. Each presupposes a higher function than its mechanical parts. It is a social organism. It survives the passing or destruction of each of its elements and adapts. Even as we learn how the market works, it adapts, and changes as we observe it and interact with it. It has evolved rapidly to new technology. It is a different entity than it was 20 years ago. It learns faster than many of the participants. We must be nimble and flexible. Followers and slow movers turn to authority as a bulwark against the associated uncertainty and risk. This tendency must be resisted. The investor/trader needs to stay ahead of the learning curve. The learning curve never flattens, it always stays steep as the market rolls forward in an ever changing system.