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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12-Apr-2006
The Learning Curve: Music and the Markets, by James Sogi

There are many ways to learn new things. I started learning guitar at around 12, first listening to my mother play, then a guitar teacher got the curve started. With little noticeable progress in the intervening 40 years, thoughts turned to how to learn and get better. Though now my lack of talent can be made up with expensive equipment, attempts at learning sparked thoughts on the different ways of learning. These ideas also come into play in learning market styles, statistics, and computer programming by an old dog trying new tricks.

In music, the quick and easy way is to learn by ear followed by trial and error, until the fingers learn the notes that the ear hears. It is possible to become accomplished by this method alone given natural talent. The Beatles, the Rolling Stones, and Eric Clapton listened to the old blues masters and achieved greatness. A second way is to learn the music theory, learn the scales, the notes, and to read music notation. All written music becomes accessible. Another new way now is called tabulation, where pictures of charts of the guitar fret board show where to put your fingers. It's fast and easy. There are also videos of instructors playing with explanations to help learn music.

Learning to play music and perform requires the ability to play without fear of making a mistake, to play naturally in a relaxed manner, not too stiffly, and even “play through” a mistake, without becoming flustered, having to stop at a mistake then start over, like a child. When a market entry is not perfect, the marketeer must continue the performance and there is no chance for a replay. Can’t get flustered and got to play through.

As always, in trying to apply meager knowledge and ability to the markets, how can one go about learning the markets? As with music and any other worthy endeavor, it is the journey of a lifetime. With the inspiration of the Chair and the List, the old dog learned statistics and computer programming the hard way by getting the text book and reading it over and over until some glimmer of meaning came through. There was no luxury of a teacher or tutor, but that is recommended to speed the process. The Wiz’s "zero to hero" jump start was a logjam breaker for R. Programming consultants are available to break the mental logjams in the learning process. The next project will be Java.

The Market can be learned by ‘ear’. After years of watching and listening, and even trial and error, skill might be obtained in understanding the moves of the markets at a gut level. Natural ability makes a big difference. A second method involves a tutor for instruction on the market basics and basic skills. A third method involves the study of the notation of the market and counting the permutations. Just as a given chord can be inverted and played in a number of different positions on the guitar fret board or piano with similar sound but with a different feel and effect, the market goes through various and endless permutations, often of the same basic chordal structure, but evoking different emotions. Study of the theory of the structural and statistical elements of the market, like a music notation chart, will help the performer understand the basics of the music to be played. But just as with music, rote recitation of black and white notes do not alone make music. There needs to be a basic emotional connection with the market moves. When the band plays there is no sheet music, but if it gets in gear, everyone ‘gets the feel’ of the music and rhythm. Everyone has individually studied or practiced the basic tune before the group plays. On a good day, with prior study of the structures, the marketeer can be ready to be involved with the current permutations on a deeper level than just the notes or bars on the chart. Like good music, the market is driven by emotional content. Learning to harness the emotive power in music parallels the process of harnessing the emotive power of the markets into profit.