Daily Speculations The Web Site of Victor Niederhoffer and Laurel Kenner

 

Connections

The study of interrelations between markets, and between trading and other fields, may lead to fruitful inquiries. Our efforts along these lines are memorialized in "Education of a Speculator" (Niederhoffer, 1997) and "Practical Speculation" (Niederhoffer and Kenner, 2003). We continue to explore such interrelations in our own work and with other Specs,  and are pleased to present a selection here.

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The Chairman
Victor Niederhoffer

Axiom of Uniform Stress

Occasionally one comes across a concept that seems to have great explanatory value for life. The law of least effort, whereby one tends to satisfy his desires with the least amount of effort, or water or electricity takes the path with the least amount of resistance around a circuit, is such a rule. The tendency of the lower level of the feeding chain to provide energy for a system to maintain itself when much energy is lost in movement, growth and reproduction is another such rule. I have come across another rule that seems to me to have great potential. It's called the axiom of uniform stress.

It's defined in  The Body Language of Trees  by Claus Mattheck and Helge Breloer as "the tendency for all self optimizing structures to make as economic a use of their material as possible, and to become as strong as necessary to perform their function". They allude to such mechanical systems as tusks of a wart hog, a tree's root, a tiger's claw , a chicken's leg, the junctions of a branch. The authors apply the concept to every aspect of the parts of a tree, showing for example how geotropisms in trees are designed to fulfill a uniform stress load by bending the leaves and its crown in the direction of the wind: "This in turn reduces the whole area of its crown that is presented to the wind, which in turn reduces the wind load and therefore ultimate also the wind bending moment of the stem". 

For a long time, I have felt that trees, one of the most successful classes in nature give many lessons for markets. They cover much area, and are very long lived and diverse, and constitute the major fraction of plant biomass. They have grown by convergent evolution in many different ecosystems . 0ne wonders what implications the law of uniform stress has for companies. Do they design their balance sheets so that each component has uniform stress with respect to the forces of the economy ? Are stock price levels designed so that there will be uniform stress with respect to Fed announcements and the necessary tendency of prices to induce the public to contribute "much more than they should" to the white shoe firms?

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