In the animal world, ground hogs will make a certain noise to signal that a hawk is overhead. Other animals have similar patterns such as bees doing a dance to signal the source of food. It would thus reason that investments that share characteristics would behave in patterns familiar to people using a value or style method.

Animals left to themselves find a natural stable point between predator and prey but this becomes unstable with people as there is a need to get ahead in the short term at the expense of others. In business this issue is often resolved with methods of price-fixing.

Finally, groups may behave unlike the random investor who will attempt to profit from trial and error in this sector or another. It would appear that a stable group of (long term) investors has come to conclusions about the future of the sector and random (some such as small caps are larger) fluctuations just come with the investment.

Scott Brooks writes: 

Studies have shown that white-tailed deer that are left to themselves, or orphaned (assuming this is after they are weaned) actually do just as well as their counterparts with a mother.

Another interesting aspect to this phenomena is that if you want to keep the buck fawns on your property, it is best to shoot the momma deer and leave the fawns alone. Once the momma goes into estrus, she will run off the button buck (buck fawn). It is believed that this is an instinctual action to that lessens inbreeding. The buttons are left to fend for themselves and find a new home range. They usually travel for several miles, and are disproportionately killed in the hunts. If the mother dies or is killed, there is no one there to run off the button buck, and he will almost certainly stay in his familiar home range. This actually has been shown to increase his chances of survival.

There is a definite cyclical instability in wild in predator prey models. One of the easiest ways to observe this is by watching the rabbit population vs. the coyote population. They definitely ebb and flow opposite each other, never seeming to reach an equilibrium.

The problem is not so pronounced in a well managed whitetail herd. Man is the whitetails biggest predator and man does a pretty good job of keeping the whitetail in check. Due to our ability to use reason and logic, we do a pretty good job of holding the whitetail population in check and stable.

What I find interesting is that in the area's where the whitetail population is out of control, such as cities, it's usually because people are not using logic and reason to solve the problem they're using emotions. I'm reminded of when John Galt said to Dagny, that when you're confronted with a choice and your head and heart are conflicted, always go with your head. ) The point being that in cities, people let their emotions get in the way of doing what is best for maintaining the healthiest most well balanced deer herd possible.

I always find it interesting when city people complain about the deer, but then are all aghast at the idea of harvesting the renewal resource. They always seem to want to try the same tried and failed methods.

This is similar to investing. Most people that invest in the markets really don't have a fixed system that is researched and tested and proven to work. They invest in the emotion of the markets and end up buying the investment that they wish they'd bought last year. As a result, they never reach a consistent equilibrium in the markets and as a result, greatly under perform the 10% long-term positive drift.

The Market Mistress loves to swoop in and devour the portfolio of the unexpecting. But her older sister, Mother Nature, is a vicious task mistress and makes the Mistress look tame by comparison.

Yishen Kuik comments:

I think it has been mentioned here before that classic predator-prey models show cyclical instability instead of steady equilibrium. 

James Sogi writes:

Fish cluster in schools. The edges of the clusters are quite defined. None of the fish want to stray far beyond the pack. Same with traders. Look at how the closing price over the last six days, except Tuesday, clustered together despite wild swings.

Panicking is the worst thing to do around sharks. They don't bother humans or fish, only things that are injured or dead, easy prey. They never bother a strong confident swimmer or surfer, only things that look injured or panicked which is a good market lesson as well.


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