Dec

18

Two excerpts from the book have some parallels to the trading business; namely, ‘Using Anthropology’ (Chapter 36) and ‘the Saphir-Whorf Hypothesis’ (chapter 6)

Using Anthropology by David W. McCurdy — McCurdy explains that anthropology is not just an obscure academic pursuit but one which can be applied to everyday life. While the established research methodologies are very similar to the quantitative scientific method, in this qualitative field there is a heightened emphasis on designing good methods for observation. By its nature, a significant amount of observation must come before hypothesis creation. As a practical example the book illustrates, this works especially well in the corporate arena as a company is made up of numerous divisions with micro-cultures embedded in each one. Clashes between these micro-cultures come about because of fundamental and ongoing mis-communication of each group’s needs, goals and shared aspirations.

The author reviews a case study of a new manager assigned to a poorly performing educational products publishing division of a major corporation. The manager has some undergraduate training in anthropology and decides to take a different tack from previous appointees to the position. Past managers imposed new, unrealistic rules or used various measures of punishment/incentive to exact better performance. In all instances, employees did not rise to their potential since the root causes of the problems went un-addressed. The new manager decided to use her grace period; the time period in which a manager is expected to learn the ropes of the new position, to thoroughly study the various micro-cultures and their ongoing problems. This brings up a good approach to effective problem solving. As opposed to the manager as all knowing authority figure, the mature, mindful manager has the capacity to say “I do not know…but I will work to find out…” A CEO in the text explains further, “… my competitive edge comes completely out of anthropology … The world is so unknown … and preconceptions can kill you …” As the manager in the story completed her period of observation, she came to find that extremely simple problems were seen as intractable when, in fact, the source of these problems was less difficult to pin down than believed. In a specific situation, the warehouse staff was overwhelmed managing and segregating large book orders into smaller amounts for shipment to educational centers. The educational center staff despised having to perform menial labor managing the final movement of large boxes of books since their training (and career aspirations) were as expert educational products specialists. By observing the interplay between these cultures and the points of contention without pre-meditated answers, the new manager was able to remap the work flow process and add multiple minor fixes (such as packaging the books into more manageable sets) which in total solved the larger cause of the unit’s underperformance. Additionally, company performance, job satisfaction, and morale all improved when each party was an active participant in the problem solving effort and allowed to grow to their full potential through the new process.

I would posit that the cross-cultural observation style used in anthropology should be a lifetime pursuit of the market practitioner. As the famous Yogi Berra saying goes, “You can learn an awful lot just by observing”. Regardless of where one decides to ply his trade in the markets, understanding the structure, incentives and vantage point (read group opinions) of other micro-cultures is part and parcel of having a fuller view of one’s own segment of the markets. A short list of micro-cultures to study would encompass the big investment banks and their respective divisions (banking, retail, institutional, research, proprietary desks), the hedge funds, the private equity firms, the day trader type shops, the mutual fund complex, the commercial hedgers in the commodities business and the corporations whose securities are issued and traded. Secondary sub-cultures of study could incorporate merchandisers of all kinds of product including hardware, software, systems, seminars, conferences, etc. There is an ongoing interlinked behavior among all of these parties, either loosely or strongly bound, and each plays their part in the greater sphere of finance even if the language spoken is made up of many different dialects. This concept is directly related to Chair’s work on the financial ecosystem. It is, of course, patently dangerous and loss leading not to consider the motivations of all the parties named above specifically since the goals of each can be so dis-similar to one’s own. Understanding these micro-cultures leads one to better understand and solve one’s own problems relating to the opposing sub-cultures vs. an attempt to drive better cohesion and communication through all of them which neither possible nor practical.

The Sapir-Whorf Hypothesis: Worlds Shaped by Words — The SW Hypothesis was developed by a self-taught linguist, Benjamin Lee Whorf and his academic colleague, Yale Professor Edward Sapir in the 1930s. Its underlying premise is that words are not simply descriptive of reality but can in turn also shape reality. As a 1940 essay explains further:

… the background linguistic system (in other words, the grammar) of each language is not merely a reproducing instrument for voicing ideas but is rather the shaper of ideas … we dissect nature along lines laid down by our native language …

As an example, Whorf studied the Hopi Indians and came to find that they have a completely different concept of time driven by their language. While the Indo-European centric languages use the concept of past, present, future- this is considered by the Hopi as disconnected from reality as human beings can only experience the present. The Hopis defined time in two concepts: the objective, that is things that exist currently and the subjective, things that can come into being because of present conditions and actions. As the author states, “each thing that is becoming has its own rhythm…growing or declining or changing…according to its inner nature…” If there is a past to speak of in their culture, it is simply the preparations necessary to get to the present. This is to be expected from an agrarian based society where the word for crops means “the prepared”.

How many ways is the market explained? And how often are we are describing what has occurred vs. what could occur and in what time frame? What comes to mind is the public’s hankering for the media’s explanation of the prior week’s or prior month’s market activity and then once satisfied that what has occurred is know, they invest in the areas which have been fully exploited. Also how often are we subjected to market synopsis in the media which are conditional in nature vs. that driven by what has come (been prepared) before? More importantly, rather than simply a broad brush commentary on past events, what are we setting ourselves up for given current “preparations”?

More of the SW hypothesis relates to the expansive or limiting nature of language. For example, the Hanunoo people of the Philippines have different names for ninety two varieties of rice. How simple an item and yet there are so many ways to describe it? Are the nuanced descriptors helpful to the cause of understanding or do they result in obfuscation in the English language? The SW hypothesis, which remains controversial and still debated, would lean on the side of more descriptive terms being a key to our understanding the world around us better. However, this is where I believe too strong an effort to describe the markets in an overly complex manner leads away from clarity.

Surely, the highly paid Wall St. “wizards” and “industry seers” like to use as much impenetrable or hard to pin down language as possible. Buysiders do it too. Sophisticated language steeped with a lot of focus on minutia is often used to confuse or at least silence those who might be too inquisitive into the true nature of a perceived market expert’s thoughts or analysis. Or it is used to add gravitas to one’s words which are simply an opinion anyway, maybe one which is worse than the listeners’. These market professionals are well paid to articulate that they know where the markets are headed even when in their heart-of-hearts they have no clue at specific moments. Even some of the typical simple phrases such as “It is a stock picker’s market” or “the market is overbought/oversold” or “the market climbs a wall of worry” provide nothing tangible to either hold up as a hypothesis to be supported or refuted nor a statement with any real meaning. Do these phrases shape our reality, provide a reference point for where we’ve come or provide any additional insights into how prepared the market is for its next movement? Simpler descriptions with robust methods backing up one’s opinion seems better.


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