Thursday, February 08, 2007

Another Flash in the Pan

Today I started thinking about how Raymond Kurzweil's laws of exponential growth patterns affect the things I buy, consume and my investments. If there is so much predictability in the growth patterns shouldn't there be some predictability in the returns they produce? What will society need more of in the future? I say, energy, materials, servers, bandwidth, food and Money. Basically. So what will society not need? Probably Crocs. Is there any possibility that you'll wake up to morrow and everyone (anyone) will use less power? I doubt it.

Some people believe the stock market is predictable or perhaps based on past patterns. Some people believe each force within the market moves like a slow wave and together those waves interact. I suppose in a perfect world or a perfect market this could be true. The application of scientific principals to predict the ebbs and flows of cash. So why doesn't it work? My theory is that the magnitude of human irrationality cannot be measured.

What about the application of other trends or scientific principals? I heard an analyst describe what he called "binary events" in the life of a company's stock. What he was describing was the rapid explosion and implosion of a company's stock price. This terms hasn't had much of a use in the traditional companies of the past. For instance old growth companies like Johnson and Johnson (JNJ) or General Motors (GM) were sure growers slow and steady. However in the 1990s even companies like IBM (IBM) was experiencing a binary event; an explosion in price. In the case of IBM, more than 1200% in five years. While I don't think it is possible to predict these movements, I think they are increasing in frequency. It seems to me that many systems across to glove are changing at exponential rates. Specifically; populations, which determine spending, consumption, waste and it seems even innovation. If all of these things are growing exponentially so should the frequency or magnitude of the events surrounding them...Right? By most measurements technology and computer innovation are growing at an exponential rate. As computers and global networks have been introduced into trading, trading volume has increased exponentially. Just think, an online investor can now buy stock in a Singapore start-up with her laptop while sipping chai. I believe regional economies combined with computers now connected in real-time across the globe increases the possibility of these binary price events. Is it possible that regional waves of growth together cause these events. Can any conclusions be drawn regarding the possibility of these events happening in the reverse sequence? A sudden implosion (which is not usually) succeeded by the explosion required for our example. Could opposite theories be used to measure risk? I doubt it.


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