I wanted a perfect ending. Now I’ve learned, the hard way, that some poems don’t rhyme, and some stories don’t have a clear beginning, middle, and end. Life is about not knowing, having to change, taking the moment and making the best of it, without knowing what’s going to happen next. Delicious Ambiguity.”
–Gilda Radner
In “The Hitchhiker’s Guide to the Galaxy,” author Douglas Adams writes that “we demand rigidly defined areas of doubt and uncertainty.” Nowhere has that become more obvious than in the recent action of stock prices.
Traders and investors now face a delicious ambiguity.
After an extended period of limited daily price changes, volatility and uncertainty have returned to our markets.
Yesterday’s 25-handle move up in the S&P 500 Index continued the pattern of uncertain and almost-random daily large price moves.
Continue Reading →
As mentioned in my previous blog on the double slit experiment, things can act as both particles and waves at the same time. In fact, it is known that everything in the entire universe acts in this manner. In 1927, German physicist Werner Heisenberg introduced the Uncertainty Principle which states that we can not measure both the position and the speed of a particle with total accuracy. The more accurately we measure one value the more uncertain the other becomes. Heisenberg’s notion can be used to explain a number of phenomena including and not limited to Alpha Decay, which is a type of nuclear radiation and the most common form of cluster decay.
But, how does this relate to investing? Unfortunately, this isn’t going to eliminate all uncertainty from your investments or your business but it will enable you to embrace it and use it in your favour. There will always be uncertainty and risk in everything you do, and it is important not to get caught up attempting to eliminate it all.
The goal of an investor is to reduce risk as much as possible while still making a desirable return. Yet, risk and return are closely related meaning there will always be a degree of risk if you want to make great returns. In fact, there are two kinds of risk, unsystematic risk and systematic risk. Unsystematic risk is also known as “diversifiable risk” and can be reduced through diversifying your portfolio. Systematic risk therefore relates to all other risk such as the kind that comes with the market. This risk can not be controlled and diversifying your portfolio will not reduce this risk at all.
Continue Reading →
