1: Volatile Times
Investing is no longer an activity reserved for the elites. The market participation has boomed manifolds over the past two years, with low costs, ease of access through mobile applications, and a wider reach of the internet, we can now trade whatever we want and whenever we want.
Not only the market participants, but even the way information flows has changed. In 1929 for instance many investors weren’t aware of Black Thursday until they saw the headlines in papers the next day. Compare this to 2020, every second of the corona crash was discussed in real-time on social media by millions.
Market cycles have grown and will continue growing faster and more volatile as participants are more “plugged in” to their investments than ever before. More players. More information. Fewer barriers. Faster communication. These are some powerful changes, and changes have consequences.
2: The internet turned money into a hobby
Another related read on ease of access and increasing participation in the financial space —not just stocks and crypto, add fantasy sports, betting, all things money into the mix— This pretty much sums things up perfectly;
If Instagram made everyone a photographer and Twitter made everyone a writer, perhaps whatever the internet has done to the traditional banking system is in the process of turning us all into finance bros. There has never been a more opportune time to have “money” as a hobby.
3: Does Not Commute
A lot of things don’t make any sense. The numbers don’t add up, the explanations are full of holes. And yet they keep happening – people making crazy decisions, reacting in bizarre ways. Over and over.
4: The Dog and the Frisbee
Financial markets are complex beasts, we all can agree on that. But, there’s another thing that we can agree on too. That is we make them even more complex by trying to micro-analyzing every bit of it and being reluctant to adopting a simple approach.
At the 2012 Jackson Hole Economic Policy Symposium, Andrew Haldane, who went on to become Chief Economist at the Bank of England, gave a speech to the gathered central bankers entitled: ‘The Dog and the Frisbee’. It was about simplicity and complexity.
*Catching a frisbee is difficult. Doing so successfully requires the catcher to weigh a complex array of physical and atmospheric factors, among them wind speed and frisbee rotation. Were a physicist to write down frisbee-catching as an optimal control problem, they would need to understand and apply Newton’s Law of Gravity. *
Yet despite this complexity, catching a frisbee is remarkably common. It is a task that an average dog can master. Indeed some, such as border collies, are better at frisbee-catching than humans. So what is the secret of the dog’s success? The answer, as in many other areas of complex decision-making, is simple. Or rather, it is to keep it simple. Following the simplest of rules of thumb: run at a speed so that the angle of gaze to the frisbee remains roughly constant.
Simple rules are often the best approach to solving or managing complex problems. Complex solutions are often too slow, ineffective, or designed to deal with yesterday’s challenges.
5: Can Money Buy Happiness?
We often spend our days laboring away in hopes of bagging that promotion or securing a raise. We fantasize about being rich, hunt for high-paying jobs, and constantly try to move up the financial ladder, often assuming these things will truly make us happy.
On some level, we know that money is the solution to some of our unhappiness. For example, it is clear that to somebody in poverty, more money would indeed alleviate many of their worries. Poverty is stressful, unstable, and unhealthy, and in this sense, an infusion of cash would loosen these restraints on well-being.
This contradiction seems to leave us with a paradox: if money is the solution to many material issues, but not the key to our self-actualization, what role does making money play in our growth and development as people? Is it really true that money doesn’t buy happiness, and if so, to what degree?
Listen to: