Tuesday, October 16, 2012

What Fat People Taught Me About the Stock Market

When I was fat, life generally sucked.  Out of the twenty-four hours in a day, I was preoccupied with food...all twenty-four of them.  Somehow eating crept into my dreams, acting like an alarm clock lest I go too long without consuming.  While in this general state of stupor and largess, I was always enveloped by a soft sadness.  It was partially guilt at single-handedly keeping Africa hungry while enduring a gnawing sense that people around me were disgusted by my body: a sphere so perfect, they can measure pi with it.

The fat mostly disappeared once I came home from Marine Corps bootcamp, leading many to call me a liar as it turned out I was not big boned at all.  But still I was fascinated by the culture of fat people, especially the everlasting contradiction between those who feel content in their inability to see their toes and the self-loathers who are willing to commit genocide to locate their abs.  In both cases, these individuals agree that mainstream society sees fat as bad.  It is not only unhealthy and unattractive, but being fat is correlated with low self-esteem, low socioeconomic status, and general ineptitude in all parts of social contact.

This is all one giant myth.  Fat is just stored energy.  Being prone to getting fat is a great gene if we lived during a time where calories are hard to come by.  It just so happens that in this dimension, food is readily available and even those in the lowest socioeconomic classes eat more calories than they need.  Think about the reverse: the guy who eats whatever he wants and never seems to get fat; if we lived during one of those bad times, would he live long enough to pass down his genes?  Probably not.  It would be the guy who burns the lowest amount of calories while storing the maximum who will get to appear on the most episodes of Maury Povich. 

In essence, this is an issue of compatibility, not good or bad.  Is the society you are living in experiencing boom or bust?  In a boom, thinness is rewarded because being fat is useless--no need for stored energy if there is energy all around you.  In a bust, a fat guy is lauded as a survivor, someone who has enough resources to for himself and his mate(s).

But I thought this was supposed to be about stocks.  It is.  Everyone (including me at one time) is looking for the perfect strategy, the holy grail to bank massive amounts of coin.  When we say a perfect strategy, what we really mean is a strategy that is compatible with the market at all times.  Is there one?  I'm doubtful.  But I am sure of this: you don't want a fat guy strategy because he will never make it when the society values thinness.  In the same vein, you don't want a thin guy strategy because he is the first to perish when calories are in low supply.

The answer therefore is simple: figure out a way to determine the market condition and change your plan dynamically alongside it.  Otherwise, tune your strategy to be extraordinarily successful in one market condition to make up for all those other times where your strategy is out of vogue.

One final caveat: you can't just take all recorded stock market data since 1850 or whatever and decide that's all of the possible market conditions.  In some ways, the market has existed since man made his first wheel.  The market's actual physical existence is irrelevant.  The human psychology to make a marketplace possible has always been there.  Do you want to bet the last 150 years has all possible data sets?  I don't.