Jun

29

Laurel and I are currently in Santa Monica and were introducing our son Aubrey to the Pacific Ocean when our splashing was interrupted by screams from further down the beach. "Get out, get out" was resounding all around us now, and everyone was swimming for the shore. Two large gray fins and the flat bodies of two six foot plus sharks had apparently been sighted.

We rushed ashore in panic mode, with no thoughts whatsoever except for getting out before the beasts ripped off our legs. However, the two big fins turned out to be dolphins, and pretty soon everybody was back in the water, thinking of what they should have done differently in such a situation.

Laurel immediately commented, on how this event mirrored the markets over the last week or so, and I took out my copy of Animal Behavior by David McFarland, and vowed that I would study this field systematically to apply its lessons to market behavior.

In a similarly fishy experience, we also paid a visit to the Santa Monica Aquarium, and studied an octopus as it tried to open a bottle with a crab in it. It used all of its 800 suckers to sample every aspect of the environment it was in, to avoid danger, and to assure itself that nothing else was in its domain. Carefully testing the waters with at least 100 probes, is something that all speculators should do also.

For my animal/market behavior study, I thought it well to start with Tinbergen's four questions that all animal (and now market) behaviorists should ask:

  1. Why do stocks respond to environmental stimuli in a particular way?
  2. Why do stocks respond to internal movements in their company and financials in a particular way?
  3. Why do some stocks respond in one way and others in another way, to the same situation?
  4. Why do stocks of a particular industry or style, or value category, characteristically behave in particular way in a particular situation?

I believe the framework that McFarland and Tinbergen adapt in their works in this field would be a good one to follow in our own work on the markets, and I intend to do so in subsequent posts on comparisons between animal and market behavior, and what we can learn about the latter from the former.


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1 Comment so far

  1. Leebone on June 29, 2007 7:17 pm

    Mr. N.
    You might want to take a look at current issue of “National Geographics”. A large part of it is about nature’s herd behavior & how different businesses are adopting the mechanism. Interestingly there is a photo of Exchange floor & traders.
    Personally, humans will never be able to do what the octopus or any other natural beings in that matter, for we live with protester within, a perpetual sabotour, pointless objector…our thinking mind. Why did she had to eat the damn fruit!

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