So far this week…
We’ve hunted for Investing’s Holy Grail.
We were amazed by the Eighth Wonder of the World: Compound Interest.
And we discovered the Secret Number of Finance: 72.
Now in our quest to uncover the secrets and mysteries of investing, we’ll reveal investing’s version of the Golden Ratio.
The Golden Ratio, well known in the fields of science and math, indicates that there’s a symmetry that underlies the universe. In art, it can be seen in the placement of points of interest in art works. Scientists see the Golden Ratio in things as small as the Nautilus Shell, to the immensity of a spiral galaxy.
The Fibonacci sequence is investing’s golden ratio.
The Fibonacci sequence, named after Leonardo of Pisa, who was known as Fibonacci, starts with 0 and 1, and the remaining number is the sum of the previous two. 1+2=3, 2+3=5, 3+5=8, 5+8=13… and so on.
What does this have to do with investing?
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It’s taken me a few years to realize that Fibonacci isn’t some type of pasta dish.
According to Wikipedia:
“In the Fibonacci sequence of numbers, each number is the sum of the previous two numbers, starting with 0 and 1. Thus the sequence begins 0, 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144, 233, 377, 610 etc.”
The Fibonacci sequence was also the basis of many Renaissance artworks where it was better known as the golden ratio.
A lot of investors believe that Fibonacci calculations can give you insights into stock market movements. Proponents say that patterns underlie everything in the universe–from the shape of shells to the position of your nose… even the highs and lows of the stock market.
I guess the important thing is: what do Fibonacci numbers say about the near term future?
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