The Online Investing AI Blog

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We’ve been having an interesting conversation about randomness and how it relates to investing and trading.

George talked about it in his book review of  Nassim Taleb’s Fooled by Randomness and our friend Nick wrote about it in this post at Becoming Capitalist. Like all great conversations, it made me think. The idea all boils down to primarily one question: is the market propelled by either determinacy or randomness?

And it leads to an even more important question: can we predict the market?

As far as whether the market is deterministic or random, I arrived at this conclusion: yes. It’s a “both-and,” not an “either-or” situation. The market is based on both determinism and randomness–at the same time. How can that be? Aren’t they mutually exclusive?

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If you’re not sure what the black swan is, check out the book by Nassim Nicholas Taleb.

Essentially (and I’m vastly over-simplifying), Taleb’s point is that your brain is fooled by randomness and that you must be able to recognize the large-scale events that can cause massive and chaotic change in the market.

Taleb refers to these events as “black swans,” based on the notion that everyone believed that only black swans existed, when, lo and behold a species of black swans was discovered it.

To simplify this even more: S**t happens.

The question for me, since I’m interested in how technology can predict asset movements, is: how can we predict a black swan.

I don’t think you need to. The problem isn’t that there is an agnosticism about black swans; the problem is when investors cling to white swans and aren’t nimble enough to jump on the long neck of the black swan.

I believe that technology is suitable adapted–or could be adapted–to not only recognize a black swan moment, but also move assets and change positions into its flight path.

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