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Rules Of Finance intro
A Sovereign Speculator
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Speculation Rules


Rules of Finance*

Keys to financial success



Life is not linear


Great news,

The next 5 years will not be a rerun of the prior 5 years.


A scientist came to a horse handicapper and said he had found a perfect way to predict the winner in horse races. The gambler became excited; no more reading stats, comparing jockeys, watching the weather, etc. In other words winning would no longer be hard work and risk. The bookie took the scientist off to the side and asked for a hint to the process. The scientist said " well, first we assume the horses are all ellipses."

Look around you. How many natural shapes do you see that fit Euclidean Geometry? There is a reason we have the phrase, organic shapes. Math must force life into unnatural shapes to work with it. Unfortunately the results, while solid and comforting, have no resemblance to reality. Economists generally use linear models to predict, algebra to the fore. Algebra is great at lines, life is great at sudden huge surprises.

Some think economists exist to make weathermen look good.


Life is not linear, economics and investment


An old economist saw is, "If you can't guess right, guess often." They can then point back to the closest guess and say, "I told you so." Most financial gurus fall into this camp. Be wary of anyone who claims to know the future, no matter how vague the claim. Unforeseen circumstances always surprise, that's why they are called unforeseen.

For math to be predictive or of value as a model it has to resemble reality. Reality is very messy, math is beautiful in it's symmetry. Short term all is chaos, and we all live in the short term. As Yogi Berra is supposed to have said, "In the long run, there may be no long run."

Chaos is most dangerous when we believe we have found order in it. That is when the surprise comes. I'm not talking about chaos theory and Strange Attractors, I'm talking about. ...

Finance, a poker game, sports scores, investment cycles, weather, economics, and huge disasters; Yeppers, I'm talkin' 'bout life.

In the short term that we all live in, the danger of an unforeseen large event is the reality. If you trade options, consider that leaps are cheaper per time period than standard options, and yet allow a greater chance of force majeure. While we can not prepare for the unimaginable, we can hedge against huge surprises. Develop a protective back door to ensure survival if everything turns upside down.

Plan a way out today. You, and those close to you, may all depend on your wisdom.

Start an action plan now, just in case. There may not be time latter.

"He who wishes to be rich in a day will be hanged in a year." Leonardo da Vinci

Keys to financial success (II)




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* These rules of finance are from notes I made in the early 1990s. I had just read a book by Max Gunther, The Zurich Axioms, and I was reconciling my views with his. Probably a lot of this reasoning is his, and even perhaps some of the verbiage. Of course the weird concepts are probably mine. I see the book is available on Amazon, it is a good read and has great insights. I bought a dozen copies then, and gave them all away. I'm ordering myself a new copy now.

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