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In Chapter 8, Fisher Investments Press author Michael Hanson will discuss some specifics on how to use probability to forecast with a well-constructed portfolio of stocks. Here, however, we'll address a few salient lessons of probability for markets.
Make Room for Anomaly
Fisher Investments Press author Michael Hanson believes if we can learn anything from probability theory and CEAS, it's that the expected outcome isn't always the one we get. Therefore, any good investing strategy is built to be wrong with some frequency. His boss Ken Fisher likes to call stock markets The Great Humiliator, or TGH for short. That's a fine name, but Hanson sees it slightly differently. Hanson calls markets Tricksters.
Most every mythology of the world has a trickster figure. Loki for the Norse, Hermes for the Greeks, Anansi the spider in Africa, and so on. Tricksters don't play by the rules. They're agents of chaos who continually show us the reliable and stable world we believe we live in is full of exceptions and anomalies. Tricksters are made to break rules. They do things outside the guidelines. They teach you lessons by tricking you.
CEASs, and stock markets in particular, are tricksters. Because they price in well-known information, they're constantly tricking the populace, going against the consensus, defying accepted reasoning, breaking the norms. Thus, the vast majority of folks can never really beat a trickster. Tricksters always get the better of you in the long run unless you're uncommonly and eternally vigilant and savvy. Fisher Investments Press author Michael Hanson believes the best you can hope to do is win a few battles with the trickster and for the most part let him have his way. That's a potent metaphor for navigating stock markets. We know they will rise over time, but they'll do it chaotically and in ways we often can't predict.
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