The Market as a Great Ocean

“I do not know what I may appear to the world. But to myself, I seem to have been only like a boy playing on the seashore, and diverting myself in now and then finding a smoother pebble or a prettier shell than ordinary whilst the great ocean of truth lay all undiscovered before me.” --Isaac Newton

The above quote has stayed with me ever since I first ran across it when I was studying physics in high school or college. I mention it here because the feeling I get when looking at the financial markets is the same as what Newton describes in this introspective quote. The markets are a vast ocean that so many of us are trying to understand. Each day at the opening bell we scurry forward into the market, encountering enticing stocks, bonds or other tradeable assets that captivate our fancy. We examine some of these close up, marvel at their profit potential and select a few of them for our portfolio. Always on the prowl for something better than what we already have, we occasionally find another stock or investment that has a more attractive risk-reward profile or is a little more promising in some way. We go about our day-to-day activities, buying and selling what the market has to offer, whilst a seemingly boundless ocean of opportunity lays undiscovered before us.

I find it fascinating to watch, examine and participate in the markets. From thousands of years ago when human society progressed to the stage where people had land, valuables or goods to trade with each other, there have been markets. Price behavior in the markets, like human emotions and beliefs, is volatile, forever evolving and difficult to predict.

Given this "mysterious" nature of the market, I wonder how far my own effort to understond the market can take me. By "understanding," what I mean is:

a) Logical Soundness: Having a consistent conceptual framework;
b) Verifiability: Being able to test the understanding;
c) Profit Potential: Having a way to profit by buying and selling.

My goal is to identify aspects of the market that can be described and tested and offer the opportunity to make a profit. I look for patterns, for some type of predictability in the way the market moves. The most promising area I have seen so far has been the long-term investing framework I have outlined in prior posts and am testing for viability in my own investing.

I imagine that there must be lots of other market trading opportunities available to those with the time and motivation to discover them. As I play on the seashore of the market's great ocean, I endeavor to understand her mysteries but will not be disappointed if all I eventually come away with is a few beautiful pebbles and seashells that I happen to stumble across during my extended journey.