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Weather Map Theory Of Global Investing

Posted By Barry Ritholtz On May 11, 2005 @ 11:00 am In Investing,Markets,Psychology | Comments Disabled

All investors create a intellectual construct of how and why the markets do what they do. (They may not be aware of it, but they do).  Mine is loosely based on Chaos Theory, which combines elements of random, non-linear dynamic behavior with Trend. That’s why sentiment and market internals are so important to my construct.

Doc John Rutledge [1] has a different approach, combining a Weather Map [2] and  Thermodynamics [3].  Its an interesting construct, and philosophically, it works for me:

I also like the weather map metaphor because it  reminds me of two important facts. First, extraordinary investments,  like weather systems, are transitory phenomena. Even the best  investments don’t generate excepitonal returns forever.

Second, investing, like meteorology and thermodynamics,  is not an exact science. It can help you to identify the storm  systems that are going to make things happen. And it can tell you  what things will look like when the storm has passed and thermal  equilibrium has been once again restored. But it tells you very  little about what happens in between.

Weather_map [4]

His blog [1] is worth checking  out.

Source:
RutledgeCapital [2]
WEATHER MAP THEORY OF GLOBAL INVESTING
http://rutledgecapital.com/storm_watch.html
http://www.rutledgeblog.com/

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Article printed from The Big Picture: http://www.ritholtz.com/blog

URL to article: http://www.ritholtz.com/blog/2005/05/weather-map-theory-of-global-investing/

URLs in this post:

[1] Rutledge: http://www.rutledgeblog.com/

[2] Weather Map: http://rutledgecapital.com/storm_watch.html

[3] Thermodynamics: http://rutledgecapital.com/how_we_think.html#thermoeconomics

[4] Image: http://bigpicture.typepad.com/.shared/image.html?/photos/uncategorized/weather_map.jpg

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