360 VR VLOG — Market Cycles with Efficient Market Hypothesis and Fractal Market Hypothesis

MARKETS RETURNING TO PREVIOUS LOWS?
TIM MLYNEK
EMH — Efficient Market Hypothesis
— impossible to beat the market
— all possible information is reflected in the stock price at the moment in time
— this is called market efficiency
— essentially means that it’s impossible to buy undervalued stocks and -sell @ an inflated price, meaning getting gains. Those gains are still fair market price as they are.
— in this theory, it’s impossible to outperform the markets
— the only way to win in the market is to make riskier and riskier investments
— this completely removes any value in fundamental / technical analysis
— where is the win? — passive portfolio, small gains
Benoit Mandelbrot — 1979
— observed the world to act in a fractal nature
— created fractal geometry
— first to use computer graphics cards in 1979 to show fractal geometric images on a computer
— showed that the visual complexity can be created by simple rules within the system
— essentially meaning, there is a degree of order within chaos
FMH — Fractal Market Hypothesis
— formalized by Edgar Peters in 1991
— analyze daily randomness of market
— market is stable when comprised of investors of different investment horizons
— this means, the more diversified the market is, the more stable it is
— markets are fractal
— technical analysis is possible in so much that patterns of fractals repeat themselves along time frames
— meaning, history repeats itself
FMH
— 2 key things effect FMH according to Edgar Peters
— liquidity
— investment horizons
— again, the markets are stable when there are short term and long term investment horizons
— at this point, information on the market is relatively shared and understood by all investors in the market
— “we agree that it’s all good.” — short term investors make small gains, long term investors don’t care
— when investors, en masse, change their investment horizons, you’ll see long term investors move towards short term horizons, resulting in a downward trend and potentially a collapse
— this is due to information permeation in the market. when information is interpreted or understood differently, it creates dissonance in investment horizons
