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

Peter Saddington
Jul 22, 2017 · 2 min read

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

Peter Saddington

Published Author, Certified Scrum Trainer and Organizational Scientist // M.A. Counseling, M.A. Education, MDiv — YOUTUBER!

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