Thursday, July 23, 2009

Why Does History Repeat Itself?

We blame the history for repeating itself but the more we see the fundamental behaviour of humans, the more we shall find that the phenomenon of history being able to repeat is primarily the reason why it can repeat. Confused??? Its fine... I was too, till I gave more thought to it... And what is worse, still am....

Let us look at the judicial system: A precedent is something that can hardly be ignored, unless the case facts have altered beyond a point. The precedent, then, is taken as the judgement to be made. If the case facts are similar, the culprit must be the same – is what we believe. Why don’t we question the judgement of the judge who set that precedent? How many amendments do we know of which sought to repeal previously held judgements. Most amendments are actually “appendment”s. So effectively, if in a dubious case the wrong guy is hanged to death, the precedence will be held true for all cases in future too – and repeatedly, the wrong guy will be dead. And undoubtedly, we’ll claim, “History Repeats Itself”.

The second instance is what I got interested in today – Technical Analysis of stocks. The chartists claim that trends are similar across times – that trends themselves have a trend!!! But where they cement the phenomenon is their belief that the trend cannot change, that if the prices went down this day in history, they will do so today!!! So the next time I recognise a trend, I know what will happen and thus will follow the trend... Thus I, inadvertently, become a part of self-fulfilling prophecy. I recognise the trend that prices will fall and start selling my stock. Everyone else also does the same. When it reaches a certain level and I realise that the historical trend predicts an increase now, I start to buy stock. Everyone else does too. Is it a wonder that the prices actually fall and rise “as predicted by Technical Analysis”? The chartists believe that market psyche remains constant to market stimuli, why they discount the human mental evolution is something I’m yet to understand. Probably a chartist or behavioural finance specialist can explain.

MMM

P.S.: I'm neither a Lawyer nor a Chartist. More importantly, I do not claim to be one. The above are simply ramblings which I hope will be answered over time.

5 comments:

abhishek gupta said...

ultimate sir..

Bunty said...

answered over time...too optimistic, boss...thoughtprovoking though...:)

MMM said...

I dint understand wat do u mean to say is too optimistic? the trend of the trend?

Shruti said...

The best part about your blog is the inticacies in day to day life that you notice and bring out.... keep it up :)

MMM said...

As Newton once put it, I'm just an average boy playing on the seashore, once a while finding an unusual pebble along the way :)