It Never Starts With Technology: Obsession Into Something Surprisingly Beneficial

Growing up, I would read Field and Stream at the local barber shop. The covers of these publications illustrated outdoor adventure, excitement, and often danger. Inside, articles detailed the latest rifle cartridges, exotic hunting trips, and fishing excursions. Between articles, a glance at the wall revealed rows of hunting and fishing trophies.

There was a boar's head, a large fish with a cigar in its mouth, multiple deer mounts with antlers, a fox, and several other species staring down at the men sipping coffee and reading magazines. Occasionally, a man would be lowered backward in the chair and given a straight razor shave. That seemed stranger than the animal heads.

At this barber shop, I learned gunwriters fall into two camps. The first is low-velocity big bullets. The second is high-speed small bullets. Both groups discuss cartridge efficiency and effectiveness, provide mathematical evidence to support their argument, and antidotal tales to support their claims.

The tales of hunting in faraway Africa were my favorite. While buying the wrong rifle in Tennessee would cause some laughter, bringing the wrong gun to Africa would get you killed because most of the animals fight back.

Being in a home that was not gun-friendly, I learned to shoot in the Boy Scouts. At first, it was a 22 rifle firing at a 50-yard target. Later, it was a 20 gauge shooting at clays thrown into the air by a machine. However, the most fun was at my friend's ranch, where we shot his dad's 357 revolver at old refrigerators, snakes, and groundhogs.

For the record, on a cattle ranch, groundhogs pose a serious problem by digging holes just large enough for a cow to step in. Removing these rodents from the large pastures is a required chore for cattlemen. In this case, two ten-year-old boys wishing they were on the African plain in search of a man-eating lion.

That was nearly 40 years ago. However, the debate among gun writers continues with no clear winner. When I switched from software to financial engineering, I discovered that security traders also fall into two schools of thought. That is fundamentals and technical analysis. The first involves the difference between a company's value and stock price, while the latter finds patterns in stock movement.

Like the gun writers, there is no clear winner after a hundred or more years of debate. Instead, there is evidence supporting both sides' arguments. The consensus is that both techniques work some of the time. The most exciting aspect is the third argument, first brought about in the 1980s when computers were gaining ground as trading tools.

This third argument is by Benoit Mandelbort and involves a study of markets using statistical physics aided by computer calculations. In short, it states that markets are far more volatile than anyone will admit. Basically, markets behave in an expected manner for a time and then violently change direction without warning.

For the technical analysis, there is evidence that prices have memory—not from some mysterious force but from the people doing the trading. For example, the 1987 Black Monday crash occurred after those who survived the Great Crash of 1929 retired. Before then, trading was much more cautious, and as a result, markets became more stable.

A plus for the fundamental crowd is that prediction is possible by understanding underlying data and popular opinion. For example, if a stock is moving upward, it is usually based on a fundamental truth. However, it must gain popularity among the crowd to keep moving forward.

Thus, we get into the most mysterious concept of modern markets: the crowd and Behavioral Economics. Answering the question of why men leave their homes to risk life and limb in a faraway place trying to shoot an animal that wants to kill them is similar to determining why a person would buy a stock as it skyrockets and sell once it falls rapidly.

The short answer is that people are not logical. This is why it is impossible to determine which startup will succeed and which will fail during the first few years of operations, let alone which will have a meaningful exit.