This web site is designed for the education of Humans about the nature of their own brains
Humans were designed by natural selection. Natural selection designs forms of life according to the
basic rule "the survival of the fittest in a given environment."
But what if human society changes the environment in which the human finds herself? Is the old design
suited for the new environment? Does a raccoon look both ways before crossing the road or do they
often get killed by traffic? How long will it take for the raccoons to evolve the notion of watching out for
cars? How long will it take humans to adjust to the realities of large cities, global economics and
investing in the stock market?
A popular book on investing is named A Random Walk Down Wall Street by Burton G. Malkiel. While
Malkiel believes that stock markets are "efficient" by which he means that the markets quickly
incorporate any available information about a stock which affect the stock's pricing. As a result, stocks
tend to be fairly priced based upon all the available information. He does point out that from on
occasion, euphoria or utter despair takes hold of the market.
The assumption of this book is that humans are all rational most of the time. Given that they are
rational, it is logical to assume that they are all as rational as each other. Since all legitimate information
on stocks is published, it is easy to assume that everyone has access to all of the information about
each stock. If not, then the people who specialize in that stock will understand the information and will
buy it if the price is too low and sell it if the price is too high; thus correcting the price toward where it
should be fairly valued. Given these assumptions, it is not possible to legally gain any advantage over
other people when it comes to investing.
There are a number of errors with this type of thinking, starting with the author's own admission that
humans get emotional and the madness of crowds takes them to euphoria and utter despair on
occasion.
Beyond this, what is wrong with the concept that humans set proper prices for stocks? In the first place,
humans were not designed in an environment where there were stock markets. Their emotional brains
were not optimized to think in the terms necessary to properly price stocks. Much of human thinking is
centered around survival on an African savanna where small animals are food and large animals might
eat you. Beyond this, much of the brain is used to survive and thrive in a society consisting of other
humans.
Humans were designed by natural selection. Natural selection designs forms of life according to the
basic rule "the survival of the fittest in a given environment."
But what if human society changes the environment in which the human finds herself? Is the old design
suited for the new environment? Does a raccoon look both ways before crossing the road or do they
often get killed by traffic? How long will it take for the raccoons to evolve the notion of watching out for
cars? How long will it take humans to adjust to the realities of large cities, global economics and
investing in the stock market?
A popular book on investing is named A Random Walk Down Wall Street by Burton G. Malkiel. While
Malkiel believes that stock markets are "efficient" by which he means that the markets quickly
incorporate any available information about a stock which affect the stock's pricing. As a result, stocks
tend to be fairly priced based upon all the available information. He does point out that from on
occasion, euphoria or utter despair takes hold of the market.
The assumption of this book is that humans are all rational most of the time. Given that they are
rational, it is logical to assume that they are all as rational as each other. Since all legitimate information
on stocks is published, it is easy to assume that everyone has access to all of the information about
each stock. If not, then the people who specialize in that stock will understand the information and will
buy it if the price is too low and sell it if the price is too high; thus correcting the price toward where it
should be fairly valued. Given these assumptions, it is not possible to legally gain any advantage over
other people when it comes to investing.
There are a number of errors with this type of thinking, starting with the author's own admission that
humans get emotional and the madness of crowds takes them to euphoria and utter despair on
occasion.
Beyond this, what is wrong with the concept that humans set proper prices for stocks? In the first place,
humans were not designed in an environment where there were stock markets. Their emotional brains
were not optimized to think in the terms necessary to properly price stocks. Much of human thinking is
centered around survival on an African savanna where small animals are food and large animals might
eat you. Beyond this, much of the brain is used to survive and thrive in a society consisting of other
humans.
AskTheBot's Site for Discussion and Education
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