Let There Be Markets

“Let There Be Markets”

Is there a “unified market theory”?

Source: Wikipedia

In the late 1800s, James Clerk Maxwell sought to understand how electric and magnetic fields interact. He formulated the Maxwell Equations to explain them. Ever since then, physicists have sought a unified theory to tie all the forces in the universe together. Einstein tried—and failed–to connect electro-magnetism with gravity. But other forces—the nuclear weak force, the sub-nuclear strong force, and light—have been joined.

But there’s no way to pull everything together. There are competing models with names like String Theory, Brane Theory, or Warped Gravity. They’re all highly complex mathematical approaches to difficult problems. There’s no consensus on a single solution.

Copyright Sidney Harris. Source: Science Cartoons

In finance too, people look for singular answers. What’s the ideal portfolio mix? What’s the best accounting method? Which company will be the next “Apple”? In finance, as in physics, it depends on your perspective.

The best portfolio is the one that meets your individual needs over time. If you need income, a fast growing private equity portfolio won’t work. If you’re a 20-something saving for retirement, a ladder of Treasury Notes won’t generate growth. There’s no single approach that’s ideal for everyone. Investors need to understand their own individual requirements and limitations before anything is ever bought or sold. Menken writes that for every complex problem there is an answer that is clear, simple, and wrong.

Life is complex. Responsible people understand this. Anyone who says otherwise is selling something.

Douglas R. Tengdin, CFA

Chief Investment Officer

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