The cat and the stock market

Austrian physicist Erwin Schrödinger came up with a “thought experiment” in 1925 that is now called “Schrödinger’s cat.” Schrödinger was one of the creators of quantum theory and won the Nobel Prize in Physics in 1933, so most of what he says is way beyond the thinking of a mere mortal like me.

But, simply, Schrödinger said that if you took a cat and something that could kill the cat and sealed them in a box, you would not know if the cat was dead or alive until you opened the box. Therefore, in a sense, until you looked inside, the poor cat was both alive and dead. Schrödinger’s idea was that in a theoretical sense, that is possible but in the real world it is impossible.

Further, if it were possible in the physical world to be both alive and dead at the same time, by opening the box and peeking in, the observer would conclude “alive or dead” and thereby influence the outcome of the experiment.

Schrödinger devised this to counter arguments that what could happen on a small scale was meaningless on a large scale. For example, we know that water is made up of tiny drops. But the water coming out of a garden hose is a stream and if an observer looks only at the drops, they cannot see the bigger picture of the stream. Quantum theory would say that the water is both drops and a stream at the same time, which is theoretically true. But in real life, the water is actually one or the other depending on how you look at it. The observer changes the outcome.

We spend a lot of energy trying to figure out if the stock market-in-the-box is alive or dead.

One point that Schrödinger was making was that what might apply on a micro scale did not mean it applied on a macro scale; the water drops to the garden hose thing. One local stock-market expert has been saying for weeks that local stocks are falling on “fears of a US interest rate hike.” OK, but what does that mean?

Are investors going to move funds to US banks to get a higher deposit rate on their savings? Are aliens (or maybe the Chinese) waiting for a rate hike to occupy Edsa? What is the connection?

Schrödinger’s cat died the moment the box was opened and someone said, “The cat is dead” so for this stock-market observer, what he says is true and is undoubtedly holding 100-percent cash.

For me, falling markets are always the best time to make money. This is because—like Schrödinger’s cat—the observer determines the outcome. When the experts are trying to keep their minions from panicking about the “dead cat,” they ignore the profitable lions right in front of them. It is easier to get the majority on the “dead cat” side of the observation.

In other words, investors are always cautious. The great majority of investors are smarter than the experts give them credit for. However, on the other side, it is also always easier to think that the cat is dead if you don’t hear any sound coming from the box. Since the end of January there has been much “the cat is dead” talk and people stopped buying on what they thought they saw in the box.

What you should be focusing on are individual issues. When Schrödinger left Austria just before the war, he took his wife and mistress with him where they lived all together in Ireland. Focus on making money, not the stock market-in-the-box.

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E-mail me at [email protected] Visit my web site at www.mangunonmarkets.com. Follow me on Twitter @mangunonmarkets. PSE stock-market information and technical analysis tools provided by the COL Financial Group Inc.

 

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Turning Points 2018