Alchemists Cannot Win

The alchemists dilemma is an ancient opportunity/consequence issue.  It demonstrates the value of the question “What then?”

Alchemy was a popular research subject in the middle ages and later.  Sir Isaac Newton was involved for a while.  Many looked for a secret or unique way to turn base metals into gold.  On the surface that looks like a good gig.

But, suppose someone succeeds, what then?

The first thing we must notice is that gold is a commodity and its value per unit depends on its supply and demand.  If the supply increases, the price falls.  Eventually the price will fall to the point that is supported by its other uses instead of its potential money uses.

At the same time, the price of lead or tin would likely increase as there is now a new use for that metal.  The base metals might be a better investment play.

A similar thing happens with investment information.  Patterns of trading or charts may give clues to tradeable conditions.  High velocity trading relies on pricing anomalies between markets that disappear in a few thousandths of a second.  Charts supply things like MACD indicators.  Some people have noticed connections with trading before holidays, or over a weekend, or the Super Bowl winner, or the color yellow.  Even wholesale aspirin sales.

What then?  As soon as many people know the detail of the pattern or trend or anomaly, it will disappear.

Like the alchemists.  Success leads to no value.

Trading looks like a good technique for people who are bright and aware.  It is if you find a tradeable situation and know when to stop.  The “and” is the problem.  All price anomalies disappear.  Trading is much more complex than investing.  Trading has bubbles that arise from unbalanced information and interpretation.  Those always disappear.

If you want to be a trader you must continue to find anomalies or patterns and explore while they are available.  It will be a never ending search and relies on others being less capable than you.  Not always a wise conclusion.

Trade for fun and invest for profit.  Start by knowing the difference.

Don Shaughnessy is a retired partner in an international public accounting firm and is now with The Protectors Group, a large personal insurance, employee benefits and investment agency in Peterborough Ontario.


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