Friday, October 10, 2008

We learn from history that we don’t learn from history - Part 1


This is amongst my favourite paradoxes and I savour the deep meaning that the paradox throws at us.

It is human to experience the wide range of emotions which enrich our lives. From the exhilarating highs to the depressing lows. Markets are like mirrors that stare back at us, displaying our own emotions and blurring the picture over a period of time. Do our emotions define the markets or does the market define our emotions? Who is the dog and who is the tail gets lost in the concoction of emotions that wag around us.

History poses the same problem to the human mind. Does history define the path that we will walk or do we chart the path which will rewrite history?. Surprisingly, though science has progressed on all frontiers, the human mind still remains where it was and experiences the same set of emotions. The thrill of a hunting kill is the twin sister of the kick in executing that profitable trade. Our primal emotions have moved unaltered through history and are bounded by the framework that history defines for us. We are destined to operate within those boundaries, believing that we will rewrite history as history makes us repeat it.

There are two discernable trends that I want to touch upon where history keeps repeating itself.

Cyclical nature of all markets
Man is not a rational animal but a rationalising one. The ability of the human mind to rationalise everything from valuing eyeballs during the dotcom boom to sending millions of Jews to the ghetto is amazing. We don’t find answers for our questions but define the questions for the answers that we have already decided on.

This rationalising ability of the human mind makes it experience the exhilarating high to the depressing lows.

“Greed is good” said Ivan Boesky at Berkeley’s which Michael Douglas ( Gordon Gekko) later made it famous in the movie “Wall Street”.

Combine greed with the rationalising nature of the human mind and we get “irrational exuberance”. To covet the other man’s land, gold or his wife while keeping our‘s at home has driven human civilisations through history and it will continue. Fear of losing your life or your wealth over it is the flipside of that pursuit. Can we overcome the cycle of greed and fear? We haven’t in 8000 years of human evolution and I don’t see we managing it now. So we will go thru this fear phase to experience the next round of unbridled greed. The actors in the play might change but the play will go on.

To quote Shakespeare
“All the world's a stage,
And all the men and women merely players:
They have their exits and their entrances”

To be continued ......

3 comments:

Manish Chauhan said...

Hmm... Human Greed will continue like this ever , other wise there be no Rich and Poor , these Greedy people make way for people to get Rich , Atleast stock markets are a place where most greedy people loose there money to people who are little sensible then them .

Manish
http://finance-and-investing.blogspot.com/

Ninad Kunder said...

Hi Manish

Yeah the cycle continues though the particpants may change.

Cheers

Ninad

pjwlk said...

Well said, and absolutely true.