Saturday, 28 May 2016

Complex simplicity

15:16 Posted by The Thalesians (@thalesians) 4 comments

Our memories love stories. A narrative finds a place in our thoughts far more easily than some abstract fact. I can remember numerous stories from my university days. However, I might struggle to recall a precise mathematical proof I learnt in a lecture. Indeed, I was recently thinking about the interplay between complexity and simplicity when solving problems (I also recently wrote about a related subject). Thinking about this, made me recall a potentially apocryphal story I had heard a few years ago, told by one of my friends. My friend recalled an interview of Truman Capote, the American novelist, famous for a several books including In Cold Blood, a novel based upon a real crime committed in Kansas, which I've read myself.

The interviewer was berating Capote for the speed of his writing, noting that Capote might sit for hours resulting in only a single word of output. Capote reply was perhaps the best you could think of, along the lines of "But it was the right word". It illustrates how so much time and effort can go into what appears superficially as something very small. Having written a book myself, I can sympathise with the Capote's sentiment. The reader of any book simply sees the output, as opposed to the hours obsessing over sentences, editing and rewriting. Language which simply flows effortlessly from sentence to sentence somehow has the quality of appearing natural and somehow easy to write. The complexity of the process of writing good prose masquerades as simplicity. Of course this masquerade is not purely something seen in writing.

The same can be seen when trading the market. All we want is a binary decision ultimately buy and sell. As we all know the complexity in making this binary decision is enormous. Not only do we need to choose the right direction, we need to understand how much risk we allocate to it, we have to have the right timing, we have to make sure the trade fits into our portfolio etc. The list is unfortunately far from short. It also also something which I've observed in working as an independent. Having the ability to make your own decisions might appear to simplify your work, because you can choose your path. The difficulty is freedom to make your own decisions, also means an outsized ability to make the wrong decisions (something that I have learnt on numerous occasions!)! Within a large organisation, it is of course still possible to make mistakes, but to some extent a lot of your decision making will be shared with other individuals, so there are effectively fewer options to choose.

When something seems simple it might be a lot more complex than we initially think. Making it look easy is the complex part.

Like my writing? Have a look at my book Trading Thalesians - What the ancient world can teach us about trading today is on Palgrave Macmillan. You can order the book on Amazon. Drop me a message if you're interested in me writing something for you or creating a systematic trading strategy for you! Please also come to our regular finance talks in London, New York, Budapest, Prague, Frankfurt, Zurich & San Francisco - join our group for more details here (Thalesians calendar below)

09 June - Zurich - Felix Zumstein - Python in quantitative finance
16 June - New York  - Tobias Adrian - Nonlinearity and Flight-to-Safety
29 June - London - Steve Hutt - Recent Advances in Deep Learning and Applications to Market Data


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