BCA Research

BCA research, a highly respected independent macro-economic research house, released a fascinating investment strategy piece attempting to dissect what triggers markets to fall. Market timing is an inexact science as valuation concerns is the cause, but is not often the trigger of a market correction. Markets stay irrational for longer than an investor can stay solvent as the saying goes. BCA point out successful investing combines many disciplines, an understanding of economics, finance, knowledge of history, politics, and behavioural psychology. 

BCA point out that there were no obvious triggers for either of the 1929 or 1987 stock market crashes. The 1929 one was before our time but the 1987 one is still embedded in the memory. On that day one clearly remembers it just happened, there was no catalytic event to attribute the fall to.  

One has to add to the study of complex adaptive systems to the list of qualities that a successful investor needs, according to BCA. A basic property of a complex adaptive system is that it possesses an endogenous tipping point of instability. We hope you are following this so far. Apparently the endogenous tipping point for financial markets, across asset classes, nations and cultures is a universal constant of finance when fractal dimension hits 1.25, this is when the system is particularly unstable. We will not go into detail about the definition of these terms but allow the curious to look them up themselves. The good news according to BCA is that at present despite its rise the S&P 500 its fractal dimension is not close to 1.25. 

We would add one further criteria to that of a successful investor, that of common sense. One could make a very strong case for that being the most critical.

Posted on September 26, 2014 .