The Research HUB: How To Analyze A Complex System
The fundamental principles
Regardless of where you are in your learning journey, the foundation you set determines the distance you can go. I have always started by asking, what is the best way to analyze a system where there is a lot of noise and a lot of asymmetry. Simply put, what do you do when you keep hearing the wrong information AND little things have a big effect? These are the principles we are covering today.
When we approach any complex system there are several things we want to do:
First, we want to identify all the variables and moving parts
Second, we want to identify the causal mechanics of the system and the sensitivity of all the variables to those mechanics
Third, we want to quantify these into a testable framework in order to have an informational feedback mechanism that tells us when we are right or wrong.
Fourth, we want to identify what is the best course of action in a specific regime or the best decisions given how the system functions.
If you want to dig deeper into this, there are two places you should go:
Place #1: The Origin of Wealth is an exceptional book showing how this TYPE of thinking connects to wealth creation and financial markets.
Place #2: The Santa Fe Institute is a website that provides clear courses and tangible examples of how these principles are being used in domains of society.
As I said in a previous article, all the resources to learn are out there:
This is why I started the Substack by writing over 40+ educational primers on how to analyze and operate in financial markets:
The key is pulling all of these pieces together and executing them in real-time. What does this look like for me? I write a comprehensive macro report every month breaking down every piece of economic data and how it impacts each asset class. I then do a webinar where we expand on this and clarify the tensions that exist in markets.
This doesn’t mean we will always get it right but it does mean success is inevitable. The next macro report and macro webinar will be coming soon to paid Subscribers. Feel free to reach out in the Discord if you have any questions.
Adapt or die!