Holiday is revisiting The Beauty of the System by Denera Meadows. This is a book about systems science that helps us make the right choices when we encounter system problems while taking us through systems.
There’s a paragraph in there that addresses the problem of adaptability: adaptability is always limited. An adaptive system may be constantly changing dynamically, and a system that remains constant is precisely not adaptive. The Nine Laws of Nature in KK’s “Out of Control” also mentions that nature, as the most powerful system, has two major characteristics: self-sustaining changes and persistent imbalances.
In the face of the unknown nature, we will be subject to various shocks, and the ecosystem always shows its strong recovery and adaptability as we do, which is largely due to the ecological Balance and redundancy.
Facing the financial market, we will also encounter various shocks, such as the natural ups and downs of the economic development cycle, soaring inflation, sudden wars, the breakdown of speculative sentiment, and the collapse of financial derivatives leverage. Therefore, building an ecological strategy system that adapts to as many environmental changes as possible is the key to resisting risks.
Some funds often adopt a single strategy or a single industry style in order to have a distinctive style and easy marketing, or to become a market star at a certain moment. The essence of this style of play is to sacrifice the adaptability of combination management in exchange for high recognition and high dissemination. Of course, this may also be related to the depth of skills that need to be mastered. After all, it is not easy to master one strategy, let alone master multiple strategies and integrate them into a relatively harmonious system.
As Denera said, adaptability is a basis for the operation of the system. An adaptable system is a large platform. In the space supported by the platform, the system can run freely. Once it approaches the edge of danger, it will encounter A soft, bouncy wall bounces it back. As the adaptability of the system decreases, the supported platform will become smaller, and the protective wall will become shorter and stiffer, until the system seems to be running on the tip of a knife, and as long as there is a little vibration, it may fall at any time. Because people often focus more on how the system works than on the space in which it operates, the loss of resilience, to the average person, seems to come suddenly and unexpectedly. In fact, before that, the system was already riddled with holes.
Back to investment, the purpose of multi-strategy investment is to use different perspectives to build more adaptability in the face of uncertainty. In order to combine in the complex and changing environment, get more space for flickering and maneuvering. In order to achieve a better long-term risk-reward ratio (Sharpe ratio). $Evolutionary Compound Strategy No.1 (P001212)$
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