Why Is 2nd Order Thinking Important In Trading & Investing?
Figuring out 2nd order consequences is especially pertinent in financial markets, whose complexity leads to ripple effects being felt in unexpected ways.
Figuring out 2nd order consequences is especially pertinent in financial markets, whose complexity leads to ripple effects being felt in unexpected ways.
2nd order thinking is considering the consequences of the consequences of an action. Acting without regard to these can lead to large unintended consequences.
USD shortages can quickly morph into global economic crises, like in 2008 and 2020. But authorities keep prescribing policies that undermine more than help.
Do trillions in fiscal stimulus and central bank QE mean that the head of the IMF’s concerns about a potential EM debt crisis will not come to pass?
How would an EM collapse come about? Mainstream narratives blame capital outflows due to political upheaval, or a fall in creditworthiness – hence higher rates.
The head of the IMF is concerned about higher interest rates tightening financial conditions in emerging markets and causing a debt crisis. It isn’t so simple.
Do low rates lead to higher stock prices? The logic goes: low rates give us higher present values and thus lead to higher equity values. Is this argument valid?
The global chip shortage can be attributed to Covid disrupting global supply chains. But there’s more to it. Covid is merely the butterfly flapping its wings.
Paradigm is the most important part of the Iceberg model. It exists on an ideological level but manifests itself physically through all the layers above it.
The Iceberg model is a great tool to help you think in terms of systems. It has 4 layers, events, patterns of behavior, systems structure, and paradigm.