Thinking Systemically: Why Simple ISN’T Better For Investing

Thinking Systemically Chaos Theory Butterfly Flapping Its Wings Causing A Tornado Poster

Does the flap of a butterfly’s wings in Brazil set off a tornado in Texas?”Was the question Edward Lorenz posed as he dove into his exploration of Chaos Theory.

It was his way of stating that a tiny, inobservable change in input can lead to a massive, very observable change in output. This occurs in nonlinear (aka chaotic) systems where intricate interdependencies between components of the system take little wing-flaps and amplify them exponentially through a series of feedback loops.

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An EM Debt Crisis Is Really A Dollar Crisis 4

Emerging market debt crises are more often than not global Dollar crises

A stronger USD wreaks havoc in a few ways.

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Why Is 2nd Order Thinking Important? Unintended Consequences

Imagine that you are out taking a relaxing walk along a picturesque trail. You find yourself enjoying the natural beauty of your surroundings and the crispness of the air. Then, out of nowhere, you see a small fence in the middle of the trail.

What do you do?

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Why Is 2nd Order Thinking Important In Trading & Investing?

Do not take down a fence until you know why it was put up in the first place

Figuring out the range of second order consequences is especially pertinent in financial markets, whose complexity ensures that ripple effects are felt in the most unexpected ways and places.

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