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Survival of the Fittest Reigns at the Stock Market
The book treats the New York Stock Exchange as an ecosystem. Stocks
at the stock market are considered as species competing for investors'
money in the same way rabbits compete for grass. An investor who chooses
what stock to buy participates in a process of natural selection where
the "fittest" stock wins.
Investors are preoccupied with prices, which are neither indicators
of value, nor constitute competitive variables. To study the competitive
struggle, one needs to look at the TRUE competition variables for each
stock, namely the share volume and dollar value daily exchanged. The
study of the evolution of these two variables over time yields not only
price forecasts (as per the iPad app Stocks' Futures mentioned earlier) but also less ephemeral insights and understandings
about the stock market on such questions as:
- What will the Dow Jones do in the medium and long term?
- Is there a "bubble", and if yes, is it going to burst?
- Can there be an early warning for a major market correction?
- How long will high volatility last?
- Do bonds have any future?
- Is there any value in stock splitting?
- How well does a stock that dominates the stock-market floor
reward its shareholders?
A stock's competitiveness is quantitatively definded in the book and summarized in
Figure 5.3. It has been cast in
a user-friendly software application by Ronald McEwan an enthousiastic
and competent reader of the book (you can contact
him at rmac@juno.com). You can try this application here. To interpret your results afterward read the highlighted text in the book excerpt
here.
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