Insight, Inc - Prediction, Fourier, Pattern Recognition

For decades, steady, strong portfolio returns have been rare. Stock prices and indexes wiggle around. And, people often refer to “volatility.”

Stock markets, futures, and indexes are all in the realm of non-linear dynamics.  So, markets are not efficient nor rational. Instead, they are chaotic. Insight Inc, based in Miami, Florida, explores these dynamics.

In the last 100 years, three theorems have touched upon the human causes of unstable market dynamics:

• The Cobweb Theorem (Mordecai Ezekiel, 1938)
• System Dynamics (Jay Forrester, MIT, 1950s+)
• Behavioral Finance (Robert J Shiller, Yale, 1981+)

Thus, the market is a collection of micro-herds, each with incomplete information. We know that the herd moves back and forth. And, prices move up and down.

Indeed, in 1963 and 1972, Edward N Lorenz showed that the number of significant figures is important for accurate prediction in non-linear systems.

He also distinguished between random noise and dynamic effects, such as turbulence or exponential changes. Effectively, Lorenz demonstrated practical applications using weather prediction techniques.

For decades, steady, strong portfolio returns have been rare.  Even the adage “Past performance is no guarantee of future results” is standard. Even from organizations with certified asset managers. Thus, Insight Inc sees that the need for better performance is apparent.