Investing Psychology Starts In The Men's Locker Room

Recommended skill level: 1/4 (Rookie)

The second law of thermodynamic states that within any closed system, entropy never decreases, and thus, in simplest form, systems tend towards higher and higher dis-organization as a function of time. However, after a hard workout at the gym, I find it incredibly interesting that the lockers next to mine are always being accessed at the same time as me. We don't come at the same time, nor do I take any set classes, yet if I decided to take a Bayesian approach to my decision, I would bet that either the locker to my right, left or above me would be accessed by some other gym patron at the same time that I return from my workout...thus sort of disproving the law of higher entropic systems...right?

Well, not exactly...

The fact of the matter is that most people do two things:

1. take the easiest route possible
2. don't like to be the outlier

Furthermore, the locker room system is hardly a closed system, but for arguments sake, let's stick to the aforementioned reasons. Based on the 2 reasonings above, we can rule out any type of white noise or randomized event generators that would create the purported lemmas to create a probablistic environment necessary for the laws of thermodynamics to hold.

But what this did bring me to is the realization that unlike sub-atomic particles, people will always tend towards decisions that give them comfort, and when possible, make it easiest for them to accomplish a particular task. No one likes to be an outlier or too outside the norm, and when they are, it's usually at the result of extreme outcasting, ridicule or fundamental beliefs. Furthermore, if there is an easy way out that mostly abides by the rules of the system, people will tend to act in accordance with this too.

So, the next time you invest in a stock, option, future or forex, remember to stick with the trend, and to not over-think or over-analyze the situation passed the market efficient theorem's basis that all the information you need is readily available at your fingertips because chances are, in this media-friendly world, that what you see is what you get...And in those rare circumstances where you get thrown a curveball, just remember to mitigate your risks with hedging strategies and/or limit losses.

Don't be the trendsetter, just go with the flow. See our other hubs for more investing advice and tips on life.