Legendary Investor Soros’ Resilience and Bitcoin Marke

“Financial markets are very unfriendly to self-awareness: those who are always immersed in their own fantasies need to pay a very heavy price. It turns out that interest in truth is an important quality of success in financial markets.”

This is Soros's understanding of the financial market. Soaring that Soros is a speculator in the financial market, it is better to say that he is a philosopher who understands human nature. In the financial market, whether it is the stock market or securities, as long as it involves transactions, its essence is similar, it is a game between human nature. So Soros proposes the theory of reflexivity. Through this theory, we can understand ourselves and market. The theory of reflexivity is a philosophical theory, not a scientific one.

What is the theory of reflexivity?

Human beings are high-level creatures with thoughts and emotions. In any event involving human beings, there is an interactive relationship between the individual's thoughts and reality. On the one hand, the individual tries to understand the truth of the event, while the other, the individual tries to obtain a "truth" in their imagination. These two "truths" have the opposite effect. In the process of seeking knowledge, the reality is a known quantity. However, in the process of participation, the individual's thought becomes a known quantity. These two effects interfere with each other when it is proposed which is known and which is unknown. Soros called this mutual interference "reflexivity."

In short, reflexivity is a two-way feedback mechanism between the observer and the observed. The world we observe is not the true picture of the world, but the world we believe in, the so-called "worldview." And the world we understand, in turn, will affect our behavior, so that we will cycle through each other, thus forming a behavioral difference between individuals.

For investors, continuous learning is an effective way to make up for their own cognitive deficits, but can this make our decisions more effective?

Soros’s point of view is that we can broaden our knowledge. The more we know, the more likely we are to make better decisions, but knowledge itself is not enough to make decisions. The events we face are uncertain and random. Knowledge can only explain the things that exist in reality. The establishment of current decisions is based on the individual's understanding of the events. If the individual's understanding is true, then the facts. It will not be unknowable, so that individuals can act according to knowledge, but this is not the truth of the event. The truth is unknowable because individual perceptions often do not correspond to the truth. If you think this is a circular logic, then you understand it.

Soros recognized the market as an organism, and he compared his "quantum fund" to a conjoined baby growing on himself. The financial market is just like the name of his fund company: Soros's decision-making and quantum fund's revenue is like quantum entanglement. Whether or not Soros's decision is consistent with the truth of the financial market, the two are extremely precise. The state of the two-way feedback.

The specific performance can observe the two functions that Soros leads: y=f(x) cognitive function x=f(y) participation function Participating in functions and cognitive functions, the basic trend affects the individual's cognition through cognitive functions, and the changes caused by cognition affect the situation through the participation function. The implication is: what kind of cognition has what kind of behavior. The individual's behavior has a negative effect on the individual's cognition. Cognition is a function of behavior, expressed as a participatory function. If there is a certain kind of behavior, there will be some kind of cognition. Both functions work at the same time and interfere with each other. The function produces a definite result on the premise of the independent variable, but in this case, the independent variable of one function is the dependent variable of another function. What role does reflexive theory play in the financial market?

For the operational logic of the financial market, the most familiar one is the "effective market hypothesis." Theorists tend to summarize the internal laws of operation in financial markets by collecting evidence. Interestingly, Father Soros did not summarize any rules like the "Efficient Market Hypothesis". We can see that the "effective market hypothesis" and "reflexivity" theories are two distinct theories for financial markets. The other two famous investors: Buffett and his best partner Charlie Munger also have the same view of the "effective market hypothesis" in his book. It is also the practice of the three big men seems to coincide. A consensus was reached on this issue.

There are a large number of investors in the market, and their decisions must be different. Many of the individual decisions are offset by each other, and the rest still exists as “mainstream bias”. This assumption is fully applicable to the zero-sum game in financial markets. And all the points of view will intersect at a common point: the price of the investment target. Take stocks as an example: In other historical processes, participants' views are too scattered and cannot be aggregated. “Mainstream bias” can only be a symbolic concept, and may have to be introduced into other models to study, but the sample is large enough. In the concentrated stock market, the investor's decision is clearly reflected in the stock buying and selling transaction: when other conditions are the same, the positive bias causes the stock price to rise, and the negative bias causes the stock price to fall, and vice versa. The stock price after the "mainstream bias" decision will affect the investor's decision-making again and again.

If in the cryptocurrency market, what conclusions will be drawn through Soros’ reflexive theory? Stay tuned for the next article.