On Wed, 3 Apr 1996, Julie Beedon wrote:
> >Investment decision making is a process of generating sets of alternatives
> >in knowing the available entities to fund and then choosing between those
> >sets of alternatives.
>
> Yes - I saw a guy from MIT speak and it was fascinating the extent
> to which you can look over a variety of options and by putting
> together the right *set* of risks and returns you can optimise your
> portfolio - very counterintuitive and needs mathematical formulae.
I'm not sure we're using the same definitions - options as in;
options - a financial instrument or options - a set of choices?
I think different strategies could be used when investing in options -
financial instruments and stocks - a share of ownership in a company -
due to various levels of risk based on different (logical?) levels of
involvement in entities (NGO's or GO's) and the fact that companies are
composed of people, rather than numbers. [This might change when AI's
run companies. :)]
Some of these (logical?) levels might be;
Level 5 - owners of options and similar financial instruments -
5 levels removed from involvement (contribution or ownership) - they have
a license to risk themselves and levels 4 and below
Level 4 - government officers are 3 levels removed from involvement
(contribution or ownership) - they have a license to risk themselves and
levels 3 below
Level 3 - owners of companies - shareholders are 3 levels removed from
involvement (contribution or ownership) - they have a license to risk
themselves and levels 2 and below
Level 2 - corporate officers - 2 levels removed from involvement
(contribution) [in the case of management buyouts - airline industry -
they might overlap with level 3] - they have a license to risk themselves
and levels 1 and below
[Someone on the LO list wrote something about this "license to risk" that
corporate officers have.]
Level 1 - white collar/blue collar workers - 1 level removed from
involvement (contribution - they have a license to risk themselves and
the levels below
[I've read recently about research that is being done to assess the
impact design decisions made by junior programmers in large scale
software programming projects will have on company strategy]
Level 0 - processes of generating win/win agreement between entities,
generating/inventing of goods/services, delivering of goods/services to
other entities and getting X in return
[What will happen when custom AI's control themselves and the levels
below - level 0 processes? Will custom AI's operate on level 2? What
will be the effect on human corporate officers?]
A potential owner of options, and other financial instruments - level 4 -
could require generating double loop learning in selecting financial
instruments to own or not own based on the mental models of political
leaders because what they get in return for owning or not owning these
financial instruments may be subject to the involvement that these
political leaders have in GO's that regulate and participate in the
financial markets.
[What will happen when more companies worldwide offer their prospectuses
and raise funds through the Internet, thereby bypassing SEC and various
stock exchanges, NASDAQ, NYSE, etc.? There's an article in the latest
"Time" Magazine on this.]
[One thing I read about recently is the "principle of inverse veracity".
This is noticing the rank of a public official and basing the truth of a
statement based on this rank and the fact that the higher the rank of a
public official, the greater the likelihood that their public statements
are engineered for effect. A high ranking official that denies something
is happening is probably giving indications that that something *is*
happening. An offhand remark made by a lower ranking official may have
some truth to it.]
[I've read that George Soros usually listens carefully at political
conferences for offhand remarks. He bases some of his investment
decisions based on this information because it is usually priveleged
information. The political leaders *try* to watch what they say knowing
that George Soros is in the room, but often they can't measure their
words because that would require determining the future ramifications of
a particular policy - a not so easy thing to do.]
A potential owner of options and other financial instruments - level 4 -
could require mathematical formulas and other representations in
selecting financial instruments to own or not own because what they get
in return for ownership of these financial instruments may be subject to
the direct involvement in the financial markets of other owners of
financial instruments.
[Black-Scholes options pricing theory/equations are examples of the
mathematical formulae I think this theory was developed at U of
Chicago - there's an article in a recent business magazine about U of
Chicago.]
[I think John Warfield's comments about the viability of the use of
linear/nonlinear differential equations in organizational learning may
also apply in this area. Is it really possible to represent the dynamics
of a human system with mathematical equations - numbers?]
Investing in or becoming an owner of companies - becoming a shareholder
- level 3 - could require generating double loop learning in generating
sets of entities to fund and then choosing between those sets based on
certain information and criteria such as the mental models of company
officers because what these shareholders get in return for funding or
not funding these entities is subject to the involvement that these
company officers have in these companies.
[Basically this could mean, depending on how thorough the approach;
only fund companies that have products you know about and use - this is
Peter Lynch's strategy I think
only fund companies that have "simple and understandable" businesses -
this is Warren Buffett's approach I think
make sure you have high quality, direct sensory information - walk around
company plants, etc. - an investors version of walk around management
if the officers or partners in a company don't meet your criteria for
being able to maintain a sustainable business, possibly a win/lose
orientation, choose other companies to fund
if you wouldn't be a partner in a company, choose another company to fund]
__________________
Gee, that's the second big essay you've set me off on Julie, Thanks!
Andrew Moreno
amoreno@broken.ranch.org
--Andrew Moreno <amoreno@broken.ranch.org>
Learning-org -- An Internet Dialog on Learning Organizations For info: <rkarash@karash.com> -or- <http://world.std.com/~lo/>