Complexity perspectives and investment decisions

[摘要] ENGLISH ABSTRACT:This thesis investigates investment theory in the light of complexity theory. Theseinsights from diverse fields contain powerful images, metaphors and ways of thinkingthat allows one to seek new ways of comprehending the nature of the economy andtherefore the nature of investment and the related issues of uncertainty and decisionmaking. Complexity theory views the economy as being a dynamic, continuouslyadaptive, nonlinear system. This is in contrast to traditional or classical economictheory that views the economy as being a simple, linear, equilibrium deterministicsystem.This thesis is a conceptual study exploring the implications of a complexityworldview for investment decisions by looking at the nature and characteristics ofcomplexity and then overlaying it on the characteristics of the economy.It is argued that complexity is caused by three elements: the structure of the system,human behaviour and exogenous factors. Thereafter follows an analysis of howinvestment decisions are made in the light of complexity by illustrating the investmentmodels of two very successful, yet different investors: Warren Buffet and GeorgeSoros.Buffet's model hinges on value. He realises that emergent phenomenon driven byirrational behaviour of investors leads to intrinsic values of shares to differ widelyfrom perceived value. When quoted or perceived values are low than it is advisable topurchase as you have a margin of safety. Over the long term the market recognises thereal value of the share. He tries to ignore the vagaries of the market and to focus onfundamentals. His list of fundamentals include; the franchise value of the company,quality of management and industry dynamics.George Soros in contrast utilises emergence patterns to locate potential investments.His model is that systems are flawed, human thinking and decision making is flawedand the interaction of the two lead to perturbations and oscillations. He focuses intrying to understand the flaw in systems and in human behaviour and to find somekind of pattern that he could utilise to make a profit. It is shown that both investmentmodels can be understood from a complexity perspective and that these two investorsbuilt aspects from complexity into their decision models.

[发布机构] Stellenbosch University