Didier Sornette Quotes
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Finally, empirical data suggests that assets are sold much more slowly during retirement years than when they are accumulated during working years.
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The same basic ingredients are found repeatably: fueled by initially well founded economic fundamentals, investors develop a self-fulfilling enthusiasm by an imitative process or crowd behavior that leads to an unsustainable accelerating overvaluation.
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The acceleration of the number of traders buying into the market in the inflating bubble captures the oft-quoted observation that bubbles are times when the 'greater fool theory' applies.
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The old Wall Street saying ' buy on rumors, sell on the news,' is alive and well, as can be seen from numerous sources in the media and the Internet. Rumors can drive herding behavior strongly.
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Perhaps the most profound synthesis of physical sciences came from the realization that everything could be understood from 'conservation laws' and symmetry principals.
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Knowledge is encoded in models. Models are synthetic sets of rules, and pictures, and algorithms providing us with useful representations of the world of our perceptions and of their patterns.
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Positive feedbacks, when unchecked, can produce runaways until the deviation from equilibrium is so large that other effects can be abruptly triggered and lead to ruptures and crashes.
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The problem is not that this optimistic view is wrong. By economic accounting, the optimistic view is mostly right.
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The incentives that people need to work and to find meaning in their lives should be found beyond material wealth and power.
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Profiting from being in the minority leads to interesting paradoxes. Rather diabolically, if all traders use the same set of rules, they will end up doing the same thing at the same time and cannot therefore be in the minority.
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The assumption of perfectly rational, maximizing behavior won out until recently in the art of modeling, not because it often reflects reality, but because it was useful.
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Indeed, the frequency of crashes in the Monte Carlo simulations was much smaller than the frequency of crashes in the real data: if one of the most frequently used benchmarks of the industry is incapable of reproducing the observed frequency of crashes, this indeed means that there is something to explain that may require new concepts and methods.
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By one estimate, 90% of international transactions were accounted for by trade before 1970, and only 10% by capital flows. Today, despite a vast increase in global trade, that ratio has been reversed, with 90% of transactions accounted for by financial flows not directly related to trade in goods and services.
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The phenomena and underlying mechanisms discussed in this book may thus become even more relevant to a larger and larger portion of human activity. Understand their origin, and be prepared for subtle but significant precursors!
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These rumors do not circulate in all directions, but essentially from the top to the bottom of society. The rather sophisticated presentations, the apparently serious references that seem to justify their origins, and their distinguished proponents provide food for amplifications serving diverse interests and psychological biases in all layers of society.
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Since it is the actions of investors whose buy and sell decisions move prices up and down, any deviation from a random walk has ultimately to be traced back to the behavior of investors.
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One trader's move in the market can be interpreted by another trader as relevant additional information due to the uncertainty he faces.
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A bubble that goes up is just one that could have crashed but did not.
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Economic theory dictates that the value of a company is basically the present value of its future profits. To estimate Facebook's value through its future profits, we need to have a view on its user growth and how this will evolve in the next 10 to 50 years.
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At another level, market crashes constitute beautiful examples of events that we would all like to forecast. The arrow of time is inexorably projecting us toward the undetermined future. Predicting the future captures the imagination of all and is perhaps the greatest challenge.
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In order to have a continuing influence, the stock market has to continue rising at an accelerating pace faster than exponential. Only a faster-than-exponential stock market growth makes private investors feel richer.
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The price of a stock is strongly influenced by the behavior of the traders in a nontrivial way.
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The point is that humans are rarely at their best when they use rational reasoning.
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Indeed, the financial world is such that any insight is almost immediately used to trade for a profit.