Baltbear on Finance markets are like marshmallows

Whilst running some charts for a client, and catching up on a penny stock board while the algorhytms rhymed,

i was reminded of what lays deep under the foundations of the self-evidency of walres’ law, the problem of the st. petersburg paradox.

Prudent speculators might recall it in their dim academic past, or not. The problem for those in the biz of analysing the stories behind story stocks, as it relates to walres and the father of high-flying, bernoulli, is this is simple problem: how do you overcome the intuitive response against an inherently rigged game?

In casinos, the answer is “distraction.” In the market, when the rigged game is being played, the  similar answer is “expectation”.  Walres’ law, to cut closer to the bone, says if something changes in an ecnonomy, it’s because it was imported or exported. That’s basically garbage, becuase of what i used to call the 4s paradigm: sun,soil,sweat, serendipity. The sun keeps shining, adding more energy to the earth in a day than humans use in a year. The amount of soil per capita keeps going down, but with sweat and serendipity the gains from it, as corn or aluminum keep going up in proportion to sweat and serendipity.

The “story stock” player is betting on serendipity and sweat.

The momo player is betting on the force generated by a mob.

The two can frequently intersect, at which point explosive growth in mkt cap should happen, and be bounded by only 2 issues: the math of the st. petersburg paradox creating an intuitive bound, or walres law showing that stock is being imported into the market faster than liquidity.

Penny stock touters, in boiler rooms, bucket shops, private fuinds, etc., are often reliant on stories like, “it went form 3/16 to 2 in a year, and it hasn;t started yet.” Or perhaps, “it was holding 2, and suddenly it’s at 5, better let me sell you some before you miss the real gains”

Sound familiar??

Better yet, does this chart look familiar?

What does it tell the prudent speculator??  Time value of money added in:

do you keep tossing the coin after 7?

or did you leave @5?

the chart says it’s going to 8, and can be seen to predict 9+, after enough time goes by, but of course very time value increases the odds on the traditional failure of any martingale.

so, what does walres law tell you about the environment? Is the total supply of chips holding steady, or going up? is the ingoing liquidity  going to keep rising  at the same rate, or get stable?

at what point did you enter the game, and what perceived utility of outcome did you have?

so, if the coin toss here is a penny stock, what’s the play?

imho, when dilution is a known, and ingoing liquidity depends on a pump forcing it into the field, prudent speculating says leave in the first 1/3 of the game.

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