Time and the Horizon Problem

Time is a weird phenomenon. A minute can seem like an eternity. A lifetime can seem like a mere moment. It all depends on perspective and mood. In finance, prices change from one second to another, yet nothing grand ever happens that does not take years to properly unfold. The average day-trader is in the end no better off than the strategic investor. The time spent trading short time moves has essentially been wasted. Looking in their rare view mirror, the day-trader sees nothing but a blur of graphs. The strategic investors sees time spent with friends and family.

Basel III was enacted a few days ago. Many expected this to send shudders through the gold market, but nothing happened. As a consequence, many now think Basel III is irrelevant. The idea on both sides of the argument is that things must happen soon, or they won't happen at all.

This way of thinking is the norm in all matters, not just financial markets, and I suspect it has its origin in our most primitive psyche where we live in a jungle. Things must happen at once, or we'll end up starving, hunted down by neighbouring tribesmen or eaten by large predators. If we don't constantly move about, we die. However, this type of rushed behaviour has a tendency to do more damage than good. Jumping from one hyped idea to another is a sure way to loose a lot of money.

Without an eye on the horizon, we run around with no clear vision of where we are or where we're going. Things appear to happen for no good reason at all. The world becomes a confusing place. However, if we stop to think and look at what's happening, we can see the signs of things to come and make better decisions. Like a captain on a ship, we can see the storm clouds on the horizon and make the necessary moves to either get to shore or in some other way stave off the worst of it.

We can also imagine the future based on what we see, and thus avoid investments that will look silly in retrospect. Imagination and clear thinking can move us forward in time to a place beyond the horizon. We can see Basel III act as a catalyst that gradually shifts the gold marked towards more physical possession. We can see the catastrophic consequences of out of control money printing. We can imagine ourselves ten years into the future with a burning sensation in our chest, wondering if it may be related to an experimental vaccine taken years ago.

Only one thing is certain about the future, and that is that nothing is certain. Nor do we see the future by observing random motion in the here and now. We see it by observing shifts in sentiments, by studying history and by imagining what may lie beyond the horizon. If there's even the slightest chance of something horrible lurking in a certain direction, we must take care to avoid it, no matter how fashionable it may be to move in its direction at the present.

There are all sorts of possible horrors, and it would be foolish to explore these when there are safe alternatives. There's no point in buying crypto-currencies when there's gold. There's no point in taking a newly developed vaccine when we have a near 100% chance of surviving the disease itself. There's no point in taking on debt to finance a big purchase if a smaller purchase provides us with similar comforts.

By Arnold Paul - Selbst erstelltes Foto, CC BY-SA 2.5, Link