I changed the name of the blog and the tagline! Gasp! This is better done to reflect a few things, and I hope to explain what those few things are here. This is something I’ve been meaning to do for a while, but the requirements of sitting for the CFA level 1 exam plus graduating in Hong Kong and related family bonanzas, as well as the simultaneous wrapping up of one Chinese training semester and starting/setting up another has left me with very little time for partying, writing, trading or even thinking of a less bland blog name than “Trading log”. So I give you:
Seeking Symmetry in Securities – Uh… se-sy-se… what?
I’m a physicist in training (not a physician, mind you) and well, our main job is to solve whatever problems nature throw at us and a few ones we figure out ourselves. The main tool in doing so is to use symmetry: if you know how to solve one problem, and then find another problem that is similar, you can solve that one too! Symmetry is just a fancy word for those similarities, but the differences lie in that it specifies that math can be applied to solve the problem. There’s a joke going around about this:
“Mathematicians are people that are concerned with nothing in particular but to play and construct new games where they have to learn and adjust to the rules and solve the problems that arise in playing those games. Physicists do the same thing, only the game is given – nature – and they prefer to cheat!”
More proud physicists would maybe say “reality” instead of nature, but I dare those people to show the formulae for light propagation from EM and explain it thoroughly to someone with no scientific training and see the response. But back on track – the reason why the punchline is “cheat” is actually our preference for using symmetries. It’s kinda like having the answers laid out to you on a test, only it’s written in a language you understand but the examiner doesn’t.
“Using a barometer, estimate the value of a securities’ index” – barometer, like economic data and stuff?
I’m not an economist, I can’t make too much detailed, intelligent use of money supply, CPI, PPI, PMI, trade flow, GDP deflators… whatever.
I’m referring to the following account, which I have pretty much seen but never practised in every physics course bar one. With any hope, I’ll be able to excert some of the same quirky thinking and fresh point of view, now when I am slowly building the toolbox of deeper actual financial analysis to back it up. That’s it for me, thanks for your time on a non-trading related matter, and please enjoy the reading below!
The following concerns a question in a physics degree exam at the University of Copenhagen:”Describe how to determine the height of a skyscraper with a barometer.”
One student replied:
“You tie a long piece of string to the neck of the barometer, then lower the barometer from the roof of the skyscraper to the ground. The length of the string plus the length of the barometer will equal the height of the building.”
This highly original answer so incensed the examiner that the student was failed. The student appealed on the grounds that his answer was indisputably correct, and the university appointed an independent arbiter to decide the case. The arbiter judged that the answer was indeed correct, but did not display any noticeable knowledge of physics. To resolve the problem it was decided to call the student in and allow him six minutes in which to provide a verbal answer which showed at least a minimal familiarity with the basic principles of physics.
For five minutes the student sat in silence, forehead creased in thought. The arbiter reminded him that time was running out, to which the student replied that he had several extremely relevant answers, but couldn’t make up his mind which to use.
On being advised to hurry up the student replied as follows:
“Firstly, you could take the barometer up to the roof of the skyscraper, drop it over the edge, and measure the time it takes to reach the ground. The height of the building can then be worked out from the formula H = 0.5g x t squared. But bad luck on the barometer.”
“Or if the sun is shining you could measure the height of the barometer, then set it on end and measure the length of its shadow. Then you measure the length of the skyscraper’s shadow, and thereafter it is a simple matter of proportional arithmetic to work out the height of the skyscraper.”
“But if you wanted to be highly scientific about it, you could tie a short piece of string to the barometer and swing it like a pendulum, first at ground level and then on the roof of the skyscraper. The height is worked out by the difference in the gravitational restoring force T = 2 pi sqroot (l / g).”
“Or if the skyscraper has an outside emergency staircase, it would be easier to walk up it and mark off the height of the skyscraper in barometer lengths, then add them up.”
“If you merely wanted to be boring and orthodox about it, of course, you could use the barometer to measure the air pressure on the roof of the skyscraper and on the ground, and convert the difference in millibars into feet to give the height of the building.”
“But since we are constantly being exhorted to exercise independence of mind and apply scientific methods, undoubtedly the best way would be to knock on the janitor’s door and say to him ‘If you would like a nice new barometer, I will give you this one if you tell me the height of this skyscraper’.”
It is told, that the student was Niels Bohr, who later received the Nobel prize for Physics.