When Darwin Failed: "Fishing For Perfect Markets"

Tyler Durden's picture

Perhaps the biggest affront to the natural order of things set in motion by central planners' intervention in capital markets of all varieties, is that through sheer brute force (of a printer, of posturing, and of outright politicized pandering), several academics in a low-lit room can suppress, for a brief period of time, the Darwinian survival of the fittest. Key word here is "brief" because in the end nature always gets even, and usually with a vengeance. In the meantime, however, epic distortions in what are already indefinitely irrational markets, which however always eventually regress to a rational mean (in popular jargon a process better known as "crash"), succeed in driving out legacy traders who no longer can navigate the chaos unleashed by the authoritarian ambitions oh the kind that ultimately resulted in the collapse of the Soviet Union, and every other centrally-planned establishment, when abused on a long-enough timeline... For a vivid example of what happens "when Darwinism fails" we go to a parable from a just released letter to client by the English hedge fund Toscafund, which looks at modern day trading from the perspective of fishing in the Polynesian seas, which also does an admirable job in explaining why being lucky is almost always more important than being good (sadly, one can not sell "luck" in newsletter format for $29.95/ month).

By Savvas Savouri of Toscafund Asset Management

Fishing for perfect markets

I have spent many hours impressing upon students this sad reality. Whilst in theory forecasting using good fundamentals should be enough to deliver success, in practice financial markets are stubbornly imperfect and favour bad techniques. To make this point I go fishing for analogies.

To set a scene, I ask the audience to imagine watching a Polynesian fisherman going about his work. Having waded into the clear blue water of the South Sea's, he confidently holds a spear above his head and takes aim. With this imagery in mind I then ask the students to reflect on his fundamental technique. Why for instance is the trajectory of his aim not in the direction of where the fish appears to be. My point to them is 'good' forecasting does not confuse perception with reality. We consider the three judgements the fisherman is making; one based upon simple physics, another basic maths and the other behaviour theory. Using these in isolation the fisherman will fail, combine them and he will return home with a good return from his efforts.

Our good fisherman is aware the position of the fish is distorted. He may not know the precise science that because light travels at different speeds through air and water it kinks or refracts, but is aware of this distortion all the same. The second element our fisherman contemplates is momentum. He can see the fish is in motion and is aware it will have moved by the time the spear arrives. The third simultaneous judgement our Polynesian fisherman makes is the survival instincts of the fish. If it has not already been made aware it is being stalked by the shadow cast over it, it will certainly become conscious of a threat from the ripples set in motion by the harpoon entering the water.

Despite the complications, with painstaking teaching and practice the 'good' fisherman will not go home empty handed. His family is sure to be well fed, and he will impart to his sons the skills he had learned from his own father a transfer of knowledge that almost certainly has gone on for generations. Across our Polynesian fishing village bad fisherman have long vanished; Darwinian logic having seen they have. The population of the village has even steadied to reflect sustainable fishing levels. We have in effect a perfect market. Reaching this point I caution that financial markets have never reached this perfect state. To illustrate what I mean I return to the 'perfect' fishing village where only 'good' fishermen are at work.

I ask the student to assume 'bad' fishermen hadn't been eliminated by Darwinian evolution and congest the waters around our good fishermen. Their presence introduces not only complications to our good fisherman but a threat to their very survival. Not simply are the spears being thrown wildly around in such a random way they are a danger to our good fisherman, they are causing chaos in the waters. Where fish once moved sedately in calm waters they are now darting around in panic, and so more challenging targets for even the best of our 'good' fishermen. Matters are worse still for our good fishermen. Many fish have moved away from their preferred coastal water habitat into deeper, colder and more tidal waters; from one inhospitable place to another. Moreover, through their sheer weight of numbers, the bad fishermen are spearing ever more fish as the good fisherman return home empty handed. Before long fish numbers plummet and order in the fishing village has turned upside down. Whilst the families of 'good' fisherman go hungry, 'bad' fisherman boast of their successes, convinced they were good rather than lucky. I end my lecture with these words, "welcome to the imperfect world of investing, if you want perfect markets forget finance go fishing in the south seas".

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James_Cole's picture

First, Penrose is a physicist not a biologist. 

Second, probability is totally irrelevant. The probability of you coming into existence is extremely low, yet here you are. Divine miracle that your particular DNA set showed up as opposed to all the other possible combinations? If you're a Christian you would say yes I suppose.

OK, then same logic to your cup of coffee. What is the probability that those particular beans would show up in your coffee? Very low, so I guess it's another miracle. The fibres that make up your clothes, what are the chances?? miracle! The combination of ingredients in your shit - another miracle!! 

You can apply probability to any event / combination of atoms / physical property and come up with huge numbers - it doesn't mean anything. 

The fact that Penrose self-identifies as an atheist should give you a hint on his views.

Apostate2's picture

You have stuck your finger in the sore spot. Biological sciences and Physics do not agree. Until they figure this out we have equivocation and the science disfunctions or disjunctures.

Acet's picture

Actually they do.

Probability is used to try and forecast the future, not to explain the past.

One does not look at something that has already happened (say, two cars crashed on a disused back road at midnight) and try and compute the probability of it happening - the probability of what it is to be what it is and of has already happened to have happened is always 1, since it is already so - one tries and compute the probability of something happening in the future (maybe the same thing again).

One does not look at a person, an animal a species or in fact anything which is what it is and say: how likelly is it that this exists? The answer is that we're 100% sure that it does since it's coming to existence is a fait acomplit.

From another angle: if no intelligent live had evolved, there would be nobody asking themselves "How likelly it is that we came to be" and if intelligent life had evolved in the shape of an octopus, then for certain there would be some octopus-shaped intelligent beings around asking themselves how little likelly it is that they had evolved from the dumb octuposes still around that that surelly an imaginary being in the sky that created them would be a better explanation.

No, evolution is not about probability, it's about the law of large numbers.

And in this specific context what the law of large numbers says is that if in a species some individuals have a tiny, tiny difference that gives them a tiny tiny survival advantage above the others and you have an enormous number of tries were just once in a while the individual with the difference survives while the one without it would perish, eventually that miniscule difference will have spread throughout the entire species.


Using probability to try and discredit evolution is the scientific equivalent of setting up and attacking a straw maw - it's a purposefull misuse of Mathematics made to confuse the untrained with scientific-sounding words while in fact not making a valid argument at all. 

nmewn's picture

"First, Penrose is a physicist not a biologist."

Quite so.

But making simple observations on animals does not prove grand theories of the origin of man. Penrose has disproved, to my satisfaction, human evolution from green slime.

"Second, probability is totally irrelevant."

Acet does a fine job of rebutting that above, so I'll only add Darwin had all the intellectual "seeding influences" of his time, that he also had to battle inside his head, while making his observations. Was it a mistake of nature that Darwins son went on to be a prominent member within the eugenics society?

Or was that just an irrelevent probability? ;-)

James_Cole's picture

"Acet does a fine job of rebutting that above"

Actually, Acet was making the same argument I was making, only in a nicer way and expanding it to say that biology and physics do agree (another argument). 

Maybe you didn't get to the end of his comment but it's pretty hard to misunderstand:

"Using probability to try and discredit evolution is the scientific equivalent of setting up and attacking a straw maw - it's a purposefull misuse of Mathematics made to confuse the untrained with scientific-sounding words while in fact not making a valid argument at all."

LetThemEatRand's picture


I know all because I have an avatar of a "Guy" who would be horrified that your idea of being a rebel is snarky comments on a website.  '-;:

Fucking pathetic. Really. 

boogerbently's picture

UHHHHH....lightning, maybe. <SARC>

Cloud9.5's picture


Have you been in Wal-Mart in the wee hours?  The missing link is still linked and living on the dole.  

francis_the_wonder_hamster's picture

What scares me, James Cole, is that you have equal amounts of up and down votes.  This SHOULD be a site that attracts the brighter types.

(I gave you an up vote)

francis_sawyer's picture


FWIW ~ I was in the same conundrum... I started to make a comment about politicians wives, then thot better of it (but now ~ here I am again because of your comment)... I must admit, this one has me baffled...

francis_the_wonder_hamster's picture

"I must admit, this one has me baffled"

I am originally from Texas.  I have seen otherwise intellegent people say things on this subject that make my head spin.....what's a Francis to do?

James_Cole's picture

I've actually found a lot of religious people will agree with evolution up to a point but when it starts to get into areas where it conflicts with their religious texts the blinders come on and all logic goes out the window. Intelligence becomes irrelevant.

That said, there are plenty of extremely ignorant people on zh.   

Acet's picture

I trained in Physics and know some people that are both Physicists and firm Christians and I can tell you that those things are not at all incompatible.

It's perfectly possible to believe in Evolution while also believing that God has made the Universe as it is with all it's physical strange laws and set things up so that Evolution would turn out the way it did and create us (don't forget, God is omniscient).

Only the kind of people that would read a sacred text such as the Bible as a literal description of events would actually find Science and Religion incompatible. Then again, if your belief in the divine comes from what you are told and what you read, rather than being something born inside of you, then it is not really faith - it's a form of social conformism. 


James_Cole's picture

There's nothing in science that makes God an impossibility and I know there are Christian evolutionists out there. My point was just that once science comes into conflict with the text most people I've talked to go with the literal text. That might explain why such a high percentage of Americans think evolution is all made up. 

Genesis 1:27: "So God created human beings in his own image. In the image of God he created them; male and female he created them." 

Acet's picture

Actually I was just extending on your argument. I think we're pretty much in the same wave.

Kayman's picture

Well, there is ignorance and then there is its subset, wilfull ignorance.

Charles Darwin was one of the bravest men in history.  To subject himself to riducule, to propose an Origin counter to Genesis, and put at risk his relationship with his devoutly Christian wife, required courage that few men possess.

Darwin predates DNA- a man of vision.

The Big, Angry Guy in the Sky may be comforting, but it is not science.

Belief, as always, well founded or not, is a deeply personal thing.


MeBizarro's picture

What I always find the most ironic is that the people who say the Bible is the most imporant book/source of knowledge in their life know almost nothing about its origins, various incarnations, and the history of it and you always see a fair amount of Christians who actually think the Old/New Testament is the world of God.  Amount of ignorance is shocking.

Kayman's picture


Actually, there is plenty written about Christian history, but it is mainly suppressed.

TWSceptic's picture

What scares me, James Cole, is that you have equal amounts of up and down votes.  This SHOULD be a site that attracts the brighter types.


Unfortunately many libertarians are also (religious) conservatives (Ron Paul being one) who do not believe evolution happened and still happens. So there's your answer.

Praetor's picture

@ OOKSpay Exactly. If white North Americans evolved from European's why do we still have Europeans?

old naughty's picture


To remind of we were never them?

Cosimo de Medici's picture

I fear for the US Education system when I read your comment. By the way, every time you find a "missing link", you create two more. If the logic behind that baffles you....well, I guess my sentence was fully complete without the "If". Funny how adult homo sapiens will question Darwin, but take everything that bloated a-hole Alex Jones says as gospel. As for Jones himself, what more proof does one need to reject the hypothesis of Intelligent Design, unless god's wind tunnel was down the day Jones was born. In some Robin Williams movie the argument against "intelligent design" was said best: who would put a waste disposal facility right next to a recreation area? When Dell or Apple builds a new laptop, I wonder if they leave the old Heathkit IC in it, in addition to a few vacuum tubes, since according to the faithful, such included obsolescence constitutes some sort of intelligent design?

Hedgetard55's picture



     There are no transitional fossils because there was never any transition, or evolution, only devolution. However... having that understanding makes you the equivalent of not believing Bernanke is a genius, or that the FED can solve our financial crisis.  :~)

nmewn's picture

Good Lord I'm a heretic...LOL!!!

Missiondweller's picture

Darwinism is about adaptaion to changing conditions.

RockyRacoon's picture

EDIT:  Even stranger yet.  I posted this as a reply to Ookspay

Very strange....

When I try to access your stats page I get:

"Access denied

You are not authorized to access this page."

This is not the case for any other person's comments.

Strange....   I guess your pig Latin name is more correct than I thought.

Ookspay's picture

I have now allowed access to continue, try again...

cowdiddly's picture

Darwinism is about coming up with enough academic bullshit so the government  will fund your voyage to exotic islands.

Same for Louis Leakey. Oh looky at this jawbone. It is so much thicker and curved than any found before. I hereby claim it is a new species. The smart anthropoligists realize its just a ditch diggers job and you do not get famous finding the same old shit over and over. Fact: There is more differentiation in the skulls and bones of todays modern men from around the globe than all the fossils that have been exclaimed as a new species of evolutionary apes.

francis_the_wonder_hamster's picture

"There is more differentiation in the skulls and bones of todays modern men from around the globe than all the fossils that have been exclaimed as a new species of evolutionary apes."

Before or after Fukushima?

Haole's picture

The massive submerged stone structures off the coasts of Japan, Chile, etc. are but a few of the indications that there have been advanced hominid civilizations "coming and going" (with quite a bit of help) on this planet for tens of thousands of years, perhaps millions.  Much of what we've been told about our history as a species, never mind the utter bullshit that is "evolution", are "scientific" abominations at best.   ET creationism, genetic engineering and cultivation, bitchez.

TWSceptic's picture

You're either an idiot or making fun of idiots.

Haole's picture

Hey thanks!  I can tell you're really sharp when you need to question yourself over the execution of your original insult and have to edit it long after it's inception...

If I'm an idiot in your eyes that's awesome.


TWSceptic's picture

Well as long as you keep proving you haven't got the slightest idea about how our world works, I am right to call you an idiot. Thanks for removing all doubt. :)

Haole's picture

You and this TWSceptic character are the intellectual decendants of the people that laughed at the Wright Bros. before they flew but good humor nonetheless. 

nmewn's picture

Yes. True.

But it got really complicated when it got confiscated by "evolutionists". And the evolutionists still can't prove their theory.

It now relies...oddly enough, on faith ;-)

Snidley Whipsnae's picture

I have no faith in faith.

The fossil record, especially on land, is full of holes... The only way of papering over the holes is with 'punctuanted equilibrium'.

Fred Hoyle's speculations on 'The Intelligent Universe' make more sense to me... and Hoyle definitely believed that there was a very high intelligence at work in the very distant past and probably to the present day.

Hoyle believed that there was a god. He did not believe that there was a god listening to the pleas of those praying for divine intervention.


shovelhead's picture


I keep getting dumped to voicemail myself.

nmewn's picture

lol...no doubt about it, the landscape is littered with the bones of many false starts and declarations that had to be "amended" to fit with reality.

My all time favorite declarative statement from the scientific community at large will always remain "Why, this changes everything we thought we knew!!!"

To which the keen observer of their musings must say, um wut? Many have spent an inordinate amount of time backing or critiquing your former hypothesis, what guarantee is given that you're right this time?

The honest ones will say none.

It is remarkable to me, that a rational mind can spend an entire lifetime searching in vain to prove or disprove some grand thing, only toward the end of a wasted life, turn to theology in despair ;-)

Kayman's picture

We are always looking for a beginning, a starting point, and God is a plausible fit.

Perhaps, what is, is. And there is no "beginning".

Cloud9.5's picture

Things evolve from the simple to the complex.  How hard is that?

snblitz's picture

"survival of the fittest" does not appear in Darwin's "On the Origin of Species by Means of Natural Selection, or the Preservation of Favoured Races in the Struggle for Life".  If you read the book, you will find his theory is more accurately described as "survival of the most average", with, according to his theory, the median population developing new and better traits over time.

However, Darwin himself points out the holes in his theory in an appendix which you can only read if you can find a printing of the book which includes it.

The largest hole, which he himself describes, is that the evolutionary tree is, according to the historical record, regrettably upside down.  Instead of mutation leading to diversity, one finds a continuous diminution in the number of species occurring even before man showed up.

francis_the_wonder_hamster's picture

"Instead of mutation leading to diversity, one finds a continuous diminution in the number of species occurring even before man showed up."

Why does this statement bring to mind the consolidation of the banking industry?

boogerbently's picture

He, himself, said:

They have never "created" life.

Species don't change types.

They have never observed evolution.

If you can't "observe it, measure it, duplicate it", it doesn't follow the scientific method.

GoldSilverDoc's picture

If you are going to make comments, you really, really shouldn't demonstrate your ignorance so convincingly.

Raymond Reason's picture

You certainly demonstrate elitism well. 

css1971's picture

No, it's more like.

The more times dumb people crash their cars and die, the better their neighbours children's cars become in the future.

The dumb people are dead, so they never get a better car.