From Ridham Desai’s “The Science That Best Describes the Stock Market”:
It is absence of law, which is the most striking thing about markets. Investing in markets is about empiricism and not theory.
Cheap stocks are sometimes cheap because they deserve to be so and expensive stocks can perform well over long periods. This sounds so much like medical science. Medicine is an empirical science. It seems like smoking cigarettes can be a leading cause for lung cancer but not all cigarette smokers suffer from cancer and not all lung cancer patients are smokers. No two human bodies are the same. The exceptions are as important as the rule is to the medical professional.
In our view, the reason why markets appear to be closer to the science of medicine rather than maths or physics is the overarching role of greed, fear and hope in determining economic and market cycles. Greed, fear and hope are basic human nature. This is why market economics gets it wrong at times. Just the way it is difficult to predict how bodies will behave to external stimuli (like food, pollution, stress, exercise or even smoking), it is hard to say how the human mind will react – however irrational it may appear to the logical mind.
Indeed, that is where the inconsistency lies which is that logic is mathematics and the market is really about biology.
– Faceless Trader
(Very nice article. Above are my fave quotes).