Beware 'Straight-line Trends'.
1. "Anything that keeps doubling grows much faster than we first assume."
The power of compounding really does speak for itself.
2. i. "Assuming the trend will continue along a straight line is obviously ludicrous."
To throw this phrase into the most simple investing situation, just because a particular stock's price has been rising, that doesn't mean that it will continue to rise.
2. ii. "An apparently straight upward trend could be part of a straight line, an S-bend, a hump, or a doubling line. An apparently straight downward trend could be part of a straight line, a slide, or a hump. Any two connected points look like a straight line but when w have three points we can distinguish between a straight line (1, 2, 3) and the start of what may be a doubling line(1, 2, 4)."
This is important to keep in mind, because it is very tempting to join two points together and announce a trend. In reality, you have to look at a ridiculous number of data sets to be vaguely sure of anything.
In investing, considering the impacts of structural shifts in consumer behaviour or the overall economy, may present opportunities. For example, recognising that e-commerce was going to be significant, or recognising the fact that video streaming was taking-off would've allowed you to avoid losses, and may even have allowed you to make a lot of money. However, it is still important to note that just because the e-commerce and streaming fields have grown so rapidly in the last few years doesn't mean that they will always continue to grow at that rate; the growth rate for both is probably a bit like an S-curve.
1. "Anything that keeps doubling grows much faster than we first assume."
The power of compounding really does speak for itself.
2. i. "Assuming the trend will continue along a straight line is obviously ludicrous."
To throw this phrase into the most simple investing situation, just because a particular stock's price has been rising, that doesn't mean that it will continue to rise.
2. ii. "An apparently straight upward trend could be part of a straight line, an S-bend, a hump, or a doubling line. An apparently straight downward trend could be part of a straight line, a slide, or a hump. Any two connected points look like a straight line but when w have three points we can distinguish between a straight line (1, 2, 3) and the start of what may be a doubling line(1, 2, 4)."
This is important to keep in mind, because it is very tempting to join two points together and announce a trend. In reality, you have to look at a ridiculous number of data sets to be vaguely sure of anything.
In investing, considering the impacts of structural shifts in consumer behaviour or the overall economy, may present opportunities. For example, recognising that e-commerce was going to be significant, or recognising the fact that video streaming was taking-off would've allowed you to avoid losses, and may even have allowed you to make a lot of money. However, it is still important to note that just because the e-commerce and streaming fields have grown so rapidly in the last few years doesn't mean that they will always continue to grow at that rate; the growth rate for both is probably a bit like an S-curve.
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