System Dynamics

It’s All Endogenous!

It’s not random that George Soros & Stan Druckenmiller became the best Macro Fund managers to ever play the game. Why? Because they knew, intuitively, that macroeconomics was nothing more than the fruits of emergent microeconomic interactions coupled with the reactions to those conditions by monetary & fiscal authorities. Both Stan & George were individual stock analysts early in their careers. They spoke to innumerable CEO’s to better understand how the economy was evolving across industries & sectors. This led to understanding that the economy was a system dynamics problem. System dynamics deals with endogenous factors that are subject to initial conditions, delays, feedback loops, and networking-effects which propagate non-equilibrium economic cycles. System dynamics deals with the real-world, classical economics deals in equilibrium-based fantasy. “As a result of trying to pose as a science, the field of economics has become substantially detached from real-world behavior, and has tended toward a closed theoretical discipline disconnected from the world it tries to explain.”

By adopting a system dynamics approach to macro investing, Soros & Druckenmiller cracked the code of how real-world economics can be effectively modeled. They utilized a Bayesian approach to risk taking based-on their holistic microeconomic-driven macroeconomic viewpoints. Stan’s lifetime 30% CAROR, with no losing years, is the result of a synergy between tight emotional discipline (risk mgt) and system dynamics thinking.

#macro #investing #systemdynamics #soros #druckenmiller

Click here for more!