Imagine the possibility of portfolio managers picking 10-bag-
gers by using intuition alone. (And think of the reduction in over-
head expenses; Ouija boards are much cheaper than computers and
IT consultants.) Should we listen to our intuition as investors? It
certainly was the recommendation of Bennett Goodspeed in his
book The Tao Jones Averages (Penguin 1983), in which he advised
us to “treat intuition as an equal partner with logic.”
Goodspeed’s advice has been heeded by researchers in com-
puter programming, who are now developing systems to replicate
intuition. They are called Artificial Neural Systems (ANS) and, in
an unstructured decision environment like investing, offer distinct
advantages over expert systems, which simulate deductive reason-
ing (i.e., logic). For example, an article by D. D. Hawley in the
Financial Analysts Journal reported that “if an ANS could be trained
to simulate the experience-based intuition of a successful techni-
cian, it could result in a substantial increase in the number of stocks
that could be analyzed in real time” (“Artificial Neural Systems: A
New Tool for Financial Decision Making,” Nov./Dec. 1990). Al-
though simulating inductive reasoning with computers is a long
way from making psychic predictions, there is a growing interest
in nondeductive decision making.
The parallels between physics and investing, such as the move-
ment in each discipline from absolutism to relativism, are not only
interesting but possibly useful for future research in finance. Tonis
Vaga has used his background in physics to develop the coherent
market hypothesis, which synthesizes fundamental and technical
analysis into a comprehensive model of how the stock market
functions. Underlying this theory is the notion that the behavior of
investors moves along a continuum that ranges from rational and
independent to frenzied groupthink. In practice, when groupthink
dominates, the trend is your friend.
The explanation for groupthink behavior may soon be better
understood because scientists are starting to accept the mind, or
consciousness, as a legitimate field of study. Some modem physi-The Case for Intuition 23926-29 ware 239 1/19/01, 1:19 PM