Ahlgren Multiverse: Questions and Comments: January, 2009

I became curious about Discipline after reading a review that pointed out the connections you make between quantum physics, Taoism, psychology, economics, and finance. Curiosity got the best of me, and I bought the book. Later that day, I was surprised to find myself not in the middle of a book of non-fiction, but on the contrary deep in the middle of a thriller I couldn't put down. Even so, I was also disappointed that you didn't delve deeper into some of the philosophies that underlie your work.

I heard a radio interview recently in which you said you kept the details light on purpose because you didn't want to lose your audience. I don't want to speak for anyone else, but I am grateful for the suggested reading at the end of the book, as it has helped me satisfy some of the curiosity your writing ignited in me. But I can't help feel that your ideas go beyond that simple bibliography, so I have two questions. First, would you be willing to explain to me in a little more detail some of your thoughts about the connections between markets and quantum physics? And second, do you have any plans to release any type of "companion guide" or other non-fiction work that might give some of us more illumination?

To answer your last question: yes, I am working on a companion to Discipline, although we don't have any definite plans for a release date.

I have been fascinated with markets for my entire adult life. More specifically, I consider myself an Austrian economist, and as such, I have been nearly obsessed with the notion of subjective value, and how it relates to transactions, market psychology, and price discovery. It's cliche to suggest that markets are chaotic, I know, and yet it's important to note their randomness. I say this because, at the same time markets are chaotic, they also seem to have an order about them -- an intelligence, if you will. No one can predict markets with anything approaching total accuracy, in the long-term or the short-term. Even the most successful investors have to content themselves to be right only "a lot of the time." Another way of looking at it is this: we can predict hurricanes in a general sense -- that is to say, we know hurricanes are coming at some point. But to try to predict one's exact path, or the precise place it will strike land is folly.

It is this duality in markets that reminds me so much of many of the elements of subatomic theory -- for instance, the duality of the wave-particle paradox, or the fact that gravity -- thought for a long time to be the strongest force in the universe -- is actually much weaker than the forces exerted by tiniest things in the universe: quarks, or strings, depending on which theory you're chasing. But no matter how you look at it, at the subatomic level there are tremendous chaotic tendencies that also seem to exhibit order.

When I perform analysis in markets -- whether at the macro-economic level, or at the level of individual securities -- I try not to forget how much this duality affects markets, and I approach all things with a respectful humility -- a tentativeness -- that allows me to step back and see a bigger picture. This perspective, incidentally, derives almost completely from the philosopher Sir Karl Popper, whose work has influenced me for the last fifteen years, and who inspired Discipline more than anyone else. His ideas about falsification have made staring in the eyes of these "dualities" much less intimidating!

[In your book] you wrote about an economic collapse, the failure of the dollar, and the ultimate collapse of the United States. What I find odd is that your story has now become something of a prediction, and a fairly accurate one at that. Several characters in your book use the fabric of space and time to move through universes and time. They also use a technology that allows them to transfer information through time. After reading the book, I have to ask if you feel like you've tapped into something like what your characters experienced, and do you feel as though this has anything to do with the pretty scary accuracy of your predictions?"

I don't really know how to explain the accuracy of my predictions, except to say that other people have been predicting the same types of thing for a while -- with even more accuracy than mine! Peter Schiff, for instance, predicted the collapse of the housing market with so much accuracy that it makes his critics look downright foolish. I don't think there's anything in my book that couldn't be predicted using the tenets of free market economics; if you can divorce yourself from the propaganda and lies governments have been cramming down our throats for the last century, it's pretty easy to see that our currency is doomed, and that our economy is going to implode under the weight of debt that has been propping it up. What consistently stupefies me is the sheer number of people who refuse to believe it!

How does someone go about investing in your fund?

I closed my fund in 2006 for two reasons: first, Discipline was about to be published, and I was about to embark on a 35-city tour. I knew I wouldn't be able to give my shareholders the focus they deserved, so a hiatus -- at the very least -- seemed in order. However, the other reason I closed the fund was that I was quickly becoming convinced that the housing market was overheating, and that equities would be hardest-hit of all asset classes should massive de-leveraging occur. It was obviously a good decision for my shareholders; the market of the last year-and-a-half has been no place for value-style investing strategies.

I have been approached by a lot of people about starting another investment vehicle. The only way I would consider it however, is if the proposed capital base was significant enough to justify the fees and startup costs, and also if I could find enough valuable strategies to justify its creation. In the last three months, I have finally started to feel confident that I will be able to find superior returns over the next ten years. We'll see if we can find a group of dedicated investors committed enough to fire things back up again.

I know a lot of people have asked you this question about the three words on the last page of your book, and I know you usually say "no comment," but What does MALM TIUM TIUM mean?

No comment.

Disclosures:

None.

Paco has been a financial analyst and a portfolio manager for 18 years. You can buy his novel Discipline wherever books are sold. Or visit www.disciplinebook.com.

Email your questions or comments to questions@pacoahlgren.com.