Living Systems Theory & The Investment Portfolio

Fritjof Capra (born 1939) is an Austrian-born American physicist, systems theorist, and author of five international bestsellers. Capra is a founding director of the "Center for Ecoliteracy" in Berkeley, California.

In his book "The Turning Point" (1982), Capra talks of Living Systems.

A system of people for example, is a Living System.

Let us now consider the FINANCIAL PORTFOLIO. This portfolio has our emotions invested in it and therefore can be called a Living System. And a Living System cannot function properly if it does not have all the necessary body parts.

Investment Portfolio as a Living System: A person handles finances according to his personality, therefore his/her financial status mirrors his personality, and becomes a living system.

And now some basic investment approaches:

Do not time the market. A bird in hand is better than two in the bush. The 'expected rate of return' is never the real rate of return.

It is not possible to time the stock market, otherwise it would be too easy to make money. However, there are well defined disciplines to investing that over the long run of the market can provide reasonable returns.

Proper Asset Allocation could optimise returns.

For example, the ICICI Asset Allocator. More details on Asset Allocation: Get Rich Slowly. MoneyControl Asset Allocator: Asset Allocator. Here is another Asset Allocator: Asset Analysis. Article on Market Pressure & Risk Management: Safe Haven.

Here is what MPT (Modern Portfolio Theory) -- has to say:

"The fundamental concept behind MPT is that the assets in an investment portfolio should not be selected individually, each on their own merits. Rather, it is important to consider how each asset changes in price relative to how every other asset in the portfolio changes in price."

This would suggest that the healthy financial portfolio is one:

=> Which does well in both BULL and BEAR markets.

=> In which an investment decision depends entirely on what the portfolio needs to stay healthy, and not solely on the attractiveness of the individual investment.

Summary The financial portfolio is like a living organism which should not be fed too much of any one thing. A complete, healthy organism has all types of body parts, and requires all kinds of food, tasty or not. The healthy financial portfolio has all sorts of aspects, even the slow ones. Just like a living organism, the financial portfolio may require very bitter medicines...or amputation, when it starts falling ill. Bad instruments must either be treated, or be done away with, as quickly as is possible. There is a growing belief that for the average person, focus should be correct asset allocation, and nothing else.

PART 2
Every well diversified financial portfolio could be said to be the microcosm of the entire world economy. Its big picture will be the big picture of the entire world economy. Which may not be too good - but it is certainly more balanced than an imbalanced portfolio that is focused on 'too much of any one thing'.

The Investment Portfolio as a "Living System" would mean that it would follow the 'Self Organising Principle'. As long as the owner of the portfolio keeps a track of things, and balances it periodically. Keeps it dynamic.

The following is from Wikipedia:Self-Organisation:

In economics, a market economy is sometimes said to be self-organizing. Paul Krugman has written on the role that market self-organization plays in the business cycle in his book "The Self Organizing Economy". Friedrich Hayek coined the term catallaxy to describe a "self-organizing system of voluntary co-operation," in regard to capitalism.

More on Self Organisation:WN.COM

Mystical Look at Profit-Loss

The stock markets have fallen sharply in the last few days...and the future of equity investments is not so bright, keep in view economic-political factors.

Tragic. For many of us.

Made me dig deep into Advaita Vedanta.

An outlook that tries to instill in us: That profit and loss are mere flavours of the same underlying unified reality dynamic, and both profit & loss manifest simultaneously. That profit & loss or success & tragedy - both the positive and negative...both are necessary for a healthy life.

Some Questions... Wouldn't life get extremely boring, if all we did was guaranteed to succeed? Imagine playing chess with someone who you know you will defeat. Will you enjoy it? Will you not just want to walk away? Would we be able to appreciate the value of profit, if loss did not exist in our lives? Would we be able to enjoy the thrill of winning, if losing was not a part of the game?

Let us analyse the Advaita Vedantic perspective that BOTH PROFIT AND LOSS are the SAME THING.

If we see the effects of profit and loss on the human being...

A sudden huge loss can make a person ill. Of course.

But...a sudden huge PROFIT can also make a person fall ill.
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Now let us look at the Advaita Vedanta concept that opposites manifest simultaneously.


When a human is born, his death is also "born" simultaneously, in the very moment of his birth...

Here is another example.

Whenever light manifests, shadows are also born instantaneously.

And the dance between light and shadow gives our visible surroundings its form, its richness, intricacy.

Extreme heat, and extreme cold - both cause the same effects. People in extremely hot regions like African deserts, or the North Pole....both wear HEAVY CLOTHING as well as COVER THEIR HEADS.



Same would apply to profit and loss. Both will always co-manifest.

And the dance between profit and loss would give life its depth, its enrichment.

The famous movies and books of our world are not books that talk of continuous profit but those that talk of profit and loss both.

The Advaita Vedantic perspective says the dance of life just cannot go on if opposing poles do not exist. This would mean that life just cannot go on without both the polar opposites, profit and loss...

A balance between profit and loss is necessary for stability in life.

The focus of all this is --- LOSS IS AN OK BARGAIN.

Some kind of "Net Profit" will accrue over time as a result of the profit-loss dance however. Spontaneously.

This "Net Profit" of life may not always be in monetary terms, however.

Heavy monetary loss, crushing financial insecurity, such things could manifest as "profit" in other aspects of life.

All aspects of life cannot be in the negative zone simultaneously. That is impossible.

We can only hope for more clarity.
More vision.
More perspective.

However, there are sources, like ACIM, that would not agree with the above analysis. They reject outright, all forces of decay, loss, harm.

Here is one video in which ACIM builds its case: