Nietzsche Beach

”Alvy Singer: The universe is everything, and if it’s expanding, someday it will break apart and that will be the end of everything!.

Mrs. Singer: What’s the universe got to do with it? You’re here in Brooklyn, Brooklyn is not expanding!”

???????????????????????? ????????????????? ???????????????????????????? --Annie Hall

?

Indulging in a bit of epistemological market discourse. Will be back to Earth and send something out in a day or so…

?

Perched between the yachts of Beaulieu-sur-Mer and Monaco sits the village of Eze in the South of France. Extremely picturesque, and heavy with tourists, one of whom, Fredrich Nietzsche, stayed for a few months in 1881. The beach, and the trail he used to walk up to the village was named after him, which strikes me as incongruent since I do not normally think of him as a specialty-cocktail-drinking kind of guy.

Looking past the irony, what he is known for is his philosophical writing, which many have distilled down to three doctrines: ?Perspectivism, The Will to Power, and The Eternal Recurrence of the Same. While I may get pushback from a few academics, as far as I am concerned, he was clearly one of the first great market thinkers.

Let me explain why, and how Nietzsche’s philosophy is consistent not only with my own views on how to approach markets, but also with the algorithms at Pave.

If I can cut through his ideas with a machete for brevity’s sake,

·?????? Perspectivism explains that philosophers do not declare any universal truth but are so heavily biased by their own beliefs that they do not recognize their own psychological perspective colors their work.

·?????? The Will to Power describes the existence of competing “power-centers” each focused on expansion, and the varying success and failure each experiences as they interact with one another. Finally,

·?????? The Recurrence of the Same can be defined as the repetition of patterns throughout one’s life.

As to his first point, market participants certainly underestimate the influence of their own biases when forming their market view.

Everyone is coming to the market with their own perspective and the fact is, there is no underlying “truth.” The reality is that there are competing polarities, such as value vs. growth, long term vs. short term investing, quantitative vs. discretionary, fundamentals vs. technical, top-down macro vs. bottom-up micro, trend following vs. mean reversion, and so on that are brought into the market arena. This competition synthesizes into a momentary equilibrium resulting in the current price of a given asset.

On to his second point: These polarities fit into Nietzsche’s description of competing power-centers that are constantly shifting as they apply force on one another, with the force being capital flows. Our market world is best described as an organic, adaptive environment, with constant shifts occurring in the investment landscape.

The goal? To weigh all these “objective “market views and evaluate which have validity for the current market situation.

To invest profitably, one must precisely understand the reasons behind putting on a trade and why the entity on the other side of that trade is deploying capital in the opposite position with equal conviction.

It is precisely by understanding that there is no one market truth, that one can take advantage of shifts in sentiment and adapt.

His final, and favorite concept applies to markets through the observation that events in the world unfold in similar ways as they have in the past, and impact investors’ collective psyche in predictable ways. This manifests in markets

·?????? As seen through recurring cycles of fear and greed exhibited by investors, and

·?????? How market rallies begin with a base forming, then a trend emerging, followed by distribution, and reversal (and the consistent proportions that define each stage of those patterns). Elliott wave practitioners would certainly be fans of Nietzsche in this regard.

·?????? The existence of market cycles is revealed using spectral analysis that illustrates the existence of regular cycles characterized by oscillations around price trends, first outlined by Hurst in his analysis in the 1970’s.

With regularity, a dominant thesis gets stale and overinvested, and that is when it is timely to look for market reversals. In this manner, one realizes that each market approach or investment idea is contingent on the ideal conditions for that view to manifest and generate profits.

With the rise of machine learning and now generative AI, these price patterns have become even more pronounced as these systems search for patterns and set ups from the past to deploy capital as a particular price structure begins to unfold.

Whether you are a purely price-based market technician, or fully fundamental value investor, this concept of cyclicality is important because patterns of price and behavior exist in markets. If you adopt a measured approach, waiting for a particular set of conditions to align, you can exploit it for positive alpha.

?

Introducing Pave for Professionals and for Individuals

Our technology has been built by approaching the question of how best to invest in a market that evolves from one market truth to another. Pave calculates risk and return scores across 150 different “perspectives” and weights them weekly to monitor which ones are driving returns, recognizing the competition between the various “polarities.” Bespoke optimized portfolios are generated considering the individualized objectives of our clients. New trades are implemented as market conditions change. It is an adaptive mechanism that looks at how different micro and macro factors are being valued by the entirety of market participants and changes the portfolio allocation based on these shifts.

?

We would like to think Nietzsche would be an enthusiastic client if he were around today and could rest easy on the beach knowing Pave’s technology was managing his portfolio.

?

?Peter Corey

PavePro Team

?

?

? Copyright 2023 Pave Investment Advisors, LLC (“Pave”). All Rights Reserved Pave is an SEC registered investment adviser. Such registration does not imply any level of expertise by the registrant. Pave provides services on a discretionary and non-discretionary basis. The enclosed material is for educational purposes only, any client subscribing to Pave’s advisory services will need to accept the Term of Service and execute, by accepting, the Investment Advisory Agreement in the Pave application. Investing is speculative and involves risk, including the possible loss of principal. The information contained herein is provided for discussion purposes only, is only a summary of key information, is not complete, and does not contain certain material information about Pave or any of Pave’s affiliates and is subject to change without notice. The distribution of the information contained herein in certain jurisdictions may be restricted, and Pave may not be available in all jurisdictions.?

Unless otherwise indicated, the information contained herein is believed to be accurate as of the date it was produced. No representation or warranty is made as to its continued accuracy after such date. This material is not intended to be, nor should it be construed or used as an offer to sell, or a solicitation of any offer to buy, any securities or investment advice. No offer or solicitation may be made prior to the delivery of an Investment Management Agreement, which will contain additional information about Pave, including disclosures relating to risk factors and conflicts of interest. Clients will also receive ADV Part 2A, 2B and Part III (Form CRS). You should review all the material provided about the advisor. In the event of any discrepancies between the information contained herein and the Investment Management Agreement, the Investment Management Agreement will control. You should make an independent investigation of the investment described herein, including consulting your tax, legal, accounting or other advisors about the matters discussed herein. Pave’s investment methodology may not be suitable for all investors. There can be no assurance that any investment objectives will be achieved. Investment losses may occur, and investors could lose some or all of their investment. No guarantee or representation is made that Pave’s investment methodology will be successful. Nothing herein is intended to imply that Pave’s investment methodology may be considered "conservative", "safe", "risk free" or "risk averse”. Economic, market and other conditions could also cause Pave to alter the investment methodology. Certain information contained in this material may constitute "forward-looking statements," which can be identified by the use of forward-looking terminology such as "may", "will", "should", "expect", "anticipate", "target", "project", "estimate", "intend", "continue" or "believe" or the negatives thereof or other variations thereon or comparable terminology. Due to various risks and uncertainties, actual events or results or the actual performance of Pave’s methodology may differ materially from those reflected or contemplated in such forward-looking statements. Pave believes that the information contained in this material to be reliable but does not warrant its accuracy or completeness.?

?