Department of Information Science

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Browsing Department of Information Science by Author "Bana, Mohammed"

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    Complexity perspectives and investment decisions
    (Stellenbosch : University of Stellenbosch, 2010-03) Bana, Mohammed; Kinghorn, Johann; University of Stellenbosch. Faculty of Arts and Social Sciences. Dept. Information Science.
    ENGLISH ABSTRACT: This thesis investigates investment theory in the light of complexity theory. These insights from diverse fields contain powerful images, metaphors and ways of thinking that allows one to seek new ways of comprehending the nature of the economy and therefore the nature of investment and the related issues of uncertainty and decision making. Complexity theory views the economy as being a dynamic, continuously adaptive, nonlinear system. This is in contrast to traditional or classical economic theory that views the economy as being a simple, linear, equilibrium deterministic system. This thesis is a conceptual study exploring the implications of a complexity worldview for investment decisions by looking at the nature and characteristics of complexity and then overlaying it on the characteristics of the economy. It is argued that complexity is caused by three elements: the structure of the system, human behaviour and exogenous factors. Thereafter follows an analysis of how investment decisions are made in the light of complexity by illustrating the investment models of two very successful, yet different investors: Warren Buffet and George Soros. Buffet’s model hinges on value. He realises that emergent phenomenon driven by irrational behaviour of investors leads to intrinsic values of shares to differ widely from perceived value. When quoted or perceived values are low than it is advisable to purchase as you have a margin of safety. Over the long term the market recognises the real value of the share. He tries to ignore the vagaries of the market and to focus on fundamentals. His list of fundamentals include; the franchise value of the company, quality of management and industry dynamics. George Soros in contrast utilises emergence patterns to locate potential investments. His model is that systems are flawed, human thinking and decision making is flawed and the interaction of the two lead to perturbations and oscillations. He focuses in trying to understand the flaw in systems and in human behaviour and to find some kind of pattern that he could utilise to make a profit. It is shown that both investment models can be understood from a complexity perspective and that these two investors built aspects from complexity into their decision models.