The Information Curve

Information like everything else in nature is mathematically patterned. Understanding the pattern can help us make much more sense of information.

Coming to look at it, we don't trade or invest in assets but their intrinsic information. It is this information that gives them value. The relationship is considered linear between information and value, the higher the quality of the information, higher the perceived value in the assets and vice versa. For example, the value of Oil lies in the information code bits in it. Oil is going to get over, demand will overshoot supply, future is inflationary are some of the information bits that drive the price of Oil. A similar information code also works for Gold and other assets. It's like DNA with a different code, but similar double helix structure.

However, that’s not how the society knows information. The masses know information as something that they read in the newspaper, something that they see on TV, or read on the web. It's all about making sense of this clutter. The very fact that humans think there is a certain disorder in the information that they assume the confusion that comes with news. If the information works for us, great, If it does not we accept it. We have learned to have fewer expectations from information.

Actually we don't even know what information effects our investment needs and by how much. We are doing a hit and trial when it comes to using information for investments. We know the butterfly can create a tornado in our portfolio, but we can't quantify the damage, neither can be estimate the time when the butterfly flapping will reach us. Information is a chaos. We read, assimilate it every day without really seeing a structure in it. If it was our jamming email box, we could sort out things with Google priority box. To reach to the information that we need, we think we need to give it priority. But we still don't know whether what we call priority information is really significant for our investment needs.

If we can see the pattern in information, we could illustrate an order in information. This would not only help us assimilate information faster, but also simplify the investment process. It may also bring in a new approach to research, where we might understand the macro with the micro. Information, in its most restricted technical sense, is an ordered sequence of symbols. As a concept, information is also conceived as a pattern. But how does this pattern of information look like? Inform itself comes (via French) from the Latin verb informare, to give form to, to form an idea of.

To find the pattern of information we accessed the online wall street journal and started tabulating words and their frequency of usage. For example how many times in the ‘Middle East’ section of WSJ did the word ‘Middle East’ repeat? It repeated 7 times. So the reference was ‘Middle East’ and the frequency was 7. We did the same exercise for $ (1), Recovery (3), Growth (3), Gulf(4), Dip(4), Asia(7), Middle East(7), Oil(9), BP(10), Food(10), World(10), U.S.(14), U.K(16), Africa(19), Russia(24), Japan(43), China(45), India(99).

Guess what did we find when we plotted the frequencies? We got an exponential curve. 20 per cent of the references generated 80% of the total frequency. Strange as it may seem, a similar exercise done on Alrroya will showcase a similar result. Information was a curve that was memoryless, ordered, hierarchal, proportional, geometrical and fractalled, anyway you looked it. Whether it was the weather channel, the religion channel, the market channel or the lifestyle channel, information followed the same pattern.

If you think this is magical and shocking, you will be surprised to know that George Kingsley Zipf (1902–1950), was an American linguist and philologist who studied statistical occurrences in different languages. He showcased the power law curve (Exponentiality) in our usage of words. Exponentiality was everywhere. Whatever seemed like chaos was actually ordered. Even information was ordered and it was 20 per cent of the news is that affected 80 per cent of our investment decisions.

Another way to look at all this news and information is ranking. The most known news, searched word, idea has already reached the top of the ongoing cycle. The real performance is going to come from news and region that is not widely read (referenced) today. For example Middle East was least referenced among various regions on the WSJ, the very reason Middle East remains a potential news generator for the future. And the very fact India is the top referenced section makes India prone to some negative surprises in the time ahead.

Interpreting news is a nascent science and it may take a while before we start developing Information based analytics. But it starts from the proof that Information was always curved and mathematical.

Email the writer: