Introduction: Arrogance Before the Truth, We Can Never Know the Future
In the world of investing, there is a most famous and oldest absolute truth: ‘Buy low, sell high.’ However, behind the constantly fluctuating prices of the stock market lies the unchanging essence of human greed and fear. Because of this, 99% of people fail to keep this simple rule and face ruin.
The cause of failure is clear. Humans arrogantly harbor the illusion that they can predict when the price is ‘low’ and when it is ‘high.’ The human brain (specifically the amygdala) naturally perceives sudden plunges in stock prices as a survival threat akin to the appearance of a prehistoric predator, releasing cortisol. This leads to the paralysis of the frontal lobe, which is responsible for rational judgment—a phenomenon known as Analysis Paralysis. In the rough sea of capitalism, where all things are in constant flux, attempting to perfectly time future highs and lows is nearly impossible.
When we forcibly try to control unpredictable volatility, our brain loses its judgment as a rational helmsman. So, what is the philosophical and scientific solution for us, who cannot know the future, to protect this simple truth?
1. Mathematical Alchemy: ‘Shannon’s Demon’ and Position Sizing
Humbly acknowledging our ignorance of the future and fundamentally blocking the brain’s amygdala fear response, the greatest practical weapon is ‘Position Sizing.’ Pouring 100% of your assets into stocks and staring at charts while praying for rain is not investing; it is speculation.
Claude Shannon, the father of information theory, proved a terrifying truth through a powerful mathematical model called ‘Shannon’s Demon.’ He demonstrated that even with an asset that has no upward momentum and merely fluctuates in place, mathematically creating something out of nothing (compound returns) is possible through cash and mechanical rebalancing.
📊 Shannon’s Demon: The Magic of Volatility Creating Capital Expansion
※ Condition: An asset with a 0% long-term return, repeating a daily +50% surge and -33.3% crash.
| Category | Day 1 (Start) | Day 2 (+50% Surge) | Rebalancing (5:5 Ratio) | Day 3 (-33.3% Crash) |
|---|---|---|---|---|
| General Investment (100% Stocks) |
Asset 100 | Asset 150 | (Neglected) | Total Asset 100 (0% Return) |
| Shannon’s Demon (50% Stocks : 50% Cash) |
Stock 50 / Cash 50 (Total 100) |
Stock 75 / Cash 50 (Total 125) |
Stock 62.5 / Cash 62.5 (Ratio Restored) |
Stock 41.6 / Cash 62.5 Total Asset 104.1 (Approx. 4.1% Profit) |
💡 Core Insight: The stock’s value itself rose from 100 to 150 and returned to 100 (0% return), but the account rebalanced 5:5 with cash actually expanded its capital to 104.1. Volatility itself has transformed into an alchemy that creates geometric compound multiplication.
This is precisely the principle of ‘Rebalancing Alpha,’ which converts volatility into geometric mean returns. Setting a fixed ratio of cash to blue-chip assets and strictly adjusting the position sizes mechanically perfects the truth of “buy low, sell high.” When the market crashes and the stock weight decreases, you use the held cash to buy the cheaper stocks to restore the original weight (buying low). Conversely, when the market surges, you sell some to refill the cash weight (selling high). Without complex predictions or cognitive overload, you board nature’s compound multiplication solely through the frequent contemplation of position sizing.
⚠️ [Caution: A Warning Regarding Simplified Models]
The table above is merely a theoretical mathematical model that excludes real-world friction such as transaction fees, taxes, and slippage. Just as it is impossible to predict the future, attempting to adjust your allocation daily in response to every price fluctuation is another form of arrogance. Over-trading will not summon Shannon’s Demon; instead, it will ruin both your daily life and your portfolio. The essence of position sizing lies not in trading frequency, but in maintaining restraint and a state of equilibrium.
2. Abandon Prediction and Enjoy the Current State of Equilibrium
My account name is set solely by allocation weight: ’30:56:14′. After selecting exactly three index-tracking ETFs, I capture my current account balance every month and show it to AI. I simply ask, “I’m going to deposit this much more this month; how much of each should I buy to match the 30:56:14 ratio?” and then mechanically execute the deposits exactly as calculated. I neither know how much a specific stock has risen, nor do I have any need to know.
After that, I live entirely in the ‘present’. Every day, I read books, watch the news and YouTube, and contemplate the meaning of where I stand right now through conversations with people. I only adjust the allocation when the essence of the materials and situations I have classified—that firm meaning—shifts. That is all.
Once the Restoring Force system of position sizing is established, we no longer need to hold our present lives hostage to the uncertain numbers of the future. Because we have completed a system that constantly pulls a lopsided asset back to the central point of equilibrium, we do not throw our ‘today’ into the hell of the stock market screen for the sweet illusion of 10 billion won in the future. Instead, we can enjoy a state of perfect Thermodynamic Equilibrium along with the relaxation of a cold glass of beer after work.
If you have completely made market volatility your ally through Shannon’s Demon, all that remains is to trust the honest addition of time given every day and fully enjoy the present. Only those who affectionately embrace the past and proactively live out their daily lives in the present can remain entirely unbothered, even in the face of this fierce storm of capitalism.
Conclusion: The Emptied ‘Non-Attachment’ Creates the Victor of Capitalism
The act of “buying low and selling high” is not the realm of a prophet timing the market. It is the most active and grand practice of ‘non-attachment’—humbly understanding the meaning of the market and emptying oneself of the overload of desire.
When we practice position sizing, abandoning obsession like a light sailboat, we can immediately adjust our sails whenever the wind changes direction. Do not be mesmerized merely by the increasing numbers in your bank balance; focus on the serenity your brain is experiencing right now. Only those who discard the arrogance of trying to predict the future and maintain the equilibrium of their brain and account through position sizing will survive to the very end in the ever-changing stock market and become the true masters of money.
💡 Read Deeper with the Philosopher’s Eye
- 0. Capital Philosopher: A Philosophical Journey to Master Capital
- 1. How to Survive Unequal Capitalism: The Secret of Time You Didn’t Know
- 2. How to Survive the Ever-Changing Stock Market: Simple Truth and Frequent Thought
- 3. Give Meaning to Capital: Pierce the ‘Essence’ and Become the Master of Money
- 4. Why Philosophy Beats Trading Techniques in Capitalism