A Spec of Sand on a Long Beach

Over the weekend I listened to Russ Roberts’ interview with Jason Zweig, who made an excellent observation of how vast the financial markets are and how little time investors spend thinking about this:

I think if there’s one overriding theme to the book, one of the things I’ve tried to get across in The Devil’s Financial Dictionary is the importance of just being humble before the financial markets. I mean people are humble before nature- think about when you stand on the rim of the Grand Canyon, or you walk to the edge of the ocean, or you look up at the stars, people feel this sense of awe and wonder and smallness because we are small when we compare ourselves with the natural world. Well individuals, and for that matter, policy makers, are small when we compare ourselves with the financial markets, but most of us forget that.  And we think, oh we’ll we have better data or we know something the other guy doesn’t, and in fact we should have that same sense of just being a spec of sand on a long beach and just remember that whatever we know is very small compared to the totality of the information that’s out there.

According to Dimensional Funds, in 2015 the average number of daily global equity trades was 98.6 million, or $447.3 billion a day. Jack Bogle estimates in Clash of the Financial Cultures that we spend $33 trillion on trading a year, or 220% of U.S. GDP. These numbers are so big that they become almost meaningless. Let me attempt to put its vastness into terms we can wrap our head around.

If $447.3 billion in dollar bills were stacked on top of one another and then laid on their side, they would more than wrap around the world. If they were laid out tip-to-tip, they could make the 478,000 mile round-trip to the moon 90 times. $447.3 billion in one dollar bills weighs 985 million pounds, or 3,285 blue whales. Keep in mind, this is all in a day’s work.

So really, how can one stand on the rim of the financial Grand Canyon and not be humble?


Econ Talk

The Devil’s Financial Dictionary

Clash of the Cultures