“Men nearly always follow the tracks made by others and proceed in their affairs by imitation…”—Machiavelli
To our clients and friends:
In late October, I attended a Fidelity Investments conference in New York City. The majority of the sessions at the conference focused on the concept of risk. One session was particularly captivating. The speaker, Dr. Ren Cheng, had placed five metronomes on a wooden plank. A metronome is a device used in music to keep a steady beat—it produces regular, metrical ticks and is used to set a melody. The plank holding the metronomes was then laid across rounded cylinders arranged in a row on a flat table.
Dr. Cheng then manually started up all the metronomes on a staggered basis. He first wound up and then triggered each one—purposely starting each one out of sync with the others. Thus, all five were ticking in irregular patterns at first. But after a few minutes passed, each one began to slowly synchronize with the others. And moments after that, all five were fully synchronized with one another—and therefore ticking in unison.
The audience of advisors and investment managers was baffled. What was the point of Dr. Cheng’s demonstration and what did it have to do with risk?