Book Review: Thinking in Systems


Thinking in Systems by Meadows & Wright was recommended by Patrick O’Shaughnessy at his blog. I also think his father’s book, “What Works on Wall Street”, is an excellent quantitative reference for longer term investment models.

Systems engineering is a thought exercise in deciphering the variables in any given system, how they are controlled, and what happens when inputs are changed. The book had me thinking about systems in all different facets of life from the markets to organizations, and politics. Some highlights:

“Look beyond players to the rules of the Game”

Purpose of a system is deduced by long term behavior and not from rhetoric and is the least obvious.

Instead of who’s the blame, ask what’s the system?

News is event analysis. It has little to no predictive/explanatory value but is most visible. #Twitter #CNBC

Competitive Exclusion Principle – Rich get richer. Solutions are to diversify (new markets) or level the playing field (inheritance tax)

Seeking wrong goals can result in producing effort but not results. Example given is focus on GNP/GDP versus Happiness or equality.

Changing people won’t change the system. A new president can change the inputs but the system and it’s outputs remain. #PresidentialElection

Leverage points, things that can alter systems, are counter-intuitive.

The book has examples of these highlights, I wish it had more. This seems like a fascinating subject area and applies very well to finance. Any readers with more suggestions on Systems Analysis please comment!


~ by largecaptrader on October 14, 2015.

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