The Fibonacci number is one of the few things I did not learn while at
Pui-Ching, nor from reading Kum Yung's novels. I heard about this number for
the first time from our classmate Peter Chang Hon (C34) a few months ago, in
discussion of his stock analysis methodology. I did not know what that
number was at the time, and I went to web to find out. The second time I
encountered the name was from reading a mystery novel entitled " The Da
Vinci Code" by Dan Brown.
So what is "The Fibonacci number" ? and what does it have to do with
investment, and also one of the codes in a murder story in the most famous
museum in the world ?
It turns out that Fibonacci was a mathematician in the 1200s, who quite
conceivably invented the population Theory in 1202. Most of us know about
the number series:
0,1,1, 2, 3, 5, 8, 13, 21, 34, 55...
The next number in the series is just the sum if the two before that, for
example,
0+1=1, 1+1=2, 1+2=3, 2+3=5, 3+5=8, 5+8=13 etc....
This is the so-called " Fibonacci series" which calculates the population of
rabbits in future generations from one pair of parents. If one takes the
ratio of the two consecutive numbers in this series, the ratio would soon
approach a constant ratio of 1.618034.
For example, 1/1=1, 2/1=2, 3/2=1.5, 5/3=1.66... 21/13=1.62538, ... It is
obvious that the ratio approaches a constant value of 1.618034.
The number of "1.618" is known as the " golden number of the mean, or the
golden ratio, or the Divine Proportion ". The Golden Number is arguably the
most important number in nature.
We can see this with a few examples as follows; (1) the ratio between the
length from the tip of your head to the floor and to that of your belly
button to the floor is 1.61, (2) that between the shoulder to the finger tip
and the elbow to the finger tip is 1.61, and (3) the ratio of female bees
(with only one queen bee) and male bees in any bee hives is 1.61, (4) the
pertinent pyramid geometric dimensional ratios, and so on and so forth (
plenty of examples can be found on the web-links) .
This number is a manifestation of compliance to nature. All things must come
to this ratio ( 1.61) or the reciprocal (0.62) to be natural . In terms of
thermodynamics, it is the equilibrium value, all natural ratios tend to
converge to 1.61 or the reciprocal.
So what does it have to with stocks ?
Here is an example given by the Master Chang ;
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Lets say a stock goes form $10.00 (valley, V1) to $20.00 (peak, P1), then
reverses itself and dropped to $17.00 (V2). What should be the next peak
when it rebounds?
The Fibonacci method states that it can rebound up to 162%. Therefore, P2
could be 1.62(P1-V1)+V2, or $33.20
The Fibonacci method also states that when it drops, typically it will drop
by to a low of 62%
V2 = P1-0.62 (P1-V1) = should be $13.8, and not $17.00
This method works sometimes. Not all the time.
End of example.
---------------------------------------------
The Fibonacci method appears to be applicable for short periods, say a week,
a month, but perhaps not for a few years. You should realize I ( the writer
of this article) do not invest in individual stocks on a short term basis.
My interpretation can be all wet.
The Master has taken three classes for stock analysis. He discusses
technical analysis with his #1 disciple A Chai. To know more, you must learn
from the Master himself, Peter Chang Hon, and/or the #1 Disciple A Chai .
NOT ME.
By the way, I am sure most of not all of us have seen the Mona Lisa housed
in the Louvre. I saw it twice , once from afar, once much closer. Both times
I did not understand why it was the most celebrated painting in the world.
The book "The Da Vinci Code" hinted why Mona Lisa wears that everlasting
knowing smile on her face, as if she knows a secret that all of don't; and
why Mona Lisa is named Mona Lisa. Next time when you see a knowing smile on
the face of a woman or a man, it is not that enigmatic after all. It is all
within the reams of the divine proportion.
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