Thoughts about the markets, automated trading algorithms, artificial intelligence, and lots of other stuff

  • Fueling Alpha: Data is Powering the New World

    Data is becoming a precious commodity.

    A staggering 90% of all the world’s data (2.5 quintillion bytes per day) has been created in the past two years alone … and its value is rapidly rising.

    With IoT growing from 2 billion devices in 2006 to a projected 200 billion by 2020 you can expect to see that growth continue to explode.

    Data is today’s “wild west” and the battlefield of today’s tech titans. Alphabet, Amazon, Apple, Facebook, and Microsoft all have an unprecedented amount of data (and power).

    Rapid growth means little time to create adequate rules. Everyone’s jumping to own more data than the next and to protect their own data from prying eyes.

    I see it in trading, but it’s pervasive in every industry and in our personal lives.  

    Having basic data and basic analytics used to be enough, but the game is changing.  Traders used to focus on price data, but now you’re seeing an influx of firms using alternative data sets to find an edge. If you’re using the same data sources as your competitors and competing on the same set of beliefs, it’s hard to find a sustainable edge. Understanding the game they’re playing, and their rules are important, but that’s table stakes.

    Figuring out where you can find extra insight, or where you can make the invisible visible, creates a moat between you and your competition, and it lets you play your own game.

    I shot a video where I talk high-level about Data as fuel for your business. Check it out.

     

     

    It is interesting to think about what’s driving the new world (of trading, of technology, of AI, etc.) and that often involves identifying what drove the old world. History has a way of repeating itself.

    Before e-mails, fax machines were amazing. Before cars, you were really happy with a horse and buggy.

    It’s in these comparisons that I think we can help explain the importance of data in today’s new world economics.

    New World Economics Data Is A Precious Commodity_GapingVoid

    via gapingvoid

    Data as the New Oil

    Petroleum has played a pivotal role in human advancement since the industrial revolution; it fueled (and still fuels) our creativity, technology advancements, and a variety of derivative products. There are direct competitors to fossil fuels that are gaining steam, but I think it’s more interesting to compare petroleum to data due to their parallels in effect on innovation.

    The process of pumping crude oil out of the ground and transforming it into a finished product is far from simple, but anyone can understand the process at a high-level. You have to locate a reservoir, drill, capture the resource, and then refine it to the desired product – heating oil, gasoline, asphalt, plastics, etc.  

    The same is true for data.

    You've got to figure out what data you might have, how it might be useful, you have to figure out how to refine it, clean it, fix it, curate it, transform it into something useful, and then how to deliver it to the people that need it in their business. And even if you've done this, you then have to make people aware that it's there, that it's changing, or how they might use it. For people who do it well, it's an incredible edge.  – Howard Getson

    Data can be seen as the fuel to the information economy and oil to the industrial economy. The amount of power someone has can be correlated to their control of and access to these resources … and, leaking of these resources can lead to extreme consequences.

    Why Data Is Better Than Oil

    The analogy works, but it’s just that, an analogy, and the more you analyze it, the more it falls apart. Unlike the finite resource that is oil, data is all around us and increasing at an exponential rate, so the game is a little different:

    • Data is – ultimately – a renewable resource. It’s durable, it’s reusable, and it’s being produced faster than we can process it.
    • Because it’s not a scarce resource, there’s no urge to hoard it – you can use it, share it, transform it, infinitely knowing that it won’t diminish. Data is more useful the more you use it.
    • As the world’s oil reserves dwindle, and renewable resources grow in popularity and effectiveness, the relative value of oil drops. It’s unlikely that will happen to data.
    • Also, while data transport is important, it’s not expensive the way oil is. It can be transported and replicated at light speed.

    Using alternative data gives traders an advantage, but it doesn’t always have to be confidential or hard to find information. Traders now have access to vast amounts of structured and unstructured data. An important source that many overlook is the data produced through their own process or the metadata from their own trades or transactions.

    In the very near future, I expect these systems to be able to go out and search for different sources of information. It's almost like the algorithm becomes an omnivore. Instead of simply looking at market data or transactional data, or even metadata, it starts to look for connections or feedback loops that are profitable in sources of data that the human would never have thought of. – Howard Getson

    In a word of caution, there are two common mistakes people make when making data-driven decisions. First, people often end up slaves to the data, losing focus on the bigger picture. Second, even the most insightful data can’t predict black swans.  It’s important to exercise caution.

    The future of data is bright, but it’s also littered with potential challenges. Privacy concerns and misuse of data have been hot button topics, as have fake news and the ability of systems to generate misleading data. In addition, as we gain access to more data, our ability to separate signal from noise becomes more important.

    The question becomes, how do you capitalize on data, without becoming a victim to it? 

    Food for thought!

  • Taking Stealing To The Next Level: Baseball and Machine Learning

    Baseball signals are purposely confusing to keep them a secret.  Attempting to decode your opponents' signals is part of the game. As it turns out, machine learning is pretty good at figuring them out. 

    Mark Rober, a former NASA engineer on the Curiosity Rover, put together a good video showing its efficiency. It's an interesting application and a pretty good introduction to machine learning. It did the rounds in my office, and we liked it. 

     

    via Mark Rober

    So, what do you think, should we make this legal in the MLB?

  • Here Are Some Links For Your Weekly Reading – July 14th, 2019

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    Here are some of the posts that caught my eye recently. Hope you find something interesting.

     

    Lighter Links:

    Trading Links:

  • Biohacking Gone Wild

    Dave Asprey is perhaps the most well-known biohacker (he's even referenced in Merriam-Webster's definition of biohacker) and the founder of Bulletproof. For those that don't know, a biohacker is someone who uses drugs and technology to make their body/mind function better. 

    Dave and I shot a video where he discusses life and provides an interesting take on algorithms. 

     

     

    It's not surprising that biohacking has become as popular as it has. In a society that encourages (maybe even necessitates) an impossible balance between work, responsibilities, and self-care – it makes sense to want to increase efficiency. 

    Biohacking helps you do more with less. Biohacking is popular because you're trying to get peak performance via the path of less resistance.

    Having trouble with sleep, but don't want to stop using your phone before bed? Wear blue-light blocking glasses. 

    Not getting enough results at the gym? Work out "smarter" not harder, by using cryotechnology and intelligent lifting machines. 

    While biohacking started as tricks like that – nootropics to help your mind, light and sound machines to decrease stress – it's becoming increasingly tech-centric and augmentation based. 

    Several months ago, I shared Gartner's hype cycle for 2018. Do-It-Yourself Biohacking was one of 5 encompassing trends for the year. 

    The future is bringing implants to extend humans past their perceived limits and increase our understanding of our bodies; biochips with the potential to detect diseases, synthetic muscles, and neural implants. – Howard Getson

    It's estimated that over 100,000 people already have various types of implants. In Sweden, thousands of Swedes are inserting chips under their skin to speed up their daily routines. They use chips to open locked doors, to store contact information, and to get on to the train. Currently, chips are limited to simple tasks like unlocking doors, holding personal data, and tracking simple to record data.

    Longterm, it's likely you'll see it moving toward exoskeletons, AR/XR experiences, and unsurprisingly to sex toys. It's also being used to create artificial organs and counteract memory loss.  The two companies that are leading this movement are Neuralink,  Biohax International and Digiwell. While it's currently being adopted primarily by fast-movers and technocrats, it's pragmatic to think there will be more widely-adopted versions of this as technology gets standardized and protections are put in place. 

    For all the excitement, it's necessary to remain skeptical and patient. DIY biohacking raises various ethical issues, especially around data protection and cybersecurity. As a reminder, when it comes to cybersecurity, you "the user" are the biggest weakness.

    There's no stopping this train, but there is time to make sure it stays on tracks!

    Onwards!

    by the way, I highly recommend the Bulletproof product line!

  • Replicas: Deep Fakes and Voice Replication

    Fake news was scary enough … but now it is going to a new level.  Technology is going to make it harder to find the “signal” in the “noise”.

    Here is a preview of tech solutions (which already exist) that are likely to create a new set of problems and challenges for us in the future.

    Replica is a company whose goal is to replicate celebrity voices. They see this as enabling creative applications of their voices without the commitment of the celebrity – of course the owner of the voice that's being replicated would control when/where it could be used.

    Here's a video introducing Replica. 

     

     

    Combine that ability to simulate voices with deepfake technology (which can alter video in many ways, including to look like the mouth in the video is is saying the words that were simulated) and the potential for confusion or deception skyrockets. 

    Here is an example.

     

     

    My guess is that you will hear a lot more about this soon because of upcoming elections.  It will also become increasingly relevant in everyday life, business, trading, and legal situations.

    A picture used to be worth a thousand words, but this may change that equation forever.

  • Here Are Some Links For Your Weekly Reading – July 7th, 2019

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    Here are some of the posts that caught my eye recently. Hope you find something interesting.

     

    Lighter Links:

    Trading Links:

     
     

     

  • If The Internet Goes Down Does The World Crumble?

    On Tuesday, for less than an hour, early in the workday, it felt like the internet was down for many.  The cause? Cloudflare went down. Cloudflare offers web services to over 16 million websites. That includes sites like HubSpot, Medium, UpWork, 9gag, Discord, Sirius XM, Shopify, Coinbase, Canva, Soundcloud, Buzzfeed, and Capitalogix.

    Even down detector was down. 

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    That means when Cloudflare went down, so did a non-trivial portion of the internet. W3techs reports approximately 10% of the internet was affected by Cloudflare being down. 

    What happened?

    Screen Shot 2019-07-02 at 9.47.13 AMvia DigitalAttackMap

    There was a massive spike in CPU utilization. At the time, it looked like a DDOS attack. People were speculating that it was a Chinese attack trying to mess with the Hong Kong protests. 

    Turns out, it was bad code – specifically, a single misconfigured rule within their firewall services. They did a global rollout of the code, and so it affected everyone. 

    This shows the importance of staged rollouts – testing your releases live with test groups before being released globally. 

    Here's a great write-up from Andy Ellis on preventative measures in the future.  

    The reality is, using a CDN is still helpful, Cloudflare's downtime doesn't mean you shouldn't use them.

    It does mean we should be thinking about what failsafes are needed to keep the internet infrastructure working in the event of attacks or failures. 

    Attacks are becoming more common, and as we now expect constant improvements/releases to software, we can expect more company errors as well. Facebook had similar issues on Wednesday.

    Think of how much relies on the internet as a backbone. It's crazy to think about the impact sustained downtime would have; billions of dollars in business not happening, banking systems down, etc.  Realistically, if the entire internet goes down we likely have bigger issues to worry about, but this event shows that large swaths of the internet could be affected at once. 

    Would a decentralized network help? Are smart contracts necessary for that? Is there a CDN for CDNs?

    It feels like we often end up with more questions than answers.

    It is why many companies opt for a hybrid cloud with plenty of on-premise compute.

    What do you think?

  • How Do You Compete Against Tech Giants? Moonshots.

    “I have not failed. I've just found 10,000 ways that won't work.” – Thomas Edison

     

    It doesn't make sense to challenge a bigger and better-funded competitor in an area where they have an asymmetric advantage.  In other words, don't compete with giants at their own game.

    Choose to play a game you expect to win.

    Playing a different game is a theme at Capitalogix. We believe that you control the game you're playing, that you control the rules, how you keep score, and even how you evaluate success.  These things inform where you spend time, where you invest money, and even what looks like an opportunity to you. 

    Wouldn't you rather compete in areas where you can create a unique sustainable competitive advantage?  Personally, I want to invest in extending an edge that lets us win.

    Why?

    Mediocrity Is Expensive!

     

    Mediocrity is Expensive_GapingVoid

    What you lack in size or computer power, you can make up for in creativity, agility, and innovation. 

    Capitalogix sought to create a niche in the investment industry, not through computing power, but through unique approaches to age-old problems. We use AI and data science to enhance decision-making. 

    We have an incredibly narrow and consistent focus.  Within that area, we are willing to take on problems others avoid and pursue goals that others say are impossible. 

    Our niche limits risk and lets us fail faster … and learn faster. This allows us to take confident action while others are tentative. 

    Most big companies – and most of our competitors – are afraid to be wrong. They have to protect their infrastructure, cash-cows, and short-term performance metrics.  It makes sense (from their perspective) that playing it safe means that you're secure in your position. – but that's not how it works. 

    You can't challenge the status quo when you are the status quo. 

     

    10x Improvement Is Often Easier To Achieve Than 10%

     

    Astro Teller via TED

    "In 1962 at Rice University, JFK told the country about a dream he had, a dream to put a person on the moon by the end of the decade.The eponymous moonshot. No one knew if it was possible to do, but he made sure a plan was put in place to do it if it was possible.That's how great dreams are.Great dreams aren't just visions, they're visions coupled to strategies for making them real." – Astro Teller

     

    Incremental change is hard – it's finding new ways to do the same thing, and you often end up competing in very red oceans – saturated markets where you're competing on price. Moonshots sound harder, but you end up with your own niche and the constraints of a new idea force creativity and energy.  If you're going after a goal that no one has accomplished before, it's impossible to be in a red ocean, and it's easier to mobilize a team around something exciting and new than decreasing some arbitrary metric 2%. 

    Transformation Equals Innovation Plus Purposeful Action_GapingVoid

     

    There are a couple of important lessons to keep in mind when pursuing the unknown.

    • Forget what you know – self-reported "experts" are limited by their world view. If you're trying to get a different result, you won't do it by playing by the same rules your predecessors followed.  Heuristics are great for making life easier – but they're very limiting when trying to create something new. 
    • Attack the hardest problems first – your biggest problems are your biggest opportunities. If you don't deal with the big problems now, you'll never get around to it, and you'll waste time, energy, and potentially realize you have to pivot much too late.  
    • Be comfortable being uncomfortable – Most people find failure taboo, and they're deathly afraid of it. Tony Robbins talks about our tendency to avoid pain more actively than we pursue pleasure, and it's true in business. But failure is a part of business. The people I consider most successful got there through incredible pain tolerance and increasingly intense problems that they continued to conquer. 
    • Have a short memory for pain - Focus on the gain, not the pain. People often focus on not enough money, not enough time, not enough. That scarcity mindset is dangerous and can lead to getting lost in pain and fear. Learning to acknowledge the pain/fear and move forward from a place of abundance and opportunity helps create opportunities. 

    As well, a clear identity is important. You have to understand what you're pursuing, and how you want to attack the problem. At Capitalogix, we've gotten very in tune with our goals. 

    We invent techniques that identify and adapt to what happens in markets. We apply the lessons learned from past experiences, data science breakthroughs, and hard work to eliminate the fear, greed, and discretionary mistakes that are the downfall of most traders and decision-makers.

    Small businesses don't have a monopoly on these mindsets and these opportunities, but companies like Y Combinator, X, or HeroX are few and far between. 

    Those businesses that have the scale and these approaches are great to model, and there's enough innovation out there for both of you. 

    So what's your moonshot?

  • Here Are Some Links For Your Weekly Reading – June 30th, 2019

    Most people don't spend money on freemium games. These games rely on a small subset of "whales" to survive – players that spend absurd amounts of money on their games. Gacha games let players pay to "roll the dice" to unlock rare characters and collectibles similar to a "Loot Box" mechanic. 

    Now, the US is trying to make this mechanic illegal for taking advantage of children with their "pay-to-win" mechanics. 

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    Here are some of the posts that caught my eye recently. Hope you find something interesting.

     

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  • Insights From CogX – On AI and Emerging Technologies

    Cogxlogo-600x400While I was at Camp Kotok, my son found CogX, an AI and emerging technologies conference held in London. They had speakers from academia, governments, and industry to give a more holistic view of AI and emerging technologies. 

    They put all their keynotes online, for free.

    He watched a few and sent me his feedback. Here are a couple of his key takeaways, but I encourage you to watch yourself and make your own.

    Experts and neophytes alike are making a lot of common mistakes

    We recently shared a video on this topic. Myopia is a big issue even with experts. People get distracted by the sea of opportunities and forget to focus on one. 

    As well, culturally, we get caught up in exciting long-term applications, like self-driving cars, instead of capitalizing on low-hanging fruit. 

    "Don't confuse a clear vision for a short time horizon"

    The key to moving AI to the next level is putting power in the hands of the many 

    The Googles and the Facebooks of the world are accomplishing a lot – and tackling real problems, but their efficiency is next to nil. 

    There are also a lot of niche or esoteric problems that they'll likely never attempt. Small businesses have the ability to be much more creative, agile, and risky. 

    Small business powers economies, and it also powers AI.  That being said, smaller companies can learn a lot from the current digital leaders. For example, learning to apply basic AI, instead of complex applications half-finished sitting on a shelf, or, by using AI on supporting aspects of their business instead of jumping straight to overhauling their core business. 

    We're still very early on in AI's lifecycle

    The secret to better AI is in better analysis of better data. The applications are secondary. 

    Many people are focused to heavily on the vision, without taking into account the steps to get there. Infrastructure and other foundational aspects need to be in place. 

    We need to scale investment in projects and the information available in industries. 

    Today's big force functions are Data and Talent. We still haven't ironed out the interaction between humans and AI. As we make that easier, you'll see average people being able to create wonderful things with AI – instead of creation being limited to PhDs. 

    Eric Daimler, during a roundtable on AI Capital, referenced Jevon's Paradox – the idea that increasing fuel efficiency doesn't decrease fuel consumption, it increases it. He equates this to the current bottlenecks in AI, and where AI will end up. People didn't predict the car, they didn't predict the app store, and they can't predict what the future of AI will look like. 

    What Does The Future of AI Look Like? 

    Charles-Edouard Bouée, of Roland Berger, sees a mass evolution of AI coming – with AI being anywhere and everywhere. 

    China currently has an advantage due to their size, policies, and willingness to leapfrog technologies. As competition increases, future leaders will leverage 6 points:

    • Data Availability and Usage – how much data is your country/company tracking?
    • Mathematical capabilities – AI is the new name for mathematics
    • Investment Power – are companies putting their money where their mouth is?
    • Applied Mathematics & Physics – the emphasis is on applied
    • Non-Conventional Thinking – are your applications/approaches novel?
    • Company Adoption – For countries, are you seeing adoption by the public as well?

    The top-tier companies were created in technological waves. During the industrial revolution, leaders were in commodities – Steel, Oil, Railroad. Intel, Cisco, and more were built on the personal computer, the internet, and mobile phones. Apple, Google, and Amazon were built on digital and smartphones. 

    The next wave is going to be built on AI. It's going to be built on AI becoming ubiquitous and commoditized. AI is at its most powerful when it becomes human-centric, not just problem centric.  The transition is in human/AI connection and on building platforms that enable mass-interaction with AI. Once we've accomplished that, we'll see another explosion in AI.

    Think about our infatuation with the Internet-Of-Things. As a people, we've become much more experience-centric than product-centric.  You've also seen it in VR/AR – and especially with millennials.

    What are your thoughts?