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

  • Atoning & Rebuilding

    Yesterday was Yom Kippur, which translates to “Day of Atonement” and is one of the High Holy Days in the Jewish religion.

    As part of the holiday, participants read a list of sins (available here), apologize for those committed, and ask for forgiveness. Read the list … even though much has changed in the World… apparently, human nature hasn’t changed much.  

    Even if you have managed to stay on the right side of the Ten Commandments and haven’t killed or stolen … you have most likely been frivolous, stubborn, hurtful, dismissive, or judgmental (I know I have …).  

    I’ve had a reasonably challenging year. Instead of feeling like a victim or using the struggles as excuses, Yom Kippur is a day to look back honestly, reflect, and choose to be better.

    To help mark the day’s importance, participants read a prayer called the Unetaneh Tokef. Below is a brief excerpt that captures the spirit. 

    Who will rest and who will wander, who will live in harmony and who will be harried, who will enjoy tranquillity and who will suffer, who will be impoverished and who will be enriched, who will be degraded and who will be exalted.

    On one hand, you can read that and pray for Divine intervention (or perhaps favor), or you can recognize that we each have a choice about who we want to be, how we show up, and what we make things mean. Your choices about these things have real power to create the experience and environment you will live in next year.

    This time of year, we can also learn from many other cultures. For example, the Japanese art of Kintsugi. In Kintsugi, the Japanese mend broken pottery by gilding the fractures with gold, silver, or platinum. This treats the breaks and damage as an element that adds value and enhances the beauty of an object (preserving a part of its history) – rather than something that diminishes the object. 

    Diapositive5

    This concept is an excellent reminder as we unpack the “trauma” of shootings, culture wars, actual wars, and more. Our steps backward are just as much a part of our journey as our steps forward. As you heal, it is also important to remember to heal the World around you. In the Jewish faith, that concept is called Tikkun Olam. 

    One of the themes of Yom Kippur is that you’re only one good deed from tipping the scale towards good for yourself and others. As you recognize and repent for your sins, it’s also important to appreciate the good you did (and do) as well. 

    As I look at my year, atone, and look forward, I'm reminded of two definitions I heard recently. 

    One is that “intelligence” can be defined as the ability to get or move towards what you want … and the second is that “learning” is the ability to get a better result in the same situation.

    I choose to look at going forward as a chance to clear the slate and Be and Do better … personally, professionally, in the business, and in relationships. I know that there’s lots of room for improvement, opportunities for growth, and the ability to simply put the past behind me and focus on a better future.

    Initially, I looked at Capitalogix as a technology company that built trading and fund management capabilities. Over time, I realized that the team, our tools, and the things we do backstage are more valuable than the front-stage results that we produce. We can leverage these to amplify intelligence in virtually any industry.

    The future is going to be about making better decisions, taking better actions, and continually improving performance. That won’t really change. Almost everything else will. So, the business is really about the things that don’t change.

    I think this is probably true in life as well. Many parts of you change … but the part of you that doesn’t is really the core of who you are.

    There are Less Than 100 Days Left in 2024.

    There are only 80 days left until 2025. Many will spend those days stressing about the upcoming election, grumbling about inflation, and pretending it’s the universe’s fault they didn’t accomplish what they set their mind to … yet, it’s also enough time to sprint, to make a change, and to end the year on a high note. 

    There is plenty of time to make this your best year yet. What can you do? What will you do?

    What could you do to make the life of someone around you better? Likewise, how can you let others know you’re thankful for them?

    To reference a book by Ben Hardy and Dan Sullivan, transformational change is often easier than incremental change (because you don’t have to drag the past forward).

    So, what can you do that would trigger 10X results?   Will you?

    I hope you all experience growth in your mental state, your relationships, and your businesses.  

    Best wishes for a great day and an even better year!

  • Here Are Some Links For Your Weekly Reading – October 13th, 2024

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

    Lighter Links:

     

    Trading Links:

  • Old School Wisdom Isn’t Always So Wise …

    When I first got interested in trading, I relied on traditional sources and old-school market wisdom. For example, I studied the Stock Trader’s Almanac.

    While there is some real wisdom in some of those sources, most might as well be horoscopes or Nostradamus-level predictions. Throw enough darts, and one might hit the bullseye.

    Traders love patterns … from head-and-shoulders, to Fibonacci sequences, and even Elliot Wave Theory.

    Here’s an example from Samuel Benner, an Ohio farmer. In 1875, he released a book titled “Benner’s Prophecies: Future Ups and Downs in Prices,” where he shared the often-referenced chart called the Benner Cycle. Some claim it’s been accurately predicting market fluctuations for over 100 years. Let’s check it out.

     

     

    Here’s what it gets right … markets go up and down … and that cycle continues. Consequently, if you want to make money, you should buy low and sell high … It’s hard to call that a competitive advantage.

    Mostly, you’re looking at vague predictions with +/- 2-year error bars on a 10-year cycle.

    However, it was close to the dotcom bust and the 2008 crash … so even if you sold a little early, you’d have been reasonably happy with your decision to follow the cycle.

    We use a form of cycle analysis in our models … but it’s more rigorous, nuanced, and scientific than the Benner Cycle. The trick is figuring out what to focus on – and what to ignore.

    Just as humans are good at seeing patterns, even where there are none … they tend to see cycles that aren’t anything but coincidences.

    In trading, “alpha” measures the excess return created by manager skill rather than luck or movement of the underlying market. As you might guess, both “art” and “science” are involved in that calculation. Profitable traders want to believe it’s a sign of their skill, while losing traders prefer to blame luck.

    Nicholas Nassim Taleb pointed out in “Fooled by Randomness” that many successful traders, even those with decades-long careers, were likely more lucky than skillful. They just happened to be at the right firm, on the right trading desk, at the right time.

    That said, I believe technology, algorithms, and AI are evolving into Amplified Intelligence – the ability to make better decisions, take smarter actions, and continually improve performance. We’re about to experience a huge asymmetric advantage … those who understand technology and science (math, statistics, game theory, etc.) will have a real edge over those relying on more primitive techniques or gut instinct.

    In a sense, this is another type of cycle.

    The best traders I know believe that “smart money” takes “dumb money”. While it may sound harsh, this cycle has played out repeatedly over time. Cutting-edge science can seem like magic to those who don’t understand it. However, these capabilities give a significant advantage to those who possess and use them.

    I believe the gap between smart and dumb money is widening. That represents a massive opportunity for those who recognize what’s coming.

    This is a reminder that just because an AI chat service recommended something that made money, doesn’t make it a good recommendation. Those models may do some things well … but they also might just have made a lucky prediction at an opportune time. Making scientific or mathematically rigorous market predictions probably isn’t an area to trust ChatGPT or one of its rivals (at least if you don’t understand how to ask AI to do something that you understand and believe gives you a real edge).

    If you don’t know what your edge is, then you don’t really have one. This becomes even more important in the age of AI. It doesn’t matter if AI does what it’s supposed to unless you believe it is doing what you want. 

    Be careful out there.

  • The Law Of Diminishing Returns

    At some point, more of the same stops paying off … it is called the law of diminishing returns.

     

    Law of Diminishing Returnsvia Sketchplanations

    Nature (and common sense) reminds us that equilibrium is important. For example, when you exercise too much, you get injured; when you drink too much water, you get poisoned; etc. 

    This concept applies almost everywhere.

    • It's why diversification is so important in portfolio construction theory. 
    • Or, why you don't want to put all your eggs in one basket (concentrating your risk).
    • And, my favorite, it's also why you shouldn't only eat vegetables.

    A related nugget of wisdom from the extreme … Too much of a good thing is a bad thing! 

    And of course … Be moderate in everything, including moderation.

  • Here Are Some Links For Your Weekly Reading – October 6th, 2024

    Gary-mccoy_pumpkin-carved-to-vote

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

    Lighter Links:

     

    Trading Links:

  • Looking Back on Ryan Deiss’s Thoughts on AI & Humanity

    In 2017, I asked Ryan Deiss – a famous digital marketer – about his perspective on AI. 

     

    via YouTube

    How do you think his thoughts held up?

    To be fair, we shot this video BCGPT (before ChatGPT). Since then, AI has become much more accessible and useful.

    It was the start of the golden age of AI, machine learning, and process automation … but in the last seven years, AI's effects and impact have become radically more widespread.

    While marketing relies on data, analytics, and automation, Ryan believes it also needs a personal touch. He suggested that the best AI should make conversations feel more human (particularly in marketing and selling) and allow humans to be more human. In other words, as technology frees people up, they can focus on more valuable things.

    Today, more marketers – including Ryan – use generative AI tools to streamline their process and improve their output.

    His points about using tools like ChatGPT remain valid.

    The saying is trite, but AI won't replace your job … a human with AI will.

    This has happened many times in society. Fewer people work in farming or manufacturing, yet more people are doing more jobs. However, many of these new jobs didn't exist – or couldn't have been imagined – before people were freed up to contemplate what they could or should do. This shift in perspective is what truly matters and adds the most value to society, the economy, and people's lives.

    Just as mechanization freed up workforces for better jobs, AI can do the same.

    What do you think?

  • Are You As Smart As You Think You Are?

    VisualCapitalist just shared an infographic showing the Average IQ by state. It caught my eye and my interest.  Here it is.

     

    AverageIQbyState_web

    via VisualCapitalist.

    When I first examined the chart, I focused on the state-by-state differences. Honestly, I was taken aback that some states scored higher than others. And by that, I mean it wasn't necessarily the states I would've predicted. But then I took a closer look at the scale and realized these differences are probably insignificant. The results essentially show that, on average, states' intelligence levels are… well, average.

    I know a lot of smart people.

    I also know many people who think they're smarter than they are (even the smart ones … or, perhaps, especially the smart ones). 

    It's common. It's so common that there's a name for it—the Dunning-Kruger Effect.

    Have you ever met someone who's so confident about what they think that they believe they know more than an expert in a field? That's the Dunning-Kruger effect. It's defined as a cognitive bias where a lack of self-awareness prevents someone from accurately assessing their skills. 

    Here's a graph that shows the general path a person takes on their journey towards mastery of a subject. 

    Dunning-w-caption

    via NC Soy

    The funny thing about the above image… it's not actually a part of the paper on the Dunning-Kruger Effect. But it's now so commonplace that people report that chart as fact—a fitting example of the effect. 

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    David Fitzsimmons via Cagle Cartoons

    Recognizing the "victims" of this effect in our daily lives can often be funny or frustrating. But we're all prone to this; it's a sign of ignorance, not stupidity. 

    This is a problem with all groups and all people. You're not immune to it, even if you already know about the cognitive bias resulting from the Dunning-Kruger Effect. 

    It should be a reminder to reflect inward – not cast aspersions outward. 

    Two different ways that people get it wrong, first is to think about other people and it’s not about me. The second is thinking that incompetent people are the most confident people in the room, that’s not necessarily true.

    Usually, that shows up in our data, but they are usually less confident than the really competent people but not that much… - David Dunning

    To close out, even this article on the Dunning-Kruger presents a simplification of its findings. The U-shape in the graph isn't seen in the paper, the connection that lack of ability precludes meta-cognitive ability on a task is intuitive, but not the only potential takeaway from the paper. 

    Regardless, I think it's clear we are all victims of an amalgam of different cognitive biases. 

    We judge ourselves situationally and assume "the best". Meanwhile, we often assume "the worst" of others. 

    We can do better … it starts with awareness.

    Progress starts by telling the truth.

  • Here Are Some Links For Your Weekly Reading – September 29th, 2024

    John-cole_new-york-city-mayoral-scandal

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

    Lighter Links:

     

    Trading Links:

  • Remembering The ‘Crazy Ones’

    On September 28th, 1997 (almost exactly 17 years ago today), Apple released perhaps one of the most recognizable commercials of all time. I remember being mesmerized the first time I saw Apple Computer's iconic "Crazy Ones" video as part of their Think Different campaign.

    Steve Jobs originally recorded a version of "The Crazy Ones" himself, but chose to release the Richard Dreyfuss narrated version. 

     

    via Youtube

    Here is the text version of the script.

    Here's to the crazy ones.
    The misfits.
    The rebels.
    The troublemakers.
    The round pegs in the square holes.

    The ones who see things differently.

    They're not fond of rules.
    And they have no respect for the status quo.

    You can quote them, disagree with them,
    glorify or vilify them.
    About the only thing you can't do is ignore them.

    Because they change things.

    They push the human race forward.

    While some may see them as the crazy ones,
    we see genius.

    Because the people who are crazy enough to think
    they can change the world, are the ones who do.

        –     © 1997 Apple Computer, Inc.

    Click here for extra material about the video and campaign. 

    I think it has held up pretty well, and I had this piece of art commissioned for my office. 

    Crazy Genius_GapingVoid

    There's a lot to be said for carving your own path, pushing past perceived limits, and accomplishing something hard to ignore. 

  • Imaginary Centenarians: An Ig Nobel Pursuit

    The 34th Annual Ig Nobel Prize ceremony took place last Thursday at MIT. Every year since 1991, around the time the recipients of the genuine Novel Prizes are announced,  the Ig Nobel Prize awards the ten achievements that "first make people laugh, and then make them think. They're meant to celebrate the imaginative and encourage more interest in the sciences. 

    The first award for Biology was awarded to Robert Klark Graham, for pioneering development of the Repository for Germinal Choice, a sperm bank that accepted donations only from Nobellians and Olympians. While I jokingly tell my kids they have "superior genetic potential," this type of research and belief can have serious consequences. 

    In 1996, Physicist Robert Matthews earned a prize for his paper "Tumbling Toast, Murphy's Law and the Fundamental Constants," which sought to explain why toast tends to fall buttered-side down.

      
    Buttering-your-bread-before-toasting-it-cooks-butter-into-the-bread-1676209460

     

    In 2002, another physicist, Arnd Leike, earned the honor after using the law of exponential decay to explain the behavior of beer foam. 

    And in 2017, Marc-Antoine Fardin earned the honor for using fluid dynamics to finally answer the eternal question: "Can a cat be both a solid and a liquid?" In case you are squeamish, no blender was involved in that experiment.

    While these are funny examples, they're rooted in real science. As is the focus of this article, this year's Ig Nobel Prize for Demography. 

    In my circles, it is becoming more common to discuss how to live past 100 — and not just how to live beyond that number … but to do so with a high quality of life.

    A popular concept around that subject is Blue Zones – areas where people seem to live longer and healthier. There's even a Netflix documentary on the subject. Notable places include Sardinia, Italy; Okinawa, Japan; and Ikaria, Greece. 

    Saul Justin Newman challenged that belief with his research, which found that extreme age records tend to come from areas with no birth certificates, rampant clerical errors, pension fraud … and even short life spans. 

    While longevity in the zones has primarily been attributed to diet, community, and genetics, Newman found that many of these claims were based on errors – or outright fraud. Instead, these regions are actually characterized by the opposite of what you would expect … low incomes, low literacy, high crime, and short lifespans. 

    To a certain extent, it makes sense. In areas where you're struggling to make ends meet … why wouldn't you commit pension fraud? In fact, in 2010, the Japanese government realized that over 80% of the people aged over 100 were actually dead. Part of what made this possible was that America bombed the halls of records in that area during the war. 

    Here's an interview with Saul Justin Newman on the subject. He's tracked over 80% of the people aged over 110 worldwide. Almost none of them have a birth certificate. Only about 10% have a death certificate. 

    What does this mean for human longevity?

    While the stories of these 110-year-olds may mostly be fake – as mentioned in my recent article – longevity is on the rise, and there are many modalities to increase your lifespan. 

     

    Longevity-expanding-quest-lifespan-futurist-speaker

     

    The goal isn't just to stay alive longer; it's to live life to its fullest for as long as possible.

    There are people living to 100, and there are plenty of people living healthily into their 70s, 80s, and 90s. 

    We're taking steps in the right direction. Technology and medicine are both evolving quickly. 

    But, like with longevity data, improvements in any space need to be met with a grain of salt. 

    If it sounds too good to be true … it generally is. Not always. But, generally.