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

  • Tech Trends To Watch in 2023

    Technology is on the mind of most people I have talked to recently. Even with Big Tech letting go of droves of employees, the innovation happening in the world is impressive. 

    VisualCapitalist put out a list of 11 trends to look out for this year. Check it out. 

    Tech-Trends-2023

    via visualcapitalist

    As always, no list gets it entirely correct. Lists like this are made to spark interest and influence the direction of tech development. However, I've been impressed with what visualcapitalist has gotten right in the past. 

    A lot of the trends on the list make sense. India has been a massive investment space in tech over the last few years, and it's about time for more results to show. Healthcare is a massive investment space, and we're seeing a lot of innovation go to the medical space before migrating to other industries … on top of health monitoring, other specifics like menopausal care could see more investment, especially with an increase in women-led and women-focused companies. 

    As well, Fintech has been hit hard since 2020. Many of the bulwarks of the industry have been sliced down as a result of covid-19, market turmoil, the Russia/Ukraine conflict, and more. These years haven't been without learnings. New market conditions require new approaches, but the past 2+ years have been a great opportunity for adaptation and advancement. After winter comes spring. 

    What trends do you think are missing, and what trends do you think won't come to fruition?

  • The Rise of ChatGPT

    I originally talked about ChatGPT in mid-December.  Since then, it’s been all my entrepreneurial friends can talk about. 

     

    IMG_1329

    via TheRundownAI.

    The speed of adoption is unrivaled, and it’s a sign of bigger things to come. 

    Unfortunately, not all news around ChatGPT has been positive.  Microsoft released a version of Bing powered by ChatGPT, and it has been a mess. Bing’s chatbot has threatened its users, it claimed to be watching its developers through their cameras, and much more. 

    Despite that, ChatGPT and many other new tools are being used to great effect.  For example, this episode of a Conan talk show was generated entirely by AI – the words, the voices, the video – all using AI.  Click to watch how it turned out.

     

    via No Reruns

    I was part of a panel on ChatGPT and the state of AI last week.  As you might guess, a large part of the conversation focused on how businesses could use these new and innovative tools.  It’s no secret that the list of potential applications is extensive.  For example, I now use ChatGPT and Type.AI to help edit articles.

    While they provide both context and content for the articles, their text tends to be "fluffier" than I prefer. It can be reminiscent of someone trying to sound smarter than they actually are. Instead of taking something complex and making it simple, it takes one good idea and hides it in some circuitous logic and language. After I clean it up, I'm usually happier with the article as a result.  

    However, I think about valuing AI’s uses in a similar way that I value discounts.  When you come across a deal in a store that makes you think, “Wow, I need this”… It’s not really saving you money if you weren’t planning to purchase the item in the first place.  It’s an additional cost.

    If you’re tempted to start using new tools just because they’re exciting, realize that they are likely to be a distraction that could end up hurting your productivity.

    Tools like ChatGPT can be used to great effect if they assist you in doing things you need (or want) to be done.  In that case, they can help you create a bigger future with what becomes possible.

    When used correctly, automation and innovation can help improve efficiency, effectiveness, and the certainty that you achieve desired outcomes.  Meanwhile, they don’t charge you an hourly wage, they won’t get sassy when you tell them all the things they messed up, and they’re ready to work at all hours of the day. 

    Here are three concepts to consider. 

    1. AI can help you create a bigger future … but you have to know where you want to go (because activity isn’t progress if it isn’t taking you toward your destination).

    2. If you’re afraid of Artificial Intelligence, you’re not listening.  AI will inevitably become more powerful and widely used.  Look to how it can help you get what you want rather than focusing on how to avoid the peril or feeling bad that other people use it better or more than you do.

    3. If in doubt, begin.  The 25-year journey starts with a single step.

    Hope that helps.

  • Here Are Some Links For Your Weekly Reading – February 19th, 2023

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

     

    Lighter Links:

     

    Trading Links:

  • The Big Mac Index: Worth Paying Attention To?

    Last week, I wrote about various “indicators” for markets that just don’t make sense — like the Superbowl Indicator.  The lesson from those indicators is that we crave order and look for signs that make markets seem a little bit more predictable, even where there are none.  This is especially true in complex systems like the stock market, where so many variables and factors are at play that it can be difficult to predict or explain why things happen.

    Now, it doesn't mean there aren't patterns – and benefits to watching them. Warren Buffet has proven that. In order to improve your understanding of "markets" you can focus on the fundamentals of individual companies and industries rather than broader market trends. By conducting thorough research and analysis of financials, management, and competitive landscapes of companies, you can make informed decisions about which stocks to buy or sell. Another way to improve your understanding of the market is to focus on long-term trends and avoid getting caught up in short-term fluctuations.  It's about focusing on what doesn't change – instead of what does. But, ultimately, you should realize that if you don't know what your edge is … you don't have one. And, market movements are getting faster, more automated, and harder to predict over time, not less. 

    With that said, Wall Street is still inundated with theories that attempt to predict the performance of the stock market and the economy.  More people than you would hope, or guess, attempt to forecast the market based on gut instinct, ancient wisdom, and prayers.

    While hope and prayer are good things … they aren’t good trading strategies.

    It’s true that there are many indices and economic indicators that can provide valuable insights into the workings of economies and markets.  While some of these indices may seem “out there,” or even frivolous, they can often shed light on underlying economic trends and realities.

    One example of this is the Big Mac Index, which is published annually by The Economist.  This index is based on the idea of purchasing power parity, which suggests that exchange rates should adjust to ensure that the price of a basket of goods is the same in different countries.  The Big Mac Index uses the price of a McDonald’s Big Mac burger as a proxy for this basket of goods.  It compares the price of a Big Mac in different countries to determine whether currencies are overvalued or undervalued.

    While the Big Mac Index is not a perfect measure of purchasing power parity, it can provide valuable insights into the relative value of different currencies and the economic factors that influence exchange rates.  By looking beyond the headline numbers, and digging into the underlying data and trends, investors and economists can gain a deeper understanding of the forces shaping the global economy.

    Ultimately, the key to using economic indicators like the Big Mac Index is to approach them with a critical eye and a willingness to dig deeper.  By looking beyond the surface level and using data-driven analysis to understand the underlying trends and drivers of economic performance, we can gain a more accurate picture of the economic realities shaping the world around us.

    In 2020, when I last talked about the Big Mac Index, the Swiss Franc was 20.9% overvalued based on the PPP rate.  That math was based on the idea that, in Switzerland, a Big Mac costs 6.50 francs.  In the U.S., it costs $5.71.  The implied exchange rate was 1.14, and the actual exchange rate was 0.94 – thus, 20.9 was overvalued.  At the time, the most undervalued was South Africa. 

    As of the end of 2022, The Swiss Franc is still the most overvalued but has now increased to a whopping 35.4%.  Meanwhile, the South African rand has “increased” to only 45.9% undervalued, making the Egyptian Pound the most undervalued currency at 65.6%.

    Click the image below to see the interactive graphic.

    Screen Shot 2023-02-17 at 3.45.08 PM

    via The Economist

    One of the main limitations of the index is that the price of a Big Mac reflects non-tradable elements such as rent and labor, which can vary widely across different countries and can distort the accuracy of the index.  This means that the index is most useful when comparing countries that are at roughly the same stage of development and have similar economic structures and cost of living. Consequently, while it can provide some useful insights into exchange rates and currency values, it is important to recognize that it is only a rough guide and has some limitations when comparing countries.

    Another limitation of the index is that it does not consider factors such as taxes, trade barriers, and transportation costs, which can also affect the relative value of currencies.  These factors can be especially important in countries highly dependent on imports or exports. They can lead to significant disparities in currency values that are not reflected in the Big Mac Index.

    Despite these limitations, the Big Mac Index can still be useful for gaining insights into global economic trends and currency values.  By using the index in conjunction with other economic indicators and data sources, investors and economists can achieve a more comprehensive understanding of the forces shaping the global economy and make more informed decisions about how to invest their money.

    Obviously, there are more factors at play if something can be significantly overvalued or undervalued for multiple years without significant consequences. 

    It is not meant to be the most precise gauge, but it works as a global standard because Big Macs are global and have consistent ingredients and production methods.  It’s lighthearted enough to be a good introduction for college students learning more about economics. 

    You can read more about the Big Mac index here or read the methodology behind the index here.

  • Why Less Is Often More

    The concept of “less is more” has gained popularity recently, transcending its roots in minimalism.  This idea can be observed in many areas, ranging from the resurgence of simplistic design aesthetics to the widespread popularity of decluttering guru Marie Kondo …or in the renewed interest in Stoicism.  Minimalism has become an essential aspect of modern life, where people seek to simplify their lifestyles and focus on what truly matters.

    The abundance of information and distractions vying for our attention has created a cluttered and overwhelming environment.  We can’t buy everything we see on TV, deep-dive into every interesting topic we learn about on the internet or track everything happening worldwide.  Our limited time and resources force us to choose and prioritize what truly captures our interest and deserves our attention.

    In addition to the overwhelm created by the competition for our attention, it is becoming increasingly difficult to discern what is real and trustworthy because of deepfakes, intentional misinformation, and even the seemingly benign advent of AI-generated content that blurs the lines of reality.

    The current state of information saturation and manipulation makes it imperative that we approach every piece of information with a healthy dose of skepticism and take the time to verify its authenticity.

    Given these limitations, it’s only natural to prioritize and focus on what is relevant and meaningful to us, using our limited time and resources wisely.  The competition for attention demands that we exercise caution, discernment, and purpose in our choices.

    There are two critical distinctions that impact your approach to information, as well as your sense of priority and choice of strategies and activities. 
     
    The first is whether you are a Specialist or a Generalist.  It isn’t hard to imagine that these two types have pretty different reading lists, habits, and sources of happiness or fulfillment.
     
    The second distinction is whether you are a Simplifier or a Multiplier (which is a concept that Dan Sullivan at Strategic Coach has written a book about).  To get to where you are, you’ve been successful at two things in your business career.  You’ve simplified things, which gave you an advantage.  And you multiplied things, which gave you an advantage.  Said a different way, as a simplifier, you took something complex for everybody else and made it simple.  And as a multiplier, you took something that was a new solution, and you had success multiplying it out in the world so that many people could get the advantage of your simplifications.

    The truth is, while we all do both, we default to being primarily a Simplifier or a Multiplier. 

    The best partnerships happen when you pair the two.  For example, amazing conversations happen when a simplifier says to a multiplier, “I’ve got this elegant solution … What would you do with it?” Each has something the other doesn’t, and the combination is often exponential.

    I am primarily a simplifier.  So, I tend to look for people or technologies to multiply what I produce.

    I shot a video on the topic.  Click here to watch.

     

    The internet and global digital economy enable you to find an audience for almost anything. 

    No matter how far you niche down to find your true calling, there are likely people who are just as excited about what you do as you are. 

    In an age where we’re inundated with attention-stealers and ways to spend our time, it’s helpful to remember that less can be more. 

  • Here Are Some Links For Your Weekly Reading – February 12th, 2023

    With the Super Bowl over, don't forget that Tuesday is Valentine's Day. 

    Valentine Testing_cover

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

    Lighter Links:

     

    Trading Links:

  • The Importance of the Super Bowl

    Thirty years ago, the Cowboys played the Bills in the Super Bowl.  As a Cowboys fan, I wanted to watch the game, but my second son was scheduled to be born that day. 

    Luckily, our doctor said, “if you want me to be the one to deliver your baby, you need to induce early.” 

    So, I got to watch the Cowboys win with my youngest in hand … while his mother shot me angry looks as I woke him up with my screaming. 

    That anchors the Super Bowl as a special day for me … but some believe it’s also a "special day" for markets. 

    The theory is a Super Bowl win for a team from the AFC foretells a decline in the stock market – while a win for the NFC means the stock market will rise in the coming year.  There is one big caveat … the history of that "indicator" counts the Pittsburgh Steelers as NFC because that’s where they got their start.  If you accept that caveat, it has been on the money 33 years out of 41 – an 80% success rate.  Sounds good, right?

    Come on … you know better!

    There is no substantial evidence to suggest that the outcome of the Super Bowl has any significant impact on stock market returns. 

    The stock market is driven by many factors, including economic data, company earnings, and overall market sentiment, rather than the outcome of a single sporting event.

    Ultimately, it’s important to recognize that the stock market is a complex system – and that no single event, such as the Super Bowl, can predict its performance.  While the Super Bowl may be a fun event and a source of excitement for many people, it’s not a reliable indicator of stock market returns.

    Here are some other “fun” stock market fallacies:

    Back to Reality

    Rationally, we understand that football and the stock market have nothing in common.  And we probably intuitively understand that correlation ≠ causation.  Yet, we crave order and look for signs that make markets seem more predictable.

    The problem with randomness is that it can appear meaningful. 

    Wall Street is, unfortunately, inundated with theories that attempt to predict the performance of the stock market and the economy.  The only difference between this and other theories is that we openly recognize the ridiculousness of this indicator.

    More people than you would hope, or guess, attempt to forecast the market based on gut, ancient wisdom, and prayers.

    While hope and prayer are good things … They aren’t good trading strategies.

    As goofy as it sounds, some of these “far-fetched” theories perform better than professional money managers with immense capital, research teams, and decades of experience.

    Here is something to ponder…

    What percentage of active managers beat the S&P 500 in any given year?

    … Now, what percentage beat the S&P 500 over 15 years?

    The percentage of active managers who beat the S&P 500 in any given year can vary, but it is typically low. According to research by S&P Dow Jones Indices, the majority of active managers underperform the S&P 500 over the long term.

    For example, in 2020, only 24.5% of large-cap fund managers outperformed the S&P 500. In 2019, the figure was slightly higher at 28.2%, but in 2018 it was just 17.2%. These figures are representative of a broader trend in which a relatively small percentage of active managers outperform the benchmark index in any given year.

    Over 15 years, the answer is about 5% of active managers are able to beat the performance of the S&P 500 Index (and that’s in a predominantly bull market). That’s significantly worse than chance.  It means that, in general, what they’re doing is hurting, not helping. 

    It's worth noting that these figures represent the average performance of active managers across all market segments and time periods. The percentage of managers who outperform the S&P 500 in any given year can be influenced by a number of factors, including the overall performance of the stock market, the specific market segment being analyzed, and the time period being considered.

    In conclusion, while there are some active managers who outperform the S&P 500 in any given year, the majority of them underperform the benchmark index over the long term.

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    via Gaping Void

    There’s simply too much information out there for us to digest, process, rank, and use appropriately.

    In 2009, I wrote an article about how things aren’t always what they appear to be.  In it, I mentioned the human predisposition to find patterns in data.  At the time, I was still analyzing and marking up charts looking for patterns … but I was also using early AI and computers to find better patterns and remove my fear, greed, and discretionary mistakes. 

    I suspect that the desire to find patterns is the same element of human nature that leads people to become superstitious, read their horoscope, or go to a fortuneteller.  It is also the reason so many authors and speakers sell access to their chart patterns that supposedly work. The successes are much more startling than the failures.  So the successes stand out.
        -"Things Aren't Always What They Appear To Be"

    Today, my stance is even more extreme.  Every second you spend looking at a market is a second wasted.

    There are people beating the markets — not by using the Super Bowl Indicator … they’re doing it with more algorithms and better technology. 

    There will never be less data or slower markets.

    Onwards.

  • Asking The Right Questions

    There’s immense power in asking the right questions. 

    Asking the right questions is often more advantageous than having the answer to the question asked.

    Asking the right questions is crucial as it facilitates the discovery of appropriate answers, demonstrates progress, and creates meaningful momentum, regardless of the actual answers obtained.

    I shot this short video on the power of asking the right questions.  Check it out. 

     

    Asking the right questions demonstrates the power of framing, as it allows for a different interpretation and digestion of information.  Even reframing the same question can have a significant impact.  For example, “How do I compete with ChatGPT or other AIs?” vs. “How can I leverage AI to automate tasks I don’t want to do?”

    In my experience, when asking someone what they want, often their response revolves around what they don’t want.  However, reframing the obstacle as the path forward makes it easier to uncover the “hidden” opportunity.

    You have control over the meaning you assign to things and the emotions they evoke in you.  These distinctions are what separate feeling “sad” vs. “happy” – or “feeling like a victim” vs. “feeling in control of your destiny”.  The power to control your perception determines whether life happens “to you” or “for you”.

    When faced with a problem, a mindset of “it can’t be done” can be limiting.  For better results, reframe that "problem" as a "challenge" that can be done – just not in the way it’s currently being approached.

    The most important advances in society were impossible until they weren’t.  For example, imagine telling someone in the Middle Ages that you could communicate with people around the globe (in real-time) while simultaneously seeing their faces and sharing documents.  They’d try you as a witch faster than you could say, “Zoom!” 

    In the technology industry, the term “Moonshot” refers to a bold and groundbreaking project that was once considered impossible (like landing on the moon).

    Success is often a function of using Moonshots to set direction, asking the right questions, being willing to see things differently, and finding a way to move in the right direction while gaining capabilities and confidence.  As long as you are doing those things, the trick is to keep going until you get there.  The result is inevitable if you do those things and don’t give up.

    Onwards!

  • Here Are Some Links For Your Weekly Reading – February 5th, 2023

    Classified-documents-are-everywhere

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

    Lighter Links:

     

    Trading Links:

  • Time’s Ticking On The Doomsday Clock

    The Doomsday Clock was created by a group of atomic scientists in 1947 to warn the public about the dangers of nuclear weapons.  The clock is a metaphor, with midnight representing the catastrophic destruction of the world.  The closer the clock is to midnight, the closer humanity is to a global catastrophe.

    Nuclear war is still a significant risk, but not the only one.  A list of the biggest existential risks to humanity includes:

    1. Nuclear War: The threat of nuclear weapons and the possibility of a global nuclear war continue to pose a significant risk to humanity.

    2. Climate Change: Climate change is a growing threat to humanity and the planet, causing rising sea levels, extreme weather events, and loss of biodiversity.

    3. Pandemics: The rapid spread of infectious diseases, such as COVID-19, highlights the vulnerability of the human species to pandemics.

    4. Artificial Intelligence: The development of advanced AI systems has the potential to pose existential risks if not properly regulated and controlled.

    5. Biotechnology: The rapid advancement in biotechnology, including genetic engineering and synthetic biology, has the potential to bring about new risks to humanity.

    6. Natural Disasters: Natural disasters such as earthquakes, tsunamis, and volcanic eruptions can cause widespread destruction and loss of life.

    Some would argue that our exploration of space is another potential threat.  So, these are just a few examples, and the list is not exhaustive. Addressing these risks requires a global effort and cooperation between nations, organizations, and individuals.

    The Doomsday Clock was initially set at 7 minutes to midnight in 1947.  In the 76 years since it launched, the hands have been adjusted 25 times.  The most recent change, in 2023, moved the clock from 100 seconds to midnight to 90 seconds.  This was a small but significant shift.

    Flowing Data put together a chart to show the clock's movement since inception. 

    Doomsday-shiftsvia flowingdata

    The Doomsday Clock provides a long-term perspective on the dangers facing humanity.  Despite the seemingly small number of seconds remaining to midnight, it serves as a reminder of the urgency to act.  We can move towards a brighter future by acknowledging the potential consequences of our actions (or inactions).  Advancements in fields such as medicine, technology, and human potential offer hope and the potential to overcome even the most pressing challenges.  With collaboration from the brightest minds across the world and private industry, we have the ability to solve even the world's most significant problems.

    If I have to choose, I always bet on humanity. 

    Onwards!