From governments, to Google, to Facebook … it feels like it's impossible to have any expectation of privacy today. Amazon knows what I want before I do.
This is an issue that cuts both ways. On the one hand, increased surveillance means we are arguably safer – because the digital omniscience makes it harder to get away with crimes … but all this extra data on us makes it easier to commit other crimes and to suffer from the increasing lack of privacy.
Unsurprisingly, 8 of the top 10 most-surveilled cities in the world were in China. It's even less surprising with the Hong Kong protests and the new social credit system.
Hedge Funds – and active managers in general – have been under fire for several years. Almost 50% of Hedge Funds saw a decline in assets under management (AUM) in 2018.
On the surface, it makes sense … during a long-term bull market, indexes and other passive options like ETFs become en vogue. During a bear market, active management offers more opportunities to outperform the market.
Hedge funds are designed to, you guessed it, hedge risk. So, when investors see less risk in indexes, the demand for active management declines. Especially when performance declines as well.
When something monumental changes the past is left behind and you begin a new future. When electricity was created, no one was going to make candles the primary form of lighting. After the introduction of the car, horses & buggies were never going to be the #1 mode of transportation, and we're also seeing that with the adoption of AI & automation.
Most changes aren't monumental.
I have a fundamental belief that things go in and out of phase and that what's once old is often new again. You see it with fashion, music, phones – etc. First phones got bigger in order to do more, then smaller for convenience, and then larger again so that old dudes like me can read the text.
I believe it's the same with active management – the techniques may have gone out of phase – but active management still offers the potential outperformance. The trend mirrors the stock market; bulls turn to bears when buyers run out – so as outflows from funds continue to peak, and funds continue to close, it seems reasonable that there will come a time when demand rises again.
At that point, "active management" will give way to "Active Switching™" (which goes beyond stock picking to choose the markets, techniques, time frames, risk levels, allocation strategies, etc. using a variety of techniques, data sources, and real-time contextual clues).
This is part of what's covered in my upcoming book, "Next On Wall Street: Understanding AI's Inevitable Impact on Trading."
Looking forward to launching that book in early 2020.
My wife's mother and sister were staying with us last week. We also had two other house guests. And our Internet service went out. Not just momentarily, but for days. Catastrophe!
Is Internet access becoming one of our basic human needs?
In 1943, psychologist Abraham Maslow published his famous “Hierarchy of Needs”. The idea was simple: the essential survival needs in the lowest level of the pyramid must be satisfied before the individual can turn his or her attention to the next level, and so on. Maslow’s “essential needs” are physiological; food, water, shelter, and physical safety.
Today, as we approach the 2020s, perhaps we need to add one more layer to Maslow’s pyramid: WiFi.
OK, humans probably don’t really need WiFi more than food, but without it, we feel frustrated and "twitchy".
My solution: dual providers and a fail-over router.
When Beethoven was at the peak of his career, several of his contemporaries struggled to deal with the realization that they may never create anything that lived up to his creations. Brahms, for example, refused to make a symphony for 21 years. Schubert is quoted as saying, "Who can ever do anything after Beethoven?"
We're apparently seeing the same effect via Artificial Intelligence.
When it comes to popular AI, not much surpasses the popularity of AI's growing chokehold on gaming. Recently, I've shared about AI winning at video games, but in 2016 I shared about humans losing to AI in Go for the first time.
What it is: A computer has just beaten the world's best Go player. AlphaGo, a program created by Google-owned AI company DeepMind, beat European Go champ Fan Hui all five times they played in tournament conditions, and also won 99.8% of Go games against other computer programs. Unlike IBM's Deep Blue, which defeated chess champ Garry Kasparov, AlphaGo wasn't programmed to play Go. Instead, as Nature reports, it learned how to play via a general-purpose algorithm that interpreted the game's patterns.
Why it's important: AlphaGo's learning technique means it can recognize complex patterns, long-term planning and decision-making: refined skills that were once stricly human in nature. Imagine the possibilities when neural networks like AlphaGo, infinite computing and the 'Internet of Everything' converge.
This week, a former Go champion who was beaten by DeepMind retired after "declaring AI invincible."
Lee Se-dol quit for a couple of reasons. According to him, even if he's the #1 human, there's an undefeatable entity above him and he felt he had failed his country by losing to the AI. It's an unfair fight – AI plays untold millions of games to learn to play better and it doesn't get tired, bored, sick, distracted. – we can't do that.
Much like Beethoven, AI is discouraging competition.
Was Lee wrong to quit? It's hard to say, but as AI gets better at more activities, it's an issue we're going to see more often. There's always someone (or something) better – and a purely utilitarian approach isn't necessary or productive.
I'm an advocate of intelligently adopting AI, and a believer that the scale of AI's "wins" is going to skyrocket – but I'm also a believer in the idea that "the game isn't over until I win". If I enjoy something, I'm not going to let 2nd place stop me.
The passionate pursuit of a goal is valuable regardless of the result, and bettering yourself at a skill – like Go – may not be a sustainable job, but it can still make a great hobby.
AI is coming – but it doesn't have to be joy-sucking.
My children came to town, and we continued our tradition of going to the game as a family, and then having a family dinner afterward. This year, my wife's family joined us as well. The more the merrier!
Thanksgiving is a reminder to be grateful for the blessings in your life – big and small. But it's also a time to be thankful for the challenges in your life – the opportunities for growth.
Many times, when I think about what I want, the first thing I think of is what I don't want. Similarly, when I think about what's going well (or something worthy of being thankful for), I first think about what has been difficult or isn't yet to the standard I hoped for.
Challenges are often hidden gold mines. Instead of thinking about them being obstacles for you, recognize that getting past them creates an obstacle for competitors. In other words, figuring out a strategy to achieve these lofty goals creates a new status quo and a sustainable competitive advantage.
At Capitalogix, we often talk about "finding a way," "creating breakthroughs," and "setting new standards." The reason is that most things an innovator wants are just outside their current capabilities (otherwise they'd already have them).
Dealing with this on a daily basis requires a resilient mindset and the ability to be comfortable being uncomfortable.
Having no problems either means you're blind to your flaws, or you aren't playing a big enough game (which is a problem in itself).
I am thankful to face a continually better class of challenges that forge a path to a bigger future.
Millennials ruin everything. I don't really believe that … but it feels so good to type – and the following two stories make it sound true.
Trading is more accessible than ever before. We've gone from scrums of traders in trading pits to armchair experts investing in real estate, cryptocurrencies, options, and more from the comfort of their couch in their underwear.
With accessibility often comes misuse. Here are a couple of examples.
Infinite Leverage Glitch on Robinhood
Robinhood, which launched in 2013, has been a pioneer in app-based commission-free investing. While based on a solid mission of democratizing the financial system, it has also created an opportunity for "kids" to abuse the system.
The most recent glitch allowed Robinhood Gold users to abuse the allowed 2:1 Margin. Robinhood incorrectly counted the stock price and the option value as account value, raising margin limits. Users would sell puts and take in option premiums, use that to buy more shares of that stock, and then sell puts against those shares, Ad Infinitum. So, with a couple thousand dollars of risk, a user could take millions of dollars of risk.
The speculators at r/WallStreetBets famously used the glitch (which has been around since January) to lose massive amounts of money.
Here's a video of a man opening his Robinhood account to record the effect of the market open on his AAPL puts. If you look at his total return you can watch it go from 0.00 to -47K in an instant.
If they wanted a safer investment, they could have gone to Robinhood's bug bounty program and netted a cool $25k. Oh well, who needs risk management?
"Mercury Is In Retrograde … Should I Sell My Stocks?"
A blindfolded monkey throwing darts at a newspaper’s financial pages could select a portfolio that would do just as well as one carefully selected by experts. – Burt Malkiel, “A Random Walk Down Wall Street”
My son brought to my attention a new iPhone app – Bull and Moon; "Find stocks whose stars align with yours".
After you create your "astrological investor profile" their "proprietary financial astrology algorithm recommends an optimal portfolio of six stocks, and shows your compatibility score with thousands more."
The picks were pedestrian: Oracle, Hasbro, American International Group, Microsoft, Yum! Brands, and FedEx.
The logic and commentary were entertaining. The choices were based on "similarities in business decisions," "shared outlooks on humanity," and "strong mutual success metrics."
My favorite excerpt is
Zach can usually let strong FedEx Corporation lead the relationship, but at the same time, Zach will invest many times over. This relationship will be full of success, understanding on many levels, and a lot of fun.
At least it's entertaining … but I don't think it constitutes an edge.
And as the last note to the millennials behind these two great travesties…
Yesterday was Fibonacci Day – 11/23 – because when the date is written in the mm/dd format (11/23), the digits in the date form a Fibonacci sequence: 1,1,2,3. A Fibonacci sequence is a series of numbers where a number is the sum of the two numbers before it.
