Ideas

  • Here Are Some Links For Your Weekly Reading – January 26th, 2020

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

     

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  • Super Bowl 2020

    A friend has two tickets for the 2020 SUPER BOWL — both box seats. He paid $2,500 for each ticket, but didn't realize last year when he bought them that it was going to be on the same day as his wedding. If you are interested, he is looking for someone to take his place — it’s at St. Dominic's Church in San Francisco at 3pm. Her name is Melissa . She's 5'7 about 140 lbs. She's a good cook, too. She'll be the one in the white dress.
     
    As for the Super Bowl, it seems like this will be a good matchup. The KC Chiefs are in it for the first time in 50 years (and have an amazing offense), while the 49ers are coming off a series of tough seasons (but have an amazing defense). It will also be a Super Bowl without Bill Belichick's scowl gracing our screens. 
    It's not just the fans that are excited about the matchup, it's also the bookies. Two years ago, gamblers set a record by placing $158.6 million in Super Bowl bets. Expect more of the same with gambling now legalized in an additional 13 states beyond Nevada. 
     
    If you're still looking for a bet – there's another wishful thinking approach you could take to find one … it is called the "Super Bowl Indicator."
     

    Patrick-mahomes-chiefs

     

    The theory is that a Super Bowl win for a team from the AFC foretells a decline in the stock market and a win for the NFC means the stock market will rise in the coming year. So, if you're hoping for a strong S&P you'd be rooting for 49ers. 

    There's one big caveat … it counts the Pittsburgh Steelers as NFC because that's where they got their start (or as a data scientist would caution … they did that to fit the data better). 

    With that "adjustment," at one point the SBI was "right" 33 years out of 41 – an 80% success rate. Sounds good, right?

    Come on … you know better. It's been wrong four of the last four years … another sign of spurious correlation if you weren't sure. 

    Here are some other "fun" stock market fallacies:

     

    Back to Reality

    Rationally, we understand that football and the stock market have little in common, and we probably intuitively understand that correlation ≠ causation. Yet, we crave order and look for signs that make markets seem a little bit 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…

    I have a thought experiment I sometimes ask people. 

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

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

    Recently, the answer is about 5% (and that's in a predominantly bull market).  For the record, that's significantly worse than chance. Perhaps that means something they're doing is hurting, not helping. 

     

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     via Gaping Void

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

    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. A good reminder that if you don't know what your edge is … you don't have one!

    Onwards.

  • The Most Hyped Technologies of The 2000s

    The Hype Cycle provides the raw material for some of my favorite posts every year.

    In general, as technology advances, it is human nature to get excited about the possibilities and to get disappointed when those expectations aren't met. 

    At its core, the Hype Cycle tells us where in the product's timeline we are, and how long it will take the technology to hit maturity. It attempts to tell us which technologies will survive the hype and have the potential to become a part of our daily life. 

    Gartner's Hype Cycle Report is one of my favorites.  It is a considered analysis of market excitement, maturity, and the benefit of various technologies.  It aggregates data and distills more than 2,000 technologies into a succinct and contextually understandable snapshot of where various emerging technologies sit in their hype cycle.

    Here are the five regions of Gartner's Hype Cycle framework:

    1. Innovation Trigger (potential technology breakthrough kicks off),
    2. Peak of Inflated Expectations (Success stories through early publicity),
    3. Trough of Disillusionment (waning interest),
    4. Slope of Enlightenment (2nd & 3rd generation products appear), and
    5. Plateau of Productivity (Mainstream adoption starts). 

    Understanding this hype cycle framework enables you to ask important questions like "How will these technologies impact my business?" and  "Which technologies can I trust to stay relevant in 5 years?"

    Another methodology uses frequency analysis to identify the "most hyped" concepts and technologies.  

    VisualCapitalist recently put together an infographic highlighting the most hyped technologies of each year. They call it the "Peak of Inflated Expectations".

     Screen Shot 2020-01-17 at 4.03.00 PM 2(Click To See Full Infographic) via VisualCapitalist

    Here's a Summary of the most hyped technologies, by year, since 2000.

    • 2000 – Wireless Web, ASPs, Bluetooth
    • 2001 – Web Services, Enterprise IM, m-Commerce
    • 2002 – Biometrics, Grid Computing
    • 2003 – Process Portals
    • 2004 – Micro Portals, Virtual Content Repositories
    • 2005 – P2P VOIP, Biometric ID Documents, BPM Suites
    • 2006 – Mashup, Web 2.0 
    • 2007 – Legal P2P, Digital Video Broadcasting
    • 2008 – Green IT
    • 2009 – Cloud Computing, e-Book Readers, Social Software Suites
    • 2010 – 4G Standard, Activity Streams
    • 2011 – Internet TV, NFC Payment, Augmented Reality
    • 2012 – BYOD, 3D Printing, Complex Event Processing
    • 2013 – Big Data, Gamification, Wearable User Interfaces
    • 2014 – IoT, Natural-Language Question Answering, Cryptocurrencies
    • 2015 – Speech-To-Speech Translation, Advanced Analytics, Autonomous Vehicles
    • 2016 – Blockchain, Cognitive Expert Advisors, Machine Learning
    • 2017 – Virtual Assistants, Connected Home, Deep Learning
    • 2018 – Biochips, Digital Twin, Deep Neural Networks
    • 2019* – 5G, AI PaaS, Graph Analytics
      *Missing from the infographic, but updated by Gartner

    As we take our smartphones for granted, it's hard to imagine bluetooth, wireless web, or e-book readers as emerging technologies at this point – but at a time, the lightbulb was an emerging technology. 

    It's also interesting to look at which technologies peaked in a hype cycle, or which now popular technologies don't show up on this list. Despite Virtual Reality being around since the 80's, I expected to see it on this list. 

    Cryptocurrencies, "smart homes", and several older examples are fizzling or burnt out – but that doesn't mean they won't have resurgences. 

    As a reminder, the hype cycle and the innovation/adoption cycle are often on very different time scales. It's very possible that technologies from the early 2000s may still have their heyday. 

    What are you surprised wasn't on the list? And, what do you think is about to get added?

  • Here Are Some Links For Your Weekly Reading – January 19th, 2020

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

    Lighter Links:

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  • Autonomous Lyft – Waymo

    I went to a conference in Phoenix with my son Zach last week.  While there, he noticed something interesting … Lyft is testing Alphabet's Waymo autonomous driving service live on the streets.

    Regardless of concerns about the future of the gig economy – this is a glimpse into our not-to-distant future.  

    Here's what they say about it.

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    I had to leave early to catch a flight, so my son decided to use Lyft to get around.  He accepted the Waymo terms, but didn't get a Waymo vehicle. Still, I thought this was cool.

     

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    There will likely soon be a tipping point where autonomous vehicles proliferate.  Even though we are not "there" yet … the progress is obvious and the "quickening" is happening. 

    Meanwhile, examples of innovation and exponential technology successes and adoption are all around us. 

    The future is getting closer. 

    Onwards.

  • Law of Diminishing Returns

    At some point, more of the same stops paying off …

     

    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. 

  • Here Are Some Links For Your Weekly Reading – January 12th, 2020

    As the Australian wildfires rage on – an inestimable number of animals have died.

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    If you wish to donate to help relief efforts, you can do so with any of these trusted sources. 

     

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

    Lighter Links:

     

    Trading Links:

  • A Debt You Can’t Pay

    The concept of "Debt" can be confusing to a layman. Most people understand what it means when they take on debt with a local bank, but it can be harder to understand the role debt plays in global economics.

    Compounding the confusion, the implications of debt change on a macro level. 

    Many worry that our "excessive" government debt levels impact economic stability, the strength of our currency, and unemployment. The national debt can only be reduced through five mechanisms: increased taxation, reduced spending, debt restructuring, monetization of the debt, or default. 

    The idea behind our current global debt structure is that if two nations are mutually obligated and dependent on each other, they are less likely to go to war. And that has held relatively true so far. Of course, it's not a perfect system, and it can break down, but as yet, it's working compared to previous systems such as the balance of power.

    In some ways, it's fake money, so paying off our debts seems insurmountable. Yet, our economy is reliable so we're allowed to continue borrowing. Debt is also an important part of the economic machine – it can be argued that we wouldn't have money without debt. 

    Ray Dalio created a simple (but not simplistic) and relatively easy to follow 30 minute animated video that answers the question, "How does the economy really work?"  Click to watch.

     

    via Ray Dalio

    To learn more about Dalio's Economic Principles visit: http://www.economicprinciples.org.

    The global economy has hugely increased in size in the last 50 years as developing nations prosper. The average global GDP per capita has gone from ~$1000 to over $10,000 in my lifetime.

    So it makes sense that the amount of debt is also increasing with the size of the money supply required to conduct all the transactions in the global economy.

    The U.S. tops the list with debt to GDP at 104.3% and almost $22 Trillion in debt, but is dwarfed by #2 Japan's debt to GDP rate of 237.1%. 

    World-debt-2019 via Visual Capitalist 

     

    Meanwhle, China has increased its indebtedness by $2 trillion in the last two years. 

    The market is not the economy. Meaning, the performance of markets is not necessarily linked to the performance of the economy (and the converse is true as well). Even though you may be more interested in trading, economics is still important to understand and follow. 

    If one thing is clear, it's that 2020 will be an interesting year for markets and the economy. 

    There is a lot of opportunity in crisis and chaos.

     

  • A Serendipitous Moonshot

    Hope you’re enjoying the New Year!

    On January 2nd, 2020,  after many years of hard work, we launched the Capitalogix Absolute Return Fund.

    It’s been a long and hard road … but also a labor of love.

    On a related note, I’ve talked about moonshots, playing a different game, and getting comfortable being uncomfortable.   These themes come up because they define what we do at Capitalogix and what was necessary to create the technology platform that runs the fund. 

    Speaking of getting comfortable being uncomfortable, I spent the last week on a family cruise through the Caribbean.  

     

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    We celebrated many important events including my mother’s 80th birthday, my sister’s 50th birthday, and Jennifer and my 12th wedding anniversary.

    We happened to be in Grand Cayman on January 2nd, the day fund launched.

      

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    I had a chance to stop by Walker’s (our fund lawyers) to commemorate the day with them as well.

     

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    It was a great start to my year!

    Let me know how your year started too.

     

  • Growth of the US In 2019 (and into 2020)

    The US economy and its financial markets have proven resilient – if you look at the timeline of our history, there's almost unbridled growth. 

    For all the hiccups, issues, downturns, etc. our economy is enormous and still growing. 

    US-GDP-by-Year-Compared-to-Recessions-and-Events-v7-1600-e87avia howmuch

    In fact, our largest growth came on the backs of the Great Depression and WW2 … it makes sense, but it's a reminder of resiliency.

    Looking at 2019, we've seen volatility, fear, uncertainty – but we've also seen a banner year for the S&P 500, and continued GDP growth. 

    According to visual capitalist, the key sectors for growth this year were semiconductors, credit services, aerospace/defense, electornic equipment, and diversified machinery. Oil, wireless communications, foreign banks, apparel, and foreign telecoms took a hit. 

    Stock-market-winners-losers-2019via Visual Capitalist

    I share these images, not to say we're invincible, or that growth will continue forever, but to say that as we start the new year it's important to be optimistic and keep an eye on what's possible, not what obstacles we may face along the way. 

    Onwards!