Recently I had a chance to talk with Josh Elledge on his Thoughtful Entrepreneur podcast. We talked about AI's inevitable influence on trading as well as my experience as an entrepreneur.
Despite mis-spelling Capital Logix … it's Capitalogix … the conversation we had is worth a listen.
In the past, I've talked about where America gets its oil, and how data is more than just "the new oil".
During the worst of the pandemic, oil prices dropped almost 40%. They've now risen 216% from that pandemic low. With gas prices skyrocketing, it's probably time to look at historical oil prices.
Visual Capitalist put together a simple infographic.
via visualcapitalist
So why are prices so high? Unfortunately, large portions of the world's oil reserves are in regions prone to political conflict.
Currently, the Russia-Ukraine conflict is leading to supply uncertainty and rising prices.
Meanwhile, oil companies are bringing in record profits.
Oil prices are a complicated topic because supply and demand aren't particularly responsive to price changes in the short term. Regardless of price, people need to drive. And, regardless of demand, it takes time and money to drill new oil wells.
As a result, you can see mismatches, like today, where uncertainty has raised prices, but oil companies are doing tremendously well.
The question now becomes … where does it end? Does it take a resolution to the current conflict? Or, will prices reach a ceiling and fall back down based on other factors?
History may not repeat itself exactly … but it often rhymes. News stories, however, seem to replicate.
There is nothing wrong with your television. Do not attempt to adjust the picture. We are now controlling the transmission. We control the horizontal and the vertical. We can deluge you with a thousand channels or expand one single image to crystal clarity and beyond. We can shape your vision to anything our imagination can conceive. – The Outer Limits (1963)
via YouTube
It almost feels like an episode of Black Mirror, watching these stations quote the same pre-determined diatribe on fake news and its danger to our democracy.
The very message they are purportedly supporting, in the video above, directly contradicts their actions.
Most people realize this happens to some degree, but it seems different when presented like this.
I believe I am reasonably aware and somewhat immune from propaganda. That probably isn't as true as I'd like to believe.
Meanwhile, Sinclar Broadcast Group owns nearly 200 stations in 80 different markets and wants to buy more. That is a powerful platform to deliver mass messages and influence the zeitgeist of its audience.
It used to be true that winners wrote history (think empires, wars, etc.). Now, the one that delivers the most broadcast narratives shapes the emotional and seemingly logical responses to what we perceive to be happening around us.
The result impacts elections, financial markets, buying choices, and countless other areas of our life.
We see and hear it every day about politics, wars, economic issues, and many other things we don't focus on enough to notice.
As A.I., Bots, and social media grow, our ability to discern truth from 'truthiness' weakens. Especially with the growth of deepfakes.
What do you think about this?
Main Street and Wall Street are often at odds. Terms like "retail" and "professional" or "smart money" and "dumb money" highlight the difference in perspective and access to tools, processes, and even information.
The biggest disparities happen at turning points. Today, many companies are posting record profits, but markets are volatile, gas is expensive, and inflation is high. So, we're getting some mixed signals.
It may be too soon to say we're in a recession, but we are experiencing a downturn.
Here is a comparison of recent market corrections showing each decline's intensity and duration.
via Reddit (Dow Jones Market Data & the WSJ)
While this chart is a week or two old, it shows some interesting data. While there are a few shorter drops, most were longer and deeper than where we currently are.
Thus, we could have further to go … but it could also be a sign that we're responding better to market issues than in the past.
via Cascade Financial Strategies
How are you feeling about the markets and our economy?
Warren Buffett is a legend for many reasons. Foremost among them might be that he's one of the few investors who clearly has an edge … and has for a long time.
From 1976 to 2017, his Sharpe ratio (excess return relative to risk) was approximately double the overall market. He even did well in 2021. Berkshire Hathaway now has almost a trillion in assets (up from $700 billion in 2019) – and is still performing well.
While many people consider Buffett to be an investor, I also consider him to be an entrepreneur.
At the age of six, he started selling gum door to door. Obviously, selling gum wasn't the key to his path to riches. So, how did he make his first million? Here's a video that explains it.
via Coolnimation
He made his first million at age 30 (in 1960). For context, a million dollars in 1960 would be worth about $8.5 million today.
Buffet has always been honest about his bread-and-butter "trick" … he buys quality companies at a discount and holds on to them.
It is fascinating to recognize how much the world has changed – and yet how much it has stayed the same.
For extra viewing: Warren Buffett, Charlie Munger, and Bill Gates recently did a full 2-hour interview with CNBC. You can watch it here.
Just because something is overhyped, doesn’t mean it’s bad. Gartner's hype cycle is a great example of this. Every technology goes through inflated expectations and a trough of disillusionment, regardless of whether they're a success or failure. Sometimes a fad is more than a fad.
Humans are pretty bad at exponential thinking. We're not bad at recognizing periods of inflection, but we're very bad at recognizing the winners and losers of these regime changes.
There are countless examples. Here's a funny one from Maximum PC Magazine in 2008. It shows that hype isn't always a sign of mistaken excess. This list purported to show things that were getting too much attention in 2008. Instead of being a list of has-beens and failures, many of these things rightfully deserved the attention.
It's been 14 years since this came out. How did the predictions hold up?
Facebook has become Meta, and is one of the big five. The iPhone has sold more than 2.2 billion phones, and accounts for more than half of Apple's total revenue. And the list keeps going. Multiple GPU video cards, HD, 64-bit computing, and downloading movies from the internet …
It's hard to believe how poorly this image aged.
The trend is your friend while it continues. Just because something is overhyped – doesn't mean you shouldn't be excited about it.
Onwards!
At the beginning of the pandemic, I participated in a series of webinars for IBM. The focus was on building smart and secure financial services. My talk was about advanced computing and the new world of trading.
Challenging times drive advancement – and what better time to talk about advancements in technology (and their applications) than in the midst of a global pandemic.
You can watch a replay of the Fintech webinar here. There are several interesting presentations. If you just want to watch my presentation, it starts at the 5:16 mark.
In addition, I've uploaded a different version of just my talk that you can watch directly here.
IBM and Capitalogix via YouTube
In the past, trading used to be about people trading with people. Markets represented the collective fear and greed of populations. So, price patterns and other technical analysis measures represented the collective fear and greed of a population. If you could capture that data and figure out certain statistical probabilities, you might have had an edge. The keywords are "might have".
If you had more information than your competitors – meaning, an information asymmetry – you had an amazing edge. At one time, that was being able to print out reports on stocks from that new-fangled technology called the internet. As time passed, it became harder to gain an asymmetric information advantage (because people had access to more and better data).
Each generation of traders finds new ways to play the game and generate "Alpha" (the excess return generated by manager skill, rather than luck or excess risk). As soon as enough people adopt a strategy (or figure out a way to combat it), the edge begins to decay.
When computerized data became available, simply understanding how to download and use it generated Alpha. The same could be said for each later evolution – the adoption of complex algorithms, access to massive amounts of clean data, or the adoption of AI strategies.
Each time a new shift happens, traders pivot or fail – it's not that active trading stopped working – it's that the tools, speed, and styles necessary to play that game evolved.
Said another way, the rules, the players, and the game (itself) have all changed. Today, technological asymmetry is a significant factor, and your edges come from things like bigger and faster servers, low latency connections to markets, or the ability to calculate the odds better or faster than others.
In the future, I see those edges combining as artificial intelligence starts to leverage exponential technologies and new data sources (like alternative data and metadata feedback loops). It is easy to imagine a time when information is the "fuel," but your ability to digest and parse that information is the "engine."
Historically, most active traders don't beat the S&P in any given year … and even less beat it with any semblance of consistency. But those that do – the ones that have been doing it for long enough that it's not chance … exercise a willingness (and a skill) to adapt quickly.
One of Charles Darwin's best-known concepts is: It is not the strongest species that survive, nor the most intelligent, but the ones most responsive to change.
While computers have made information accessible to everyone, they've also created a massive asymmetric information advantage for those who have both the access and the skill to best use the massive amounts of data now available. This is more complicated than it seems. You need the information, the technology, the process, and the people. There is so much data available now that figuring out what to ignore is probably more important than what to use. Likewise, the ability to ingest, clean, validate and curate the data is a huge hurdle that most can't clear.
I talk about much more in the video but boiling down the main points, ask yourself (in business, in trading, in life) are you separating the "signal" from the "noise?"
A technological advantage doesn't mean anything if you're plugging in inaccurate or biased data into it … just like with the news.
But, even with those skills, it's harder than ever to take advantage of inefficiencies (edges) than ever before. The edges are smaller, more fleeting, and surrounded by more volatility and noise. It's like finding a needle in a haystack. That being said – finding a needle in a haystack is easy when you have a metal detector.
That's where A.I. has come in for us. We use A.I. to develop algorithms, analyze markets, and create meaning where humans can't find any.
We live in exciting times.
Onwards!
Here are some of the posts that caught my eye. Hope you find something interesting.
In 2021, the Big Five – Alphabet (Google), Amazon, Apple, Meta (Facebook), and Microsoft – generated over $1.4 trillion in revenue.
How did they generate that revenue? We know they sell products … but we also know that we're often the product they sell.
Google and Facebook each make a lot of money selling you (or data about you) to advertisers.
The image below shows how Alphabet generated its revenue. The full infographic shows that breakdown for each of the Big Five.
Click to view the other companies via visualcapitalist
Apple, Amazon, and Microsoft, primarily sell products (like more traditional businesses). On the other hand, almost 98% of Meta's revenue (and 81% of Google's revenue) comes from advertising.
Unsurprisingly, all five companies saw significant growth during the pandemic.
Though the economy shrank in the past two years, societal changes continued to push demand for big tech's products and services.
Will growth continue or slow down?
I'm curious what you think.
Happiness is a complex concept comprised of conditions that highlight positive emotions over negative ones – bolstered by the support of comfort, freedom, wealth, and other things people aspire to experience.
Regardless of how hard it is to describe (let alone quantify) … humans strive for happiness.
Likewise, it is hard to imagine a well-balanced and objective "Happiness Report" because so much of the data required to compile it seems subjective and requires self-reporting.
Nonetheless, the World Happiness Report takes an annual look at quantifiable factors (like health, wealth, GDP, and life expectancy) and more intangible factors (like social support, generosity, emotions, and perceptions of local government and businesses). Click the image below to view the Report.
via visualcapitalist
In their 2021 report, there was a significant focus on the effect of COVID-19 on happiness levels and mental health. Much of that continued into the 2022 report.
As you might expect, the pandemic caused a significant increase in negative emotions reported. Specifically, there were substantial increases in reports of worry and sadness across the ninety-five countries surveyed. The decline in mental health was higher in groups prone to disenfranchisement or other particular challenges – e.g., women, young people, and poorer people.
It is remarkable how resilient and stable the scores have been globally considering the amount of uncertainty, stress, and disruption households experienced this past year.
Ultimately, humans persevered in the face of economic insecurity, anxiety, and challenges to mental and physical health.
This year, the average score improved slightly compared to 2021 – though worry and stress have continued to rise.
There has been a decrease in overall happiness compared to pre-pandemic scores. Yet, the relative balance demonstrated in the face of such adversity may point towards the existence of a hedonic treadmill – or a set-point of happiness.
Regardless of the circumstances, people can focus on what they choose, define what it means to them, and choose their actions.
I'm still surprised by what people can get used to … and how some people find pockets of joy in even the hardest of times. Conversely, other people use the same ability to feel profound unhappiness, even when they have seemingly everything.
It's an oddly beautiful reminder that happiness comes from within.
Another bright spot, worth mentioning, has been the massive global upsurge in benevolence. People are supporting others, communities have stepped up, more money is being donated to charity, and more people are volunteering.
Onwards!