Trading

  • Fintech, AI & Analytics – My Webinar with IBM

    Back in June, I participated in a series of webinars for IBM. The focus was on building smart and secure financial services. My talk, specifically, was on 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.

     

     

    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 really 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 is "might have". 

    If you had more information than your competitors – 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 and harder to gain an asymmetric information advantage. 

    The rules, the players, and the game have all changed. Today, technological asymmetry is a major factor, and your edges come from things like bigger and faster servers and low latency connections to markets.

    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. 

    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?

    Expect Increased Volatility and Noise_GapingVoid

    A technological advantage doesn't mean anything if you're plugging in inaccurate or biased data into it. 

    We've talked about it over the past few weeks with the never-ending news cycle – but it's a lesson that's infinitely applicable. 

    Onwards! 

  • Taking Stock Of Where We Are

    Do you want the bad news first, or the good news?

    Let's start with the bad. 

    We're now two days into August. U.S. GDP is down 33% on an annualized basis, the largest quarterly decline since the series began in 1947. For context, 1% is a recession,  "The Great Recession" peaked with 8.4% in December 2008, and 15% was The Great Depression.

    Adding insult to injury, approximately 40% of renter households are at risk of eviction. On Friday, the federal moratorium on evictions expired. Consequently, 25 million Americans have stopped receiving their $600 weekly unemployment checks. Many states have stopped or are rolling back their reopening plans. 

    Jobless rates, which have been trending downward since March, and credit card spending, which had been trending upward, have both reversed. The corrections weren't nearly as pronounced as the initial shocks. 

     

    Screen Shot 2020-08-02 at 12.51.41 PMvia CNBC

    So there's the bad news, but let's try and find some silver linings:

    • First, the prediction for the contraction was 35%, so we're below that number, and job creation in May and June surpassed expectations by almost 12 million.
    • Compared to previous contractions, we entered it on a much stronger footing as a result of the long-term expansion. 
    • As well, remember that 33% number is based on an annualized rate (which assumes the trend will continue, meaning the economy is really only about 10% smaller than in the first quarter).
    • Many states are still reopening, and the rest have various recovery efforts underway.
    • Big-ticket spending (homes and other long-lasting purchases) has continued to rise. So has daily shipping volume. 

    The economic consequences of the public health crisis and the measures taken in response will continue to affect the course of the economy for a long time. The recovery will be protracted. But, we're resilient, and we know how to dig ourselves out of this hole. In addition, the whole world is going through a similar crisis. For the most part, I'd rather be here than almost anywhere else. My sense is that people with capital feel the same way, and that is a very positive indicator of why our economy will suffer less and recover faster than other economies.

    As I've mentioned before, fear plays as much a role in the recovery as other factors. If people believe in the future, their habits affect the economy differently than if they're at home, hoarding what they have left. 

    Personally, I believe we're about to see a tough time, with increased volatility and a lot of noise. It is increasingly likely that we will see another push downwards in the markets. I believe that America is well-positioned to adapt and recover. As a company, my sense is the strongest are not the most likely to survive and thrive in times like these. This is a time where adapting and responding to new opportunities and threats will separate the winners from the losers. 

    Have faith and carry on! Onwards!

  • Putting Bezos’s Wealth Into Perspective

    Jeff Bezos is officially worth ~$172 Billion dollars; more than he was worth before his divorce. 

    Everyone on earth is closer to being a millionaire than he is. Think about that.  He has so much more than $1 million dollars that the homeless person willing to work for food is closer to being merely a millionaire than Bezos. The med school graduate with $100K+ in debt? Closer to being a millionaire than Bezos.  Obvious at one level … but crazy to think about on another level, right?

    Humans are notoriously bad at large numbers, so it's hard to wrap our minds around something of that scale. 

    I've recently seen a couple of good visualizations of the difference between a million and a billion dollars. 

    If you have an hour to "waste," this comprehensive video by Tom Scott shares a couple of different ways to look at it, and he literally goes on a road trip to show the difference. 

     

    via Tom Scott

    One good example from the video is "It would take almost 12 days for a million seconds to elapse and 31.7 years for a billion seconds." A billion seconds from today would be 1988. 

    Another:

    1 dollar

    • 0.0043 inches or 0.00010922 meters (thickness)

    1B dollars

    • 1B x 0.0043 inches → 4.3M inches → 68 miles
    • 1B x 0.00010922 meters → 109K meters → 109 kilometers

    Now multiply that by 172.

    In distance, Bezos's net worth is a hair under half the equatorial circumference of the Earth.

    Here's a link to specifically understanding Bezos's net worth – https://mkorostoff.github.io/1-pixel-wealth. If you were to spend a dollar every second for an entire day, you would spend $86,400 per day. If you have a million dollars, you can do that for approximately twelve days. With a billion dollars, you can do that for over 31 years. Ignoring the difference between net worth and cash, Jeff Bezos could spend over $9M per day for over 31 years.

    Lastly, here's a shorter video visualizing the $10 Trillion in economic stimulus the U.S. government has been undertaking. 

     

    via Demonocracy

    Even with these depictions, it's hard to understand. We're wired to think locally and linearly, not exponentially (it's one of the reasons I love AI so much). 

    Hope this was helpful!

  • Let’s Play: News Segment or Propaganda Piece?

    There is nothing wrong with your television.  We will control all that you see and hear. 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.  Enjoy ….

     

    200719 test-pattern

    The original,, from The Outer Limits TV show was: 

    There is nothing wrong with your television set. Do not attempt to adjust the picture. We are controlling transmission. If we wish to make it louder, we will bring up the volume. If we wish to make it softer, we will tune it to a whisper. We will control the horizontal. We will control the vertical. We can roll the image; make it flutter. We can change the focus to a soft blur or sharpen it to crystal clarity. For the next hour, sit quietly and we will control all that you see and hear. We repeat: there is nothing wrong with your television set. You are about to participate in a great adventure. You are about to experience the awe and mystery which reaches from the inner mind to the outer limits.

    As a society, we're fairly vulnerable to groupthink, advertisements, and confirmation bias. 

    We believe what we want to believe, so it can be very hard to change a belief, even in the face of contrary evidence. 

    Recently, we've seen a massive uptick in distrust toward news agencies, big companies, the government, and basically anyone with a particularly large reach. 

    To a certain degree, this is understandable and justified. Here is an example of the power of the media focused on a message.  Click to watch.

     

    via Courier News

    Propaganda has always been an issue, and almost everyone does it; governments, companies, etc. Luckily, it's easier to see today than in the past, but unluckily it's also more pervasive and insidious than before. 

    It's to the point where if you watch the news you're misinformed, and if you don't watch the news you're uninformed. 

    The above segment portrays a rosy picture of Amazon's efforts to protect its workers while delivering essentials to the struggling homebound masses. This comes while Amazon has come under massive fire for removing some of its protections. 

    Honestly, I use Amazon and, in my opinion, this isn't a massive breach of trust. News stations have a lot of time to fill, they often have sponsored content.

    That being said, it's something to be cognizant of – not necessarily offended by.

    Personally, I believe I am reasonably aware and somewhat immune from propaganda. That probably isn't as true as I'd like to believe.

    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. 

    As A.I., Bots, and social media grow, our ability to discern truth from 'truthiness' weakens.

    It's a great reminder that what you're seeing and hearing is carefully manufactured, and hopefully, it encourages you to get outside your bubble. 

  • The Pace of Success

    Capitalogix started in my home.  The first employee sat at a tiny desk behind me.  Their job was to exit the trades I entered.  This was an early attempt to avoid the fear, greed, and discretionary mistakes that humans bring to the business of trading.

    We started to grow … and somehow got to 23 people working in my home.  It literally overtook my office, dining room, and the entire upstairs. Neighbors noticed (and expressed their displeasure).

    Looking back, it seems crazy (and my wife seems Saintly).  But somehow, at the time, it felt natural. 

    Incubating the company in my home, and growing it the way we did resulted in a closeness (a feeling much like family) that pays dividends, even today.

    Speed matters … both fast and slow.  

    I shot a video on the subject. Check it out. 

     

     

    There is a concept in business expressed by the phrase "measure twice and cut once."  It's much easier to do something the right way from the beginning rather than trying to fix it after you mess it up. 

    It saves time and creates a better end result. 

    Beginning with the end in mind is powerful.  I often spend what looks like "too much" time imagining the bigger future.  What will things look like when we are ten-times bigger?  Who will we serve?  What dangers will keep me up at night?  What opportunities will we be trying to attract or capture?  What strengths will give us confidence?  Who will we be collaborating with … and about what?  It helps build a roadmap that makes it easier to understand whether particular activities are aligned with our future (or just something we are doing now). 

    I prefer to optimize on the longer-term rather than the shorter-term.  That isn't always possible or practical … but when it is, that is my preference.

    Pace is important – and a focus on "what's the best next step" is an important driver at Capitalogix, but sometimes in order to go fast, you have to go slow. You may miss out on something, but the ultimate payoff is often worth it. 

    It's a good lesson for personal growth as well.  There is no right timeline. No one size fits all.  Take your time. Find your path. 

    DQKRk6pWAAMtoQiAnna Vital via Adioma

    Hope that helps. 

  • Coronavirus Relief: US Foreign Debt Holders

    In response to COVID-19, the U.S. Government has tried numerous things to bolster the economy. 

    In Q2 alone, the U.S. Treasury borrowed a record $3 trillion dollars for coronavirus relief. It's already the largest-ever borrowing for any fiscal year, and it brings our total above $26 Trillion (over $80,000 per citizen).

    The concept of "Debt" can be confusing to a layman. Most people understand what it means to take on debt with a local bank, but it can be harder to understand the role debt plays in global economics. Debt often enables governments to run smoothly. But sometimes you can have too much of a good thing.

    Many worry that our "excessive" government debt levels impact economic stability, the strength of our currency, and unemployment. For all the potential, it's certain that our debt with a country affects the relationship. So who "owns" most of our debt?

    Foreign_Debt-0c2evia HowMuch

    Japan holds more U.S. debt than any other country but is followed closely by China. Both countries hold more than 6% of total foreign-held debt. 

    The chart focuses on foreign debt – but only about 30% of the national debt is held by foreign countries. The rest is held by investors, the Federal Reserve, and the government. 

    Taking a step back, how does our debt compare on the world stage? An important metric of debt is the debt-to-GDP ratio. It is a key indicator of the sustainability of government finance.

    Screen Shot 2020-07-12 at 4.34.57 PM

    via OECD 

    Ultimately, we're in the highest bracket, but also have a historically strong GDP to back it. It's also worth noting that lower debt levels don't necessarily translate to safety on a global scale. Yugoslavia had very low government debt until its breakup. 

    In some ways, it seems like 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. 

    While this doesn't mean we can go on borrowing forever, it does mean we have options. 

    If you want to see an updated, interactive version of the U.S. Debt Clock, just click here.  It is worth spending a little time watching the pace the numbers turn.

    Actions have consequences.

    Something to think about. 

  • The Intelligent Investor

    There are many different methods of investing – and I've experimented with quite a few of them (fundamental, technical, statistical, quantitative, machine learning, etc.).

    Ultimately, I believe most trading techniques work until they don't. 

    I don't believe that any technique always works … but I do believe that there is always something that works. 

    Likewise, I believe that there is always a best next step.

    Evolutionarily, the strongest or smartest doesn't necessarily survive … The quickest to adapt and adjust to its changing environment is the one that gains advantage.

    Consequently, it makes sense to be on the lookout for sources of new learning (even if they are old).

    In the same way that reading news from an opposing slant can inform your decision – studying other beliefs may help you find the underlying truths (or spark the insight you needed).

    Warren Buffet is a famous value investor. He does immense research on companies, attempts to buy them at a discount and then hold on to them for long periods of time.  On some levels, our approach to the markets is radically different.  On the other hand, it would be crazy to ignore the brilliance of what he "knows" and what he does.

    One of his favorite books on investing is titled The Intelligent Investor by Benjamin Graham. It's a great introduction to the basics of value investing (versus speculating) and the role of inflation, margin of safety, etc. 

    It's worth a read … but if you want to watch a good summary, here's a six-minute video. 

     

    via Financial Freedom

    If you aren't learning, you're dying.

  • Learning From the Renaissance (No, Not That One…)

    Jim Simons is a mathematician and cryptographer who realized that the complex math he used to break codes could help explain financial patterns – and he made billions because of it in his notoriously secretive hedge fund firm called Renaissance Technologies.

    He is famous not only for the duration of his success and the size of his results … but also for the way he made his money (with much lower volatility and risk than his peers and competitors).

    His flagship – the Medallion fund – has averaged a net return of 39.1% and has been closed to new investors since 1993. Even more impressive is that those results are on top of their 5% management fee and a 44% performance fee.

    To put that into perspective, if you had invested $1,000 into the Medallion Fund in 1988 when it launched, your money would have grown to in excess of $23MM at the end of 2019.

    His background is impressive. Simons taught at Harvard and MIT and worked with the NSA. Here is a video where he shares some thoughts in a 2015 TED talk interview. It's worth a watch.

     

    via TED

    Interesting stuff … I hope you got something from it. 

    His success exists at the nexus of vast amounts of data, next-level technological infrastructure, and intellectual property built by various flavors of mathematicians. A good place to be in the coming world, and a reminder that if you don't know what your edge is, you don't have one. 

    Despite advanced math still being a mystery to many,  most rely on it more than ever … for example, look at what we're seeing with the growth of machine learning and AI.

    The Heartbeat of AI is Still Human

    The Heartbeat of AI is Still Human_GapingVoid

    Today, the best algorithms are autonomous. They don't rely on inventors to derive novel insights from the ingested datasets. They take whatever data they can get their hands on, process it, and extract decision signals. Some don't even form hypotheses, they simply look for correlations – the data is an abstraction to be solved in the purest sense. 

    You don't have to understand why the models do what they do – simply, what it's doing, and that you trust it's construction. 

    Regardless of how autonomous the systems get, humans are still vital. 

    Simons built a team of mathematicians whose motivation was doing exciting mathematics and science (rather than hired guns who could be lured away by money).

    That doesn't mean money wasn't a motivator, but it hits on something important. 

    The heart of good math and good AI will always benefit from the quality of the humans around it. You still have to champion integrity, culture, and purpose.

     

    Better Math as a Competitive Advantage

    We stayed ahead of the pack by finding other approaches and shorter-term approaches to some extent … but the real thing was to gather a tremendous amount of data – Jim Simons

    If you've been to our office, or heard me speak, you know how important I believe those ideas are to continuing prosperity. 

    Constant innovation on a massive scope and scale creates more ways to win.

    Onwards!

  • Here Are Some Links For Your Weekly Reading – June 28th, 2020

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

    Lighter Links:

     

    Trading Links:

  • A Look At the Highest-Valued Startups in the World

    Statista put together a list of the ten highest-valued unicorn startups in the world based on numbers from CBInsights. To see more information on these startups, click here. 

    A unicorn startup is a private company with a valuation of over $1 billion. As of June 2020, there are more than 400 unicorns around the world. Variants include a decacorn, valued at over $10 billion, and, soon, a hectocorn, valued at over $100 billion.

     

    19317via Statista

    China had the two highest-valued startups on the list.  Both the U.S. and China each have four companies on the list of the ten highest-valued startups. The U.S. companies are easily recognizable – Stripe, SpaceX, Airbnb, and Epic Games. The Chinese companies may have slipped under your radar (but they would probably be easily recognizable to you if you lived in China). 

    1. Bytedance uses machine learning to tailor newsfeeds for users on various platforms, including Toutiao in China and TikTok in the US. In May, Disney's head of streaming came on as CEO of TikTok and COO of Bytedance.
    2. DiDi Chuxing provides various app-based transportation, including taxis, on-demand services, bikes, and more. They're a competitor to Uber and Lyft that has dominated the Asian market and is using AI to optimize dispatch and route planning for its services.
    3. Kuaishou is a video sharing app with over 200 million active daily users. It has unusually strong support from users outside of "tier 1" cities and has received massive support from multimedia conglomerate Tencent.
    4. DJI Innovations is (by a large margin) the world leader in drones and quadcopters, accounting for over 70% of the civilian market. They're also used extensively by militaries, police forces, and even terrorist groups. 

    According to CB Insights, there are more than 400 unicorn startups (companies valued at US$1 billion or more) in the world as of May 2020.  Meanwhile, 24 of the companies in the ranking were valued at US$10 billion or more. 

    The top 10 list of decacorns also includes Indian e-commerce platform PayTM and Singaporean ride-hailing app Grab. Further down the list, UK data center provider Global Switch (rank 19), Indonesia’s answer to WeChat, umbrella app Go-Jek (rank 20), Brazilian fintech provider Nubank (rank 21) and a second player from India, hotel startup Oyo (rank 22), make appearances.