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.
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…
This past Thursday was the 90th anniversary of Black Thursday, a day when sellers on Wall Street panicked and closed approximately 13 million shares on the NYSE … causing 5 billion in immediate losses and spurring the Great Depression, easily the worst stock market crash in US history.
With 90 years of education, technology and progress under our belts, we can look back at their mistakes assuming that it could never happen again – but could it?
The years prior to 1929 were filled with post-WW1 optimism and massive speculation. The combined net profits of 536 manufacturing and trading companies in the first six months of 1929 showed an increase of 36.6% over 1928, itself a record half-year. Rural Americans flocked to cities to take part in the excess of the Roaring Twenties. Stock prices were rising and there was massive economic growth. Like many 20 years olds, the '20s was a period where Americans felt invincible, right up until October 24th of 1929. We almost made it out of the decade.
On the day the 1929 Crash started, 11% of the Dow's value was lost by the opening bell. There was so much trading that the ticker tape reports were backed up. Traders had no idea of the true value of the stocks. Panic. Suddenly, 5 billion dollars was gone, along with optimism and trust in the system. By Black Tuesday, several stocks sat without buyers and the Dow drops another 12%. Collective confidence shattered. Psychological traumas compounded until there was widespread economic PTSD. Uncertainty spread like wildfire. Owners of businesses were unsure if they could get credit, workers were uncertain of job prospects or whether they'd get paid. As a result, consumption dropped, businesses failed, banks followed, and shortly thereafter, so did the Great Depression.
From the peak of the Dow (September 3, 1929) to the bottom of the Great Depression (July 8, 1932) the Dow lost 90% of its value.
Human Nature is Human Nature
We've since instituted many measures to protect businesses, banks, and consumers, including measures to suspend trading in periods of rapid decline (like the Securities Act of 1933 and the Securities Exchange Act of 1934). As well, we have a better understanding and tracking of economic barometers like car sales, real estate, etc.
The reality is that in various scales and timeframes human traders undergo the same issues time and time again. It only becomes a talking point when it becomes painful enough.
It shouldn't take mass unemployment and economic contraction for us to understand the dangers of speculation, the dangers of human fear, greed, and discretion, and the dangers of poor economic theory.
Human fear and greed will likely play less of a role in markets going forward. Increasingly more of trading volume is algorithmic. And increasingly more of the decisions are made with AI using more data and shorter time frames. As a result, while I expect increased volatility, I also expect increased opportunity.
Keep in mind that there is a difference between guessing and knowing … and knowing is more profitable. The corollary is: if you don't know what your edge is … you don't have one.
via