Capitalogix

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

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

 

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

Lighter Links:

• Air Travel Data Suggests China Had Nearly 40 Times the COVID-19 Cases They Reported. (VFTW)
• Airlines Tried Social Distancing on Board. For Many, that Experiment is Ending. (Chron)
• MLB Targets 60-Game Season Starting around July 24, Assuming Conditions Met. (ESPN)
• Doomscrolling is Slowly Eroding Your Mental Health. (Wired)
• Photos Show Devastation Unleashed on Terror Leaders by Sword-carrying Ninja Bomb'. (MilitaryTimes)

 

Trading Links:

• Delta Could Furlough More Than 2,500 Pilots, Will Close 3 Flight Attendant Bases. (ThePointsGuy)
• You Won't Believe How Many Airlines Haven't Survived Coronavirus. How Does It Affect You? (Forbes)
• These Mall Staples Announced Thousands of Store Closures in June. (CNN)
• Here's Why New Traders are Losing Money. (TheStreet)
• Warren Buffett Has Warned about the Dangers of Speculating for Years. Day Traders Aren't Listening. (BusinessInsider)

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.

 

via 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.

Lessons From 2020's Markets

The idea that the market is not the economy has been made very clear over these past months. While businesses continue to shutter or (if they're lucky) slowly re-open, the stock market has rallied immensely since the initial crash - in large part due to governmental efforts. The markets are so confusing right now that CNBC has given up and created a new type of market - the kangaroo market ... I assume implying "jumpy" volatility. 

The rally has only served to increase the uncertainty as people hold their breath waiting for the drop... For all that waiting, "dumb money" has been beating a lot of "intelligent" investors.

I found an interesting visualization that shows the performance of the S&P through the performance of its underlying stocks. 

 

via Chartfleau

As you watch the video you can see that most of these underlying stocks are struggling - but they're being propped up by a relatively small number of stocks, including the likes of tech giants, the gold mining company Newmont Corporation and the HVAC company Carrier Global. 

While many funds still struggle, novice investors and day traders listening to the advice of "buy low, sell high" have made staggering gains. 

I'm not encouraging a back-to-basics approach to trading, but I think it is a good reminder that sometimes, as Da Vinci said, "simplicity is the ultimate sophistication." 

Being in Fintech, I'm always paying attention to the newest "sophisticated" technologies, looking for a new edge - and that's valuable - but you can't throw out the baby with the bathwater. 

So, I find myself looking for what's timeless (instead of timely) in what others are doing. 

At a Genius Network meeting recently, Brian Tracy mentioned two key questions he asks himself (before writing a book) that I think are very insightful. 

Would this work 20 years from now? Would this have worked 20 years ago?

Tools and techniques change... why often doesn't matter.

The truth is, if you don't know what your edge is ... then you don't have one.  

On a related note, if nothing is working ... doing nothing is an option!

Hope that helped. 

Talking AI, Analytics, and Trading With IBM

I'll be speaking at an IBM Webinar on June 18th. The focus is on using AI, analytics, and advanced computing to improve trading research. Click here to sign-up. 

Here Are Some Links For Your Weekly Reading - June 7th, 2020

 

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

Lighter Links:

• How Science Fails. (Aeon)
• When Everyone Can Work from Home, Who Goes Back to the Office? (Quartz)
• Nvidia's AI Recreates Pac-Man from Scratch Just by Watching It Being Played. (TheVerge)
• Demystifying Deep Learning and Artificial Intelligence. (TheNewStack)
• Your Organization Needs a Proprietary Data Strategy. (HBR)

 

Trading Links:

• United Airlines Restores Flights at 150 U.S., Canadian Destinations in July, Add Nonstops. (USAToday)
• Apple Share Price Hits All-time High after Recovering from COVID-19 Losses. (Cult of Mac)
• Zoom Reported a Perfect Quarter. Why Its Stock Reaction Could Suggest Trouble for Much of Tech. (Barrons)
• What Does the Shocking Unemployment Report Really Mean? (The Atlantic)
• Markets are Upside down Right Now as Young Hedge Fund Chiefs Face Their First Crisis. We Dug up What the Biggest Managers from Cliff Asness to David Tepper Said They Learned from Last Major Economic Downturn. (BusinessInsider)

 

Here Are Some Links For Your Weekly Reading - May 31st, 2020

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

Lighter Links:

• SpaceX Launches New Era of Spaceflight with Company's First Crewed Mission. (NationalGeographic)
• Space Exploration's next Frontier: Remote-Controlled Robonauts. (Bloomberg)
• As States Start to Reopen, Here's Where People are Going. (Washington Post)
• Primer: Demystifying Data Science. (TheNewStack)
• Meeter is a New Mac App for Quickly Joining Zoom Meetings, Google Hangouts, and More. (9to5Mac)

 

Trading Links:

• Is China Overtaking the US as a Financial and Economic Power? (TheGuardian)
• Singapore's Financial Centre Will Emerge as Big Winner of a Draconian Chinese Law. (Insider)
• The UN Says a New Computer Simulation Tool Could Boost Global Development. (TechReview)
• U.S. Stock Market is Overpriced by 16%, Warns Oxford Think-Tank. (CCN)
• A Wall Street Firm Studied Every Crash over the past 100 Years and Concluded that the Unusual Performance of 7 Tech Stocks is Masking the Risk of a Prolonged Meltdown. (BusinessInsider)

Here Are Some Links For Your Weekly Reading - May 24th, 2020

 

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

 

Lighter Links:

• We are Doing in a Few Months What Would Normally Take a Drug Development Process Years to Do' with AI. (ZDNet)
• Findings From The AI Index Annual Report. (Stanford-AI)
• Terrifying Black Light Videos Show How Easy It Is to Catch Coronavirus. (BGR)
• Why Zoom Meetings are So Dissatisfying. (Economist)
• Travelers Now Scoring $700 Business Class Flights to Europe with Sneaky Loophole. (DMarge)

 

Trading Links:

• Hertz Files for Bankruptcy after 16,000 Employees Were Let Go. (Forbes)
• One Chart to Catch You up on 2020 ... And the Economy. (HowardLindzon)
• Second Stimulus Check Proposes $1,200 Extra with Round 2. Here's the Situation. (CNet)
• The World's 25 Richest Billionaires Have Gained Nearly $255 Billion in Just Two Months. (Forbes)
• What History Tells Us about the Accelerating AI Revolution. (Wall Street Journal)

Cap And Frown: The Future of Higher Education

Many of my friends have children either in high school or college. 

Watching various graduation ceremonies - it's clear that this was an abnormal year for graduates.  That being said, I've been impressed with the sense of greater community that being isolated from your local community can give. 

via The Atlantic

The coronavirus pandemic has put schools and students in an interesting predicament. 

While the short-term ramifications have mainly targeted students, the long-term ramifications will also greatly impact schools. 

Lockdown orders have put massive financial stress on schools. Scrambling to get students educated, building online materials, purchasing software, etc. all take massive amounts of money. On top of that, many universities have had to issue refunds for various services that students weren't able to receive. 

We often think about how severely the pandemic and quarantine have affected hotels and air travel, but education was hit equally as hard. 

I'm interested to see how schools will recover. Some universities are staying online for the fall semester, some are downsizing and cutting programs,  some are reducing tuition ... but many are afraid of their financial model breaking under the pressure (regardless of the size of their endowment). 

With nearly infinite education available online for free (including from universities), this could be a chance for a new educational model... time will tell. 

What do you think is going to happen?

Putting 2020's Job Losses in Perspective

Despite rolling re-openings, the economic effects of this "great lockdown" are still mounting. 

More than 36 million unemployment claims have been filed in the last two months - with 3 million coming last week. Over 14.7% of the population is unemployed. 

via NY Times

That being said, just like with COVID-19 cases, we're past the peak. 

Unfortunately, also like COVID-19 cases, the consequences are protracted, and we're unsure if any of our treatment plans are truly alleviating the problem. 

The speed of this shutdown and its impact on employment has been almost unprecedented.

(April 17th, 2020) via visual capitalist

During the Great Depression, unemployment reached 24.9%, and there is no modern equivalent. Today, that would leave 41 million Americans out of work. But the short-term effects of this lockdown are significantly worse than anything in recent memory. 

Luckily, the current crisis is happening on a much faster scale than any of the previous examples. The aforementioned crises generally took several years to happen with unemployment peaking at the tail-end of the recessions. Perhaps we have already passed the peak in only two months?  Same story, different topic ... are the financial markets.  The hit was deeper and quicker than in previous crises, as long as you think the damage has already been done.

Due to this situation stemming from a global pandemic, which resulted in a forced lockdown ... there is an argument to be made for this not being a normal crash.  As a result, there's room for optimism (or skepticism).

Frankly, this is an unprecedented situation.  Governments have taken massive action.  We all know they don't do these types of things during good times.  The question is will it be enough, and if so, for how long? 

Also, actions have consequences.   If governments can really do this, and it works, then why wouldn't they continue?

I suspect because it doesn't really work ... or at least, too much of a good thing is bad for you too.

As normal economic activity resumes, I look forward to seeing how much of the damage is temporary. There are clearly industries that were hit hard - air travel, hotels, etc. - but almost all industries expect to see a rebound. 

Meanwhile, even though Georgia reopened, their initial jobless claims are still rising. Unemployment tracks the business cycle, so as businesses and spending ramp back up, the response should accelerate.  But, it's unclear when that will happen and how protracted the pain will be.

As a reminder, though the lockdown is ending, the economic effects will ripple for a long-time. The length of the ripples depends on our response. 

We live in interesting times!