Capitalogix

The Importance of the Super Bowl

Thirty years ago, the Cowboys played the Bills in the Super Bowl.  As a Cowboys fan, I wanted to watch the game, but my second son was scheduled to be born that day. 

Luckily, our doctor said, “if you want me to be the one to deliver your baby, you need to induce early.” 

So, I got to watch the Cowboys win with my youngest in hand ... while his mother shot me angry looks as I woke him up with my screaming. 

That anchors the Super Bowl as a special day for me ... but some believe it’s also a "special day" for markets. 

The theory is a Super Bowl win for a team from the AFC foretells a decline in the stock market – while a win for the NFC means the stock market will rise in the coming year.  There is one big caveat ... the history of that "indicator" counts the Pittsburgh Steelers as NFC because that’s where they got their start.  If you accept that caveat, it has been on the money 33 years out of 41 - an 80% success rate.  Sounds good, right?

Come on ... you know better!

There is no substantial evidence to suggest that the outcome of the Super Bowl has any significant impact on stock market returns. 

The stock market is driven by many factors, including economic data, company earnings, and overall market sentiment, rather than the outcome of a single sporting event.

Ultimately, it’s important to recognize that the stock market is a complex system – and that no single event, such as the Super Bowl, can predict its performance.  While the Super Bowl may be a fun event and a source of excitement for many people, it’s not a reliable indicator of stock market returns.

Here are some other “fun” stock market fallacies:

• January Indicator
• Aspirin Count Theory
• Hemline Indicator
• Sports Illustrated Swimsuit Indicator
• Men’s Underwear Index
• Big Mac Index

Back to Reality

Rationally, we understand that football and the stock market have nothing in common.  And we probably intuitively understand that correlation ≠ causation.  Yet, we crave order and look for signs that make markets seem 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.

Here is something to ponder...

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

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

The percentage of active managers who beat the S&P 500 in any given year can vary, but it is typically low. According to research by S&P Dow Jones Indices, the majority of active managers underperform the S&P 500 over the long term.

For example, in 2020, only 24.5% of large-cap fund managers outperformed the S&P 500. In 2019, the figure was slightly higher at 28.2%, but in 2018 it was just 17.2%. These figures are representative of a broader trend in which a relatively small percentage of active managers outperform the benchmark index in any given year.

Over 15 years, the answer is about 5% of active managers are able to beat the performance of the S&P 500 Index (and that’s in a predominantly bull market). That’s significantly worse than chance.  It means that, in general, what they’re doing is hurting, not helping. 

It's worth noting that these figures represent the average performance of active managers across all market segments and time periods. The percentage of managers who outperform the S&P 500 in any given year can be influenced by a number of factors, including the overall performance of the stock market, the specific market segment being analyzed, and the time period being considered.

In conclusion, while there are some active managers who outperform the S&P 500 in any given year, the majority of them underperform the benchmark index over the long term.

via Gaping Void

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

In 2009, I wrote an article about how things aren’t always what they appear to be.  In it, I mentioned the human predisposition to find patterns in data.  At the time, I was still analyzing and marking up charts looking for patterns ... but I was also using early AI and computers to find better patterns and remove my fear, greed, and discretionary mistakes. 

I suspect that the desire to find patterns is the same element of human nature that leads people to become superstitious, read their horoscope, or go to a fortuneteller.  It is also the reason so many authors and speakers sell access to their chart patterns that supposedly work. The successes are much more startling than the failures.  So the successes stand out.
    -"Things Aren't Always What They Appear To Be"

Today, my stance is even more extreme.  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.

Onwards.

The Heartbeat Of AI Is Still Human

I'm proud of our team.  We have a shared sense of Mission, Values, and Purpose.

Also, we understand that robots aren't coming for our jobs.  We're creating the robots, the AI, and the automation – and it's exciting!

With that said, as tech becomes more capable, some will focus on the promise ... while others will focus on the peril.

We're seeing lots of hyperbolic promise and peril in the news cycle recently because of ChatGPT. Trends in technology news appear to come in cycles, with different names and topics but similar patterns. This is because, despite the constant evolution of technology and the world, human nature remains relatively unchanged.

While browsing a library of our old content, I came across an old news story from a local news channel that discussed finding tech talent and featured Capitalogix.  Here's the article.  You can watch the video below. 

via NBC DFW

We are always hiring.

It's not enough to invest in the right ideas or technologies.  You have to invest in the right people as well. 

"Standing still is moving backward ... so you don't only need new technology, you need a new level of data scientists – a new level of professional that can think about what's possible, rather than how to do what we want to do right now."

Even though we've got an incredible edge now, I recognize that edges decay faster than ever.  The trick is to stay ahead.  

The future is bright, and the best way to predict the future is to create it.

Onwards!

Capitalogix's 23rd Anniversary

Last week I started getting “Happy Work Anniversary!” messages on LinkedIn ... and I was a bit confused because people kept mentioning 23 years. 

Twenty-three years ... That can’t be right? Can it?

For context, here’s what I looked like around that time.

 

My eldest son (who’s now married with a baby) was in middle school. I was just out of the events I described in my TEDx talk. 

However, depending on your definition, the 23rd anniversary can be true or false. Legally, the Capitalogix that exists today is distinct from the initial iteration. Additionally, the company has expanded, its direction has shifted, and what was once a one-person operation has grown into a team of over 20 individuals focused on advancing and commercializing the field of Artificial Intelligence.

It reminds me of the Ship of Theseus (also known as Theseus’ Paradox), which is a philosophical thought experiment that poses the question of whether an object that has had all of its parts replaced is still considered to be the same object. It raises issues of identity, continuity, and change over time. The concept can be applied to physical objects, living organisms, and even organizations or businesses. It challenges our understanding of what it means for something to be fundamentally the same, and if an object can remain unchanged despite undergoing significant changes over time.

The name “Capitalogix” did originate in the year 2000 ... and a surprising amount of the original North Star “purpose” still exists. Honestly, I’m surprised by how much holds up despite 20+ years of passing ... but almost all of it has needed some course correction to adjust to changing tides.  

Regardless, it’s staggering to think about how long I’ve worked in A.I. (since 1991, when it was hard to spell A.I.) and how far we’ve come. 

If I had known how difficult it was at the beginning, I probably never would have pursued it. However, knowing how difficult it is, and how challenging it is to make meaningful progress, I feel better that I did because I realize that it’s not just a competitive advantage, it’s a sustainable competitive advantage. It’s easy for people to focus on a capability, it’s another to make it industrial-grade, robust, reliable, and able to work in difficult conditions. They say that things that don’t kill you make you stronger, it’s true for people, but it’s also true for technologies.  

As we celebrate Chinese New Year, it also feels like a new beginning for Capitalogix as we chase after new possibilities and probabilities. 

We didn’t come this far — just to come this far! Onwards!

The World's Biggest Hedge Funds

Hedge Funds have seen a downtick since COVID-19. There are still 15,000 of them (amounting to $4.5 Trillion in assets under management).

Seventy percent of Hedge Funds are North American. 

Visualcapitalist put together a guide to the 20 biggest funds. It puts the consolidation of wealth into perspective. 

via visualcapitalist

Unsurprisingly, Bridgewater tops the list by a wide margin with nearly double the assets of their closest competitor. And, despite poor performance by many funds, the overall state of the market means that many funds still saw growth. 

The expansion of hedge funds may not always align with general market trends – and is not necessarily a reflection of the overall economic situation. However, studying and evaluating their growth and results can still be beneficial. 

How'd These 2022 Predictions Fair?

As we brought in 2022, I asked the question:

What's going to happen as a result of the continuing pandemic, inflation, interest rates, the ongoing supply chain issues, and the growing anxiety and unrest brewing underneath the surface of the new normal? In January, we'll get to see VC's predictions. Before that, what do you expect to happen in 2022? - How'd These 2021 Predictions Fair?

I proceeded to share visualcapitalist's 2022 predictions: 

via visualcapitalist

Well, there was undoubtedly increased volatility. 

While the whole board isn't correct, there's a surprising amount of prediction accuracy. On some level, predictions benefit from being generally vague. Also, many of the predictions that may not seem as accurate "today" seemed more accurate at some point this year. For example, we heard a lot about NFTs in the first half of the year, and while Big Tech is currently laying off employees, there was massive growth this year. 

What are you surprised they got right? In what areas were the predictions most off-base? Why?

And, of course, what are your mega-trend predictions for 2023?

Interesting stuff! 

Tech Company Layoffs

For all the drama at Twitter, they're not the only ones experiencing layoffs in the tech industry. Though, Elon is now (supposedly) trying to renege on his severance packages.  

via visualcapitalist

Meta and Amazon saw even steeper layoffs than Twitter. Is this a result of overhiring during the tech boom, or a sign of dire times? Time will tell.  

Stated reasons are economic uncertainty and poor performance, we're also seeing unsuccessful departments downsize - like Alexa. 

To help allay economic fears, payroll and wage data from the U.S. government are exceeding expectations, and the country’s unemployment rate is close to a half-century low. As well, tech jobs account for 3% of the workforce - and many of those laid off will be picked up by smaller companies. 

Even if the layoffs represent a short term reaction to what tech companies are seeing, hearing, or otherwise experiencing … they won't necessarily translate to long term bad news for our economy. 

The Rise of the Intangible

In the past, most profitable companies built or sold some sort of tangible product. The Titans of industry were automobile manufacturers, oil producers, land owners, etc.

Over the past 20 years, the Titans have changed dramatically. Now, the leaders are in tech, IP, and other intangible assets. Here is a chart showing the changing weight of tangible and intangible assets as part of the S&P 500’s total assets between 1975 and 2020.

 

 via visualcapitalist

By VisualCapitalist’s definition, intangible assets are holdings that don’t carry any physical or financial embodiment. This includes R&D, intellectual property, and computerized information such as data and software. Today, intangibles are worth over $21 trillion.

With technology becoming more ubiquitous, I think the trend will continue - which makes protecting your intangibles even more important. 

Patents and trademarks are a great way to build a moat between you and your competitors. Remember, however, that anything you get a patent on becomes public knowledge - so be careful with your trade secrets. 

Envisioning A Bigger Future

Last week, I shared an article about creating your annual plan (and how Capitalogix does it).  This week, I want to talk more high-level about how we create a bigger future for ourselves, and next week I’ll talk about how I translate that bigger future into resolutions and actions. 

The beginning of a new year is an excellent time for a fresh start.  While it’s always the right time to take the right action, the structure of a year-end is a helpful crutch and force function. 

We look forward to what we will achieve – even though history says we rarely achieve everything we hope for.  Meanwhile, paradoxically, it is also true that we rarely achieve things we don’t hope for.  So, Hope!  It may not be a reliable strategy ... but it beats the alternative.

I’m excited about 2023.  Despite the abnormal market, the crazy headlines, and the still volatile political climate, we’re moving toward increased stability. 

Even though I expect some volatility, we have become more accustomed to handling it (and we’ve become better at transforming its strategic byproducts into strategic benefits).

On a different topic, think about how much progress we’ve made and how different the “new normal” has become.  For example, think about Zoom and remote work or how quickly our economy migrated online.  On many levels, what we are doing now seemed like science fiction, even just a few years ago.

We are living in an age of exponential technologies and exponential possibilities.

I commissioned this image from GapingVoid, to remind our team to keep shooting higher.

 

 

Resilience, resourcefulness, and a worthy goal are the foundational keys to many entrepreneurial success stories.

In the spirit of New Year’s Resolutions – I’ll add that a deliberate approach to goals is important too.

I’m a big fan of picking a Big Hairy Audacious Goal (sometimes called a “BHAG”) and taking actions that move you in that direction. 

I’m also a big fan of Strategic Coach’s Bigger Future exercise.  It is a 25-year planning exercise where you lay out your commitments and goals to yourself, your family, your career, and your legacy.  One of the keys to this is chunking high enough to name the roles, goals, and strategies you select with timeless language (meaning that the target words hold up even as you pivot and adjust your focus and actions).

While doing this, I realized that my ideal next chunk of years involves taking Capitalogix to the next level (and beyond) through collaboration, cooperation, and joint ventures. 

Once you know your long-term goal, it is relatively easy to plan the steps you need to achieve it.  Achieving smaller goals reinforces successes, builds momentum, and makes continued progress feel more likely.

Extra points if you make them SMARTs (Specific, Measurable, Attainable, Realistic, and Time-Bound). 

Actions speak louder than words, and your words can distract you. 

If your goal is to win first place at a competition, focus on the metrics of a first-place finish instead of the medal.  This makes the goal concrete and sets an internal locus of control for your victory.  This also means you don’t need to tell others about your goal too soon.  Studies show that when you announce your intention to achieve a goal in public, you decrease the likelihood of succeeding. 

It’s okay to misstep, and it’s okay to get stuck - but recognize where you are and what you’ve done ... and move forward. 

Delayed gratification happens when you want something badly, but are not able to get it right away.  The result is often anger or frustration.

Meanwhile, the mainstream media broadcasts a seemingly non-stop stream of messages screaming for immediate attention and gratification.  The result of that is not good either (for example, it can result in higher rates of obesity, drug abuse, and depression). 

Don’t be fooled.  Overnight successes are rarely actually overnight successes (for long).

It’s also important (once you’ve accomplished your goal) to set new goals. 

Over the next 25 years, there are many people I want to impact – and many goals I want to accomplish.

It hasn’t always been easy - but building Capitalogix has been an intensely rewarding passion.  It has been easier because I want what I want.  Make sure you know what you really want ... it makes getting it much easier.

I look forward to you all being a part of it as well.  Here’s to a successful 2023 and an even more successful 2048.  

Onwards!

What's The Dollar Milkshake Theory?

Right now, the US Dollar is outperforming other currencies - in part, because it's the Reserve Currency.

via Econofact

But, that's not necessarily a good thing.

One possible occurrence of this is called the Dollar Milkshake Theory.

It purports that the US dollar will suck up liquidity from the other currencies, creating a chain of events that will drive the US dollar even higher. Unfortunately, this increases the risk of debt defaults. Eventually, the dollar ends up drinking the liquidity from the entire world economy.

Think about it. If you're getting negative yields on your two-year bonds from other countries, after a certain point you would sell those investments and switch to US two-year treasury bonds. It's a slippery slope from there. 

If this is true, then it also has dangerous implications for crypto - which is already in peril after the FTX controversy. 

So, the question becomes, does the dollar's strength truly help us? What about the global economy? What do you think?

The Social Media Universe

We recently dove into what's happening at Twitter. Since that article, Elon wrote an ultimatum e-mail to his employees saying that if they wanted to stay, they would have to work harder and longer than before ... and that they would get three months severance if they chose to leave. In a result that might have surprised Elon, thousands of Twitter employees quit.  In response, Elon locked the doors, cut badge access, and attempted some damage control.

On top of that, you also have Meta having its own issues. 

With that, it's probably a good time to take a look at the social media landscape.  Here is an infographic that shows the relative popularity of various social media properties. 

 

via visualcapitalist

If you rank the top 10 social media by monthly users, Twitter isn't even on the list. Nor is it on the list for driving clicks. 

Meta and YouTube top the list - by a mile. 

As well, there's a growing network of smaller social media vying for a spot in the global paradigm, like Parler, Mastodon, or even Onlyfans.

Meaning there's a lot more chaos in the system. 

As always, chaos creates opportunity – in this case, both for new media and for brands to capitalize on the change in trends. 

The question is, will Facebook and Twitter survive the storm, and if not, what will take their place?