Capitalogix

Here Are Some Links For Your Weekly Reading - June 13th, 2021

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

Lighter Links:

• Blue Origin Auctions Seat on First Spaceflight with Jeff Bezos for $28 Million. (CNBC)
• This is Why There are No Mosquitoes at Disney World. (Hunker)
• There's a Stark Red-Blue Divide When It Comes to States' Vaccination Rates. (NPR)
• Vladimir Putin's Time in Power, Compared to Other World Leaders. (Barrons)
• He's Heckled Shaquille O'Neal and Kobe Bryant. Now He's the First Fan in the NBA Hall of Fame. (Vice)

 

Trading Links:

• G7 Leaders to Announce Plan to Phase Out Gasoline Cars. (Axios)
• UN Says Cost of Food at Highest Level in Over a Decade. (BBC)
• The Perfect Storm Making Everything You Need More Expensive. (CNN)
• Inflation Scare? Look At This Chart Before Freaking Out. (MarketWatch)
• Nvidia CEO: We're Moving Towards a Crypto Metaverse. (Decrypt)

Getting To Next: How Thoughts Become Things

Two weeks ago, I introduced Innovation Activity Centers which are the building blocks for my technology adoption model.

Today, I have a video and a worksheet for you that goes into the overarching Technology Adoption Model Framework. It explains how thoughts become things and how ideas scale with respect to capability, audience, and monetization.

The four base stages of this framework are: Capability –> Prototype –> Product –> Platform. 

It's a great use of 20 minutes. Check it out.

 

 

While the Technology Adoption Model Framework stages are important, the ultimate takeaway is that you don't have to predict what's coming, only how human nature works in response to the capabilities in front of them.

It's a bit cliche, but to paraphrase Wayne Gretzky, you just have to skate to where you think the puck is going to be. 

Desire fuels commerce.  As money fuels progress, desire grows ... and so does the money funding that path. As such, the path forward is relatively easy to imagine.

This isn't about predicting specific technologies, but rather about the capabilities people will want.  I think of it as anticipating the natural path.  It is easier to ride the wave than it is to fight nature.

Each stage is really about the opportunity to scale desire and adoption.

It isn't really about building the technology, rather it is about supporting the desire.

If you understand what is coming, you don't have to build it, but you can figure out where you want to build something that will benefit from it.

This model is fractal.  It works on many levels of magnification or iteration.

What first looks like a product is later seen as a prototype for something bigger.

For example, as a Product transforms into a Platform, it becomes almost like an industry of its own.  Consequently, it becomes the seed for a new set of Capabilities, Prototypes, and Products.

SpaceX's goal to get to Mars feels like their North Star right now ... but once it's achieved, it becomes the foundation for new goals.

This Framework helps you validate capabilities before sinking resources into them. 

In the video, I walk you through several examples of companies, their innovations, and how they fit into each stage. I even used Capitalogix as an example. 

I'm also attaching a fillable PDF of the form we used so that you can run through this with your business as well. 

As I continue to refine and work with this framework, I look forward to improving it and sharing it with you all. 

As the world continues to change faster and more dramatically, this framework will help you anticipate changes, and it will also help you take advantage of them. 

If you have any questions or comments about the idea, or how to implement it, feel free to reach out. 

Onwards! 

Here Are Some Links For Your Weekly Reading - June 6th, 2021

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

Lighter Links:

• Benevolent Bots Are Suckers – Why A.I. Should Be Afraid of Us. (NYT)
• Microsoft's First GPT-3 Product Hints at the Commercial Future of OpenAI. (TheNextWeb)
• Netflix Secret Codes: How to Access Hidden TV Shows and Movies on Service. (Independent)
• Physics' Greatest Mystery: Michio Kaku Explains the God Equation. (BigThink)
• Scientists Gene Edit Mice to Live 23 Percent Longer. (Futurism)

 

 

Trading Links:

• Where Did 1.5 Million Cable Customers Go Last Quarter? Here. (MotleyFool)
• Technology Changes - But Fear and Greed Never Do. (HowardLindzon)
• Higher Interest Rates Would Be Good for the Country, Treasury Secretary Yellen Says. (CNBC)
• A Stealthy Growth Correction. (HumbleStudentOfTheMarkets)
• The Future of Money: The Digital Currency Revolution is Here, and May Sweep Away 5,000 Years of Monetary History. (Globe&Mail)

 

 

 

The Law and Flaw of Averages

The law of averages is a principle that supposes most future events are likely to balance any past deviation from a presumed average.

Take, for example, flipping a coin. Should you get 5 "Heads" in a row, you'll assume the next one must be "Tails" despite the fact that each flip has a 50/50 chance of landing on either. 

Even from this example, you can tell it's a flawed law. While there are reasonable mathematical uses of this law, in everyday life, this "law" mostly represents wishful thinking. 

It's also one of the most common fallacies seen in gamblers and traders. 

Perhaps you heard the story about how the U.S. Air Force discovered the 'flaw' of averages by creating cockpits based on very complex mathematics surrounding the average height, width, arm length, etc. of over 4,000 pilots. Despite engineering the cockpit to precise specifications, pilots crashed their planes on a too regular basis. 

The reason?  With the benefit of hindsight, they learned that very few of those 4,000 pilots were actually "average". Ultimately, the Air Force re-engineered the cockpit and fixed the problem. 

It's a good reminder that 'facts' can lie, and assumptions and interpretations are dangerous. It's why I prefer taking decisive action on something known, rather than taking tentative actions about something guessed. 

 

via ReasonTV

 

Here Are Some Links For Your Weekly Reading - May 23rd, 2021

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

Lighter Links:

• Clearly AI is Going To Win. How People are Going To Adjust is a Fascinating Problem'. (3QuarksDaily)
• How AI-Powered Ships Can Help Us Collect Valuable Data About the Ocean. (ThePrint)
• How the Personal Computer Broke the Human Body. (Vice)
• How Jewish is Leonard Cohen's Hallelujah? A Forward Investigation in 9 Verses. (Forward)
• The 5-Second Rule: Science Debunks Food Myth that Stretches Back to Gengis Khan. (Inverse)

 

Trading Links:

• More Investors Than Ever are Borrowing To Buy Stocks. Here's What this Really Means For the Market. (MarketWatch)
• Governments are Deploying 'Wartime-Like' Efforts to Win the Global Semiconductor Race. (CNBC)
• Space Inc: 10,000 Companies, $4T Value ... and 52% American. (Forbes)
• The Pandemic Changed Where Americans Live. (Wall Street Journal)
• The Billionaire Creator of Ethereum Already Expected the Collapse of Cryptocurrencies. (Entrepreneur)

Powering Bitcoin

In April, I talked about Coinbase's public offering and the top 10 growing cryptocurrencies. 

In the past couple of weeks, many currencies have reached record highs, and then seen a steep drop-off. Some say it was due to Elon Musk's SNL appearance, others say it was due to Tesla stopping support of Bitcoin short term. Still others say it was just due.

In any case, there are growing reasons to be wary of Bitcoin as a viable long-term value store.

On top of the many reasons I've talked about in previous articles, I'm hearing many more people talk about it as if they are crypto experts.  Consequently, it reminds me of the Dot.com bubble. Sure, the Internet continues to boom (but many of the early high-fliers don't exist today).  Meanwhile, it's possible crypto will evolve like the Internet, but at this point, it's hard to discern how much of the success in crypto is luck versus skill.   

There is a ton of demand and interest.  But fear of missing out and enjoying the roller-coaster ride is not the basis of a long-standing Platform. Blockchain is a different story.

Back to Crypto ... Even a blind squirrel finds a nut in a forest during a bull market. 

Governments have a disincentive to allow alternate currencies (not backed by their government).  In addition, another obstacle for cryptocurrency mining is the high cost of energy consumption. 

 

via visualcapitalist

Mining crypto takes a lot of electricity because when people are creating new coins they're really solving complex math puzzles with a 64-digit hexadecimal solution known as a hash. To solve those equations faster than your competitors you need massive data centers which can even overload local infrastructure. 

It's increasingly expensive and energy-taxing to mine new coins. For context, it's estimated that the current annual power consumption for Bitcoin alone (not including other cryptocurrencies) rivaled the state of New York, and beat Norway. 

To compare it to the tech giants, Bitcoin took 129 terawatt-hours of power consumption ... Google took 12, and Facebook only took 5. 

Many are looking for ways to decrease the energy consumption of mining cryptocurrency using methods like renewable resources. 

Biden's $4T Economic Plan Visualized

Biden campaigned heavily on an economic plan centered around bolstering the middle class, taxing the wealthy, and investing in healthcare and green energy infrastructure. There are other aspects of his plan - but those were the focuses.   

Now that he's President and proposing his $4 Trillion economic plan, we can take a better look at where he intends to spend that money. 

The NY Times put together a data visualization to put the plan in context. 

Here's the simplified version: 

via NY Times

And here it is with more detail: 

 

via NY Times

 

Much of the money President Biden intends on using to pay for this plan will come from higher taxes on the wealthy, and 15 years of higher taxes on corporations. With another portion of the money being invested in the IRS to crack down on tax evasion. 

Many people, both Republicans and Democrats alike, have fears about the new plan. 

Time will tell if the benefits outweigh the detriments, and what portion of his plan he actually accomplishes. 

Frankly, I'm not sure how much of what was talked about were trial balloons and negotiation anchor points or his intended outcomes?

Time will tell.  We sure do live in interesting times!

WallStreetBets Analysis: Market Crashes & Oreos

During the Robinhood & Gamestop debacle, I wrote an article about r/WallStreetBets where I essentially said that most of the retail investors that frequent the site don't know what they're doing, but there is the occasional real post with strong research you would see at a real firm. 

As an example of good research done by the subreddit, here's a link to a post where a user (nobjos) analyzed 66,000+ buy and sell recommendations by financial analysts over the last 10 years to see if they had an edge. Spoiler: maybe, but only if you have sufficient AUM to justify the investment in their research. 

There are also posts that show a clear misunderstanding of markets, and more jokes than quality posts, but I saw a great example of correlation ≠ causation. 

In the past I've posted about the Superbowl Indicator and the Big Mac Index, but what about Oreos?

The increasingly-depraved debuts of Oreos with more stuffing indicate unstable amounts of greed and leverage in the system, serving as an immediate indicator that the makings of a market crash are in place. Conversely, when the Oreo team reduces the amount of icing in their treats, markets tend to have great bull runs until once again society demands to push the boundaries of how much stuffing is possible.

https://en.wikipedia.org/wiki/List_of_Oreo_varieties https://en.wikipedia.org/wiki/List_of_stock_market_crashes_and_bear_markets

1974: Double Stuf Oreo released. Dow Jones crashes 45%. FTSE drops 73%.

1987: Big Stuf Oreo released. Black Monday, a 20% single-day crash and a following bear market.

1991: Mini Oreo introduced. Smaller icing ratios coincide with the 1991 Japanese asset price bubble, confirming the correlation works both ways and a reduction of Oreo icing may be a potential solution to preventing a future crash.

2011: Triple Double Oreo introduced. S&P drops 21% in a 5-month bear market

2015: Oreo Thins introduced. A complete lack of icing causes an unprecedented bull run in the S&P for years

2019: The Most Stuf Oreo briefly introduced. Pulled off the shelf before any major market damage could occur.

2021: The Most Stuf Oreo reintroduced. Market response: ???

 - LehmanParty via Reddit

It's surprisingly good due diligence, but also clearly just meant to be funny. It resonates because we crave order and look for signs that make markets seem a little bit 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.

A good reminder that even if you do the work, if you're looking at the wrong inputs, you'll get a bad answer. 

Garbage in, garbage out. 

Timeless Wisdom From Socrates

Small distinctions separate wise men from fools. Perhaps one of them has to do with what the wise man deems important.

Socrates' Triple Filter

In ancient Greece, Socrates was reputed to hold knowledge in high esteem.  One day an acquaintance met the great philosopher and said, "Do you know what I just heard about your friend?"

"Hold on a minute," Socrates replied. "Before telling me anything, I'd like you to pass a little test. It's called the Triple Filter Test."

"Triple filter?"

"That's right," Socrates continued.  "Before you talk to me about my friend, it might be a good idea to take a moment and filter what you're going to say. That's why I call it the triple filter test.

The first filter is Truth.  Have you made absolutely sure that what you are about to tell me is true?"

"No," the man said, "Actually I just heard about it and…"

"All right," said Socrates. "So you don't really know if it's true or not. Now let's try the second filter, the filter of Goodness.  Is what you are about to tell me about my friend something good?"

"No, on the contrary…"

"So," Socrates continued, "You want to tell me something bad about him, but you're not certain it's true.  You may still pass the test though, because there's one filter left.  The third filter is Usefulness.  Is what you want to tell me about my friend going to be useful to me?"

"No, not really."

"Well," concluded Socrates, "If what you want to tell me is neither true, nor good, nor even useful … then why tell it to me at all?"

With all the divisiveness in both media and in our everyday conversations with friends, family, and strangers ... this is a good filter for what you say, what you post, and even how you view markets. 

How Does That Apply to Me or Trading?

The concept of Socrates' Triple Filter applies to markets as well.

When I was a technical trader, rather than looking at fundamental data and scouring the news daily, I focused on developing dynamic and adaptive systems and processes to look at the universe of trading algorithms to identify which were in-phase and likely to perform well in the current market environment.

As we've transitioned to using advanced mathematics and AI to understand markets it becomes even more true. 

Filter Out What Isn't Good For You.

In contrast, there are too many ways that the media (meaning the techniques, graphics, music, etc.), the people reporting it, and even the news itself, appeals to the fear and greed of human nature.

Likewise, I don't watch TV news anymore either. It seems like story after story is about terrible things. For example, during a recent visit with my mother, I listened to her watch the news.  There was a constant stream of "oh no," or "oh my," and "that's terrible". You don't even have to watch the news to know what it says.

It's also true with what you feed your algorithms. Garbage in, garbage out. Just because you can plug in more data, doesn't mean that data is adding value. Deciding what not to do, and what not to listen to is equally as important as deciding what to do. 

Artificial intelligence is exciting, but artificial stupidity is terrifying. 

What's The Purpose of News for You?

My purpose changes what I'm looking for and the amount of attention I pay to different types of information. Am I reading or watching the news for entertainment, to learn something new, or to find something relevant and actionable?

One of my favorite activities every week is looking for new insights and interesting articles to share with you and my team.  If you aren't getting my weekly reading list on Fridays - you're missing out. You can sign up here. 

Getting back to Socrates' three filters and the business of trading, I often ask myself: is it important, does it affect our edge, or can I use it as a catalyst for innovation?

There's a lot of noise out there competing for your attention. Stay focused. 

Onwards!

 

Gaining Insight & Ideas from Hedge Fund Letters

Most Hedge Fund letters are hard to come by. They're sent to their investors and are not generally posted publicly. 

However, Milton Financial Market Research Institute puts out a quarterly collection of letters they've curated since 2016. 

These letters contain a lot of insight into not only the performance and approach of the funds but also the markets and the world as a whole. 

 

via Milton FMR

This is a valuable resource to gain a more holistic view of the markets and the fund industry.

Hope it helps.

Also, please let me know if you are aware of other sources like this.