Capitalogix

The Power of Asking The Right Questions

There's immense power in asking the right questions. 

Finding the right answers can be valuable too - but I'd argue finding the right questions is more important than finding the right answers. 

To some extent, if you ask the right questions, the answers don't matter as much as how easy it was to find appropriate answers, proof of progress, or meaningful momentum.

I shot this short video on the power of asking the right questions. Check it out. 

 

The exercise of asking the right questions is really an exercise in the power of framing - of digesting or accessing information differently. There's power even in the reframing of the same question:  "How do I survive the pandemic shelter-in-place quarantine?" vs. "In what ways has the pandemic shelter-in-place quarantine improved my relationships (or productivity, or health)?" 

In my experience, asking someone what they want often results in a response about what they don't want.  Yet, when the obstacle becomes the path forward it becomes easier to find the "hidden" gift.

You control what you make things mean and how things make you feel. In many respects, this is the difference between feeling sad or happy or feeling like a victim versus someone in control of their destiny.  Your ability to control your perception is the difference between feeling like life happens to you or for you. 

It's the same when tackling a research problem. When I hear "it can't be done" my first thought is usually "It can be done ... just not the way you were thinking about it."

The most important advances in society were impossible until they weren't.  The examples are too numerous to list.  But imagine telling someone in the middle ages that you could communicate with people around the globe in real-time, while seeing their faces, and sharing documents.  They'd try you as a witch faster than you could say "Zoom!" 

The term Moonshot, in a technology context, is an ambitious, exploratory, and ground-breaking project that was considered to be impossible (like going to the Moon).

Success is often a function of using Moonshots to set direction, then asking the right questions, being willing to see things differently, and finding a way to move in the right direction while gaining capabilities and confidence.  As long as you are doing those things, the trick is to keep going until you get there.  The result is inevitable if you do those things and don't give up.

Onwards!

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)

A Look At Razors (No, Not That Kind)

In philosophy, a razor is a rule of thumb that allows one to eliminate unlikely solutions or actions in relation to a hypothesis. They're called razors because they shave off those unlikely explanations. 

Most people have heard of Occam's Razor ... even if you don't recognize the name, I bet you recognize the idea of abductive reasoning. 

When presented with competing hypothetical answers to a problem, one should select the answer that makes the fewest assumptions.

Essentially, the fewer assumptions a solution requires, the more likely it is to be true. As with any rule of thumb, it's a good starting point but is not definitive. There are plenty of exceptions to the rule.  It is still a good starting point for intellectual conjecture. 

I recently found out there are more philosophical razors, and they're all interesting.  Here are some of the more interesting ones:

• Hanlon's Razor - Never attribute to malice that which is adequately explained by stupidity;
• Hitchens' Razor - What can be asserted without evidence can be dismissed without evidence; and
• Alder's Razor (also known as Newton's Flaming Laser Sword) - What cannot be settled by experiment is not worth debating.

I've had to remind myself about Hanlon's Razor a lot recently.  Also the other kind ...

 

As I told my mother on a Coronavirus Quarantine Mother's Day, "Yes, I know I need a haircut and a shave."  

I'm planning on getting them on May 19th, because our part of Texas is opening up to a new normalcy that week.

I hope you are doing well and staying positive.

Looking forward to seeing people in real life again soon!

Active Management In The Wake of Pandemic

It's apparent that the first 4 months of the year have been anything but normal ... Challenging to say the least.

The increased volatility and noise tested active managers' mettle intensely and often. While even a blind squirrel finds a nut in a forest (for example, during a bull market ...) this type of environment provides an increased opportunity for both under and outperformance as luck and skill collide. 

History will show that the majority of funds struggled in the first quarter of 2020 - driven by the volatility and uncertainty in the midst of a global pandemic.

Investors pulled out ~$33 billion when asset values initially plunged. Yet, the rush to cash was only the beginning, in the first quarter, asset value plunged $366 billion. Redemptions hit large hedge funds the hardest. Meanwhile, funds with less than $1 billion under management only lost $1.6 billion to net redemptions. 

That being said, as is often the case in both volatile and bear markets - people are checking out the state-of-the-art active management strategies. Interest in hedge funds is at a three-year high, as many people fear that what used to work simply isn't good enough anymore.

I suspect that technology-enhanced strategies will gain ground during the next few years as A.I. and exponential technologies get better and gain traction in asset management, risk control, and data management.  Algorithms will improve, hardware will get faster, digital signal processing will become more accurate, and it will be easier to identify and produce data sources that increase the efficiency, effectiveness, or certainty of outcomes.  The likely result will be a reduction in the cost to produce a unit of alpha, which bodes well for forward-looking investors.

As we slowly move toward normalcy, what can we expect to see?

Institutional Investors are optimistic as well.  Here are selected responses from a survey of 125 institutions.

via Institutional Investor

94% of respondents said that their institutions had done a good job managing response to COVID-19, with 44% believing they'd done very well. This contrasts with their belief on how the government handled the crisis, but shows an opportunity for a strong rebound for businesses. 

In past weeks, I've focused on this crisis as an opportunity for reflection and growth. Personally, I continue to brainstorm ways to combine the old way and the new way to create something better. Institutional Investors express similar sentiment here. 

via Institutional Investor 

As of 4/21/2020, 66% of respondents believe the focus should be on the health of the public, that will likely soon shift to stabilizing the economy, and subsequently shift to growing the economy. 

I believe we'll see similar responses from active managers and from entrepreneurs. This is an opportunity to improve operations, adopt better practices, and set higher standards. 

It doesn't make sense to shoot for going back to where we were.  This much pain and effort likely creates the fertile ground for something better.

Onwards! 

Here Are Some Links For Your Weekly Reading - May 3rd, 2020

 

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

Lighter Links:

• China Has Started a Grand Experiment in AI Education. It Could Reshape How the World Learns. (TechReview)
• I Have Seen the Future And It's Not the Life We Knew. (The Atlantic)
• Army Ranger School is a Laboratory of Human Endurance. (Outside)
• Watch Picasso Make a Masterpiece. (YouTube)
• Michael Jordan Reportedly Once Turned down a $100 Million Appearance Fee. (FTW)

 

Trading Links:

• Buffett's Berkshire Posts Nearly $50 Billion Loss as Coronavirus Causes Pain. (Reuters)
• Bets against the Stock Market Rise to Highest Level in Years. (Wall Street Journal)
• NYSE Research Shows Humans on Exchange Floor Limit Volatility, COO Says. (Cheddar)
• Nasdaq, Cboe Fix Feeds Facing Options Overload. (WatersTechnology)
• China's National Blockchain Will Change the World. (CoinDesk)

 

Beyond The Snap: Business Lessons From Football

The NFL draft happened this week, despite the Quarantine.

I was happy to distract myself from the economy and news cycles.

Football is something I used to love to play. And it is still something that informs my thoughts and actions.

Some lessons relate to being part of a team, while others relate to the coaching or management side of things.

Some of these lessons stem back to youth football ... but I still learn things watching games – and even more from watching Dallas Cowboys practices at The Star. 

Think about it, even in middle school, the coaches have a game plan. There are team practices and individual drills. They have a depth chart, which lists the first, second, and third choice to fill certain roles.  In short, they focus on the fundamentals in a way that most businesses don't.

The picture, below, is of my brother's high school team way back in 1989.

To re-state, most businesses are less prepared for their problems than an 8th-grade football team. Now, that sounds offensive to some of you, but if you think about it ... it's pretty true. 

Losing to An 8th Grade Team

I shot this video right before the COVID-19 shutdown.  I encourage you to watch it.  I think it's 3 minutes well spent.

 

Teams think about how to improve each player, how to beat this week's problem, and then how to string together wins to achieve a higher goal. 

Contrast that with many businesses. Entrepreneurs often get myopic ... they get focused on today, focused on survival, and they lose sight of the bigger picture and how all the pieces fit together. 

The amount of thought that goes into football - which is ultimately a game - is a valuable lesson for business. 

What about when you get to the highest level? If an 8th-grade football team is equivalent to a normal business, what about businesses that are killing it? That would be similar to an NFL team. 

Let's look at the Cowboys. 

Practice Makes Perfect

How you do one thing is how you do everything. So, they try to do everything right. 

Each time I've watched a practice session I've come away impressed by the amount of preparation, effort, and skill displayed.

During practice, there's a scheduled agenda. The practice is broken into chunks, and each chunk has a designed purpose and a desired intensity. There's a rhythm, even to the breaks.

Every minute is scripted. There's a long-term plan to handle the season ... but, there was also a focus on the short-term details and their current opponent.

They alternate between individual and group drills. Moreover, the drills run fast ... but for shorter time periods than you'd guess. It is bang-bang-bang – never longer than a millennial's attention span. And they move from drill to drill – working not just on plays, but the skillsets as well (where are you looking, which foot do you plant, how do you best use your hands, etc.).

They use advanced technology (including advanced player monitoring, biometric tracking, and medical recovery devices ... but also things like robotic tackling dummies and virtual reality headsets). 

They don't just film games, they film the practices ... and each individual drill. Coaches and players get a cut of the film on their tablets as soon as they leave. It is a process of constant feedback, constant improvement, or constant renewal. Everything has the potential to be a lesson. 

Beyond The Snap

The focus is not just internal, on the team. They focus on the competition as well. Before a game, the coaches prepare a game plan and have the team watch tape of their opponent in order to understand the tendencies and mentally prepare for what's going to happen.

During the game, changes in personnel groups and schemes keep competitors on their toes and allow the team to identify coverages and predict plays. If the offense realizes a play has been predicted, they call an audible based on what they see in front of them. Coaches from different hierarchies work in tandem to respond faster to new problems. 

After the game, the film is reviewed in detail. Each person gets a grade on each play, and the coaches make notes for each person about what they did well and what they could do better.

Think about it ... everyone knows what game they are playing ... and for the most part, everybody understands the rules, and how to keep score (and even where they are in the standings). Even the coaches get feedback based on performance, and they look to others for guidance. 

Imagine how easy that would be to do in business. Imagine how much better things could be if you did those things.

Challenge accepted.

Here Are Some Links For Your Weekly Reading - April 26th, 2020

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

Lighter Links:

• Harvard Professor Wants to Ban Homeschooling Because It's Authoritarian'. (NYPost)
• Amazon Asks Workers to Request Leave If They Continue Staying at Home. (EnGadget)
• You Can Now Download the Government's Controversial Contact Tracing App. (Timeout)
• A Startup is Pitching a Mind-Uploading Service that is 100 Percent Fatal. (TechReview)
• Burning Man is Going Virtual, and So are the Orgies. (Vice)

 

Trading Links:

• This Pandemic is Over. Let's Stop the Economic Suicide, and Get Back to Work. (RealClearMarkets)
• Negative Oil Prices Were a Warning, Not an Anomaly. (Bloomberg)
• Ken Fisher on Nixing the VIX. (RCM)
• Hedge Funds are on Defense and Testing the Stamina of a $5 Trillion Stock Rally. (Bloomberg)
• Who's On Top in the S&P 500 Before and After the Coronavirus?(SeekingAlpha)

The Show Must Go On (But In VR)

Several states are conditionally reopening. 

As they reopen, it's important to think about a new normal. I'm excited about what we'll accomplish on the backside of this pandemic. 

It challenged what we do and how we do it.  In many ways, the thing that doesn't kill you makes you stronger.

With that said, I saw this video, and it struck a chord. It shows a famous orchestra playing the theme to 2001: A Space Odyssey updated for 2020's social distancing. You’ve got classical music played by classical musicians – together, but only via technology.  This new form borrows from the past but creates something new.  As a result, we experience a new dawn.

via Opera North

I encourage you to think about what the Quarantine made better for you, your family, your business, the country, or the world?

 Sure, there are things that suck ... but there are things that surprised! 

Think about the things that you did more of during this period.  Are there new things that will make sense to continue as we move back to normal?  Are there things that you did less of – and it somehow made things better (or made room for better things)?

How can you combine the best of the old with the best of the new to create something even better?

Things are going back to normal ... but you get to decide your new normal ... and it can be better than your past.

Stay safe and enjoy the ride,

The Age of AI: How Far Is Too Far?

Let's take a break from talking about the Coronavirus to talk about something else that will affect the global population. 

Of course, it's the pace of innovation and the effects of AI. I've been on the record for years saying things like

• AI will transform the planet much like electricity did
• Data will be more valuable than oil 
• And, the only thing more impressive than our population growth is our technology growth 
• Or, from the precautionary side, Artificial intelligence isn't a substitute for lack of the real thing

It can be difficult to have a nuanced discussion around AI online. There's a lot of PopSci around it, people conflate a very diverse range of algorithms and intentions into the general "AI", and realistically when you get too in-depth into what algorithms are best for what problems, most people lose interest. 

That's why I'm personally a proponent of any discussions around AI. Awareness is important, and if more people can understand the basics, then some subset of them will become better educated... rinse and repeat. 

Robert Downey Jr. and YouTube partnered for an 8-part docuseries on the Age of AI. I've only watched one episode, but that episode did a decent job of addressing the highest-level issues with AI. 

 

via YouTube Originals

I won't go through the whole video with you - because  you're quarantined and I think it's worth watching, but there are a couple of points I wanted to re-emphasize. 

Your Data Is Becoming More Important, Not Less Important

"Everyone's concerned about identity theft. Meanwhile, they're giving all their data for free on the internet. I'm what I like. I'm what I don't like. I'm where I go, I'm who I know. I'm what I search. I'm my thumbprint. I am my data" - will.i.am

My son, Zach, has ultimately given up on privacy - his argument is that everyone's information is out there anyway. Even my eldest son, Ben, who is a cybersecurity expert, has semi-resigned himself to his data being out there. He takes many precautionary measures but recognizes that he's not truly anonymous. 

In the video, Will.I.Am is getting an authentic reproduction of his face, mannerisms, and voice - they even got the pimple he had during the day of filming. In doing so, he specifically asks for the voice to be a bit robotic. He does this "for his mom" but in reality, it's to make clear - this is a robot, not me. It's avoiding the Uncanny Valley. 

We're at an intersection where it's going to become harder to decide what's real and what's fake. With deepfake video and audio, protecting your personal brand and identity becomes difficult, and simultaneously more important. 

The Path Forward

The road to AI supremacy is long and fraught with booby traps, potential missteps, and ethical issues. Questions like "how far is too far?" will have to be answered, and countries will likely strive to unite around shared rules of ethical AI. 

If there's anything that makes me confident about our ability to successfully travel that road, it's looking at humanity's ability to adapt. The reality is, we've been working symbiotically with "machines" since the very beginning, but our definition of the machine simply continues to improve. It's fractal, and each time the technology we're adopting gets bigger, so does the eventual positive effect on day to day life. 

AI adoption is a big step, but the positive effect it can have on our lives is astronomical. 

Onwards!

What Can My Dogs Teach Us About Trading?

I wrote this back in 2008. With minor updates, it seems relevant again.

Some dogs run fast; other dogs do tricks … my 100-pound lab, Duke's best talent was his ability to remain immobile in almost any situation (some call it "laziness" … I prefer "calm" or being "even-tempered").

At the other end of the spectrum are our two small dogs, Boo and Jasper. Boo, our 20-pound mix between a Beagle and a Boston terrier. Let's just say that he has a higher metabolism than Duke. 

When Boo hears a noise, he lets out an involuntary, barely audible, sound.  His body becomes rigid and his head cocks.  He becomes alert and carefully tunes his ears to their most sensitive setting, seeking any information that will help identify the "danger." He's now primed for the next intrusion.

Usually, there are no other disturbances to follow, and the noise is cataloged and soon forgotten. His alertness level slowly subsides over the next 10-15 minutes or so.  He'll go back to napping, a little more fitfully this time … and just a little bit on edge.

Things get a little more interesting when another noise surfaces shortly after the first one.  What could once be dismissed now must be treated as a threat – and just to be safe, a threat of the highest order.  Now the appropriate response is a series of barks, nervous glances, pacing, rushing off in the direction of the noise to investigate, and a barrage of barks meant to sound more menacing than the source of the noise.  Who or what is it? How much harm can they cause? How grave is the threat?

Jasper, our high-anxiety mutt, is never off alert. He doesn't know what's a threat, and what's not, so he's always creating threats out of nothing and riling up our other dogs. 

Duke is a different story.  Nothing upsets Duke more than Boo or Jasper getting on high alert.  The same noise that prompted Jasper and Boo to become alert does nothing to Duke.  However, the first time that they make noise,  Duke becomes alert. The second time they make noise, Duke starts vocalizing; and the third time, all 4 of our dogs start yapping. Once they start yapping, then the neighbor's dogs start yapping, and suddenly our neighborhood is a cacophony of dog barks.

The same thing happens in the market with people.

In the market, it is the second noise - and subsequent noises - that creates the equivalent of the Homeland Security "Red Alert." Once an elevated level of alertness has been established, it takes a long period of relative calm for it to subside.  And when on "Red Alert" … any additional noises (for example, the responses of the other market participants) - big or small - will highlight, magnify, and further validate the issue.

But, like in the story "The Boy Who Cried Wolf," even legitimate threats are ignored after too many false alarms (or prolonged periods of constant alert).  So, bad news about the economy isn't as likely to get people excited after the past few weeks.

As people (or bots) become "used" to today's new normal, It'll be interesting to see what sprouts up. The longer away from the initial episode, the more real the effect can be attributed. 

The unfortunate reality is that the Boo and Jasper style "overreaction" to a crisis can exacerbate the long-term effects of the crisis. To balance that, on the macro level, a stronger pandemic response has been shown to increase economic recovery.

This has been the theme from the beginning. Don't personally panic, but respond aggressively on the city, state, and national level. 

Food for thought.