Capitalogix

The Intelligent Investor

There are many different methods of investing - and I've experimented with quite a few of them (fundamental, technical, statistical, quantitative, machine learning, etc.).

Ultimately, I believe most trading techniques work until they don't. 

I don't believe that any technique always works ... but I do believe that there is always something that works. 

Likewise, I believe that there is always a best next step.

Evolutionarily, the strongest or smartest doesn't necessarily survive ... The quickest to adapt and adjust to its changing environment is the one that gains advantage.

Consequently, it makes sense to be on the lookout for sources of new learning (even if they are old).

In the same way that reading news from an opposing slant can inform your decision - studying other beliefs may help you find the underlying truths (or spark the insight you needed).

Warren Buffet is a famous value investor. He does immense research on companies, attempts to buy them at a discount and then hold on to them for long periods of time.  On some levels, our approach to the markets is radically different.  On the other hand, it would be crazy to ignore the brilliance of what he "knows" and what he does.

One of his favorite books on investing is titled The Intelligent Investor by Benjamin Graham. It's a great introduction to the basics of value investing (versus speculating) and the role of inflation, margin of safety, etc. 

It's worth a read ... but if you want to watch a good summary, here's a six-minute video. 

 

via Financial Freedom

If you aren't learning, you're dying.

What's In The Box?

“Words can be twisted into any shape. Promises can be made to lull the heart and seduce the soul. In the final analysis, words mean nothing.
They are labels we give things in an effort to wrap our puny little brains around their underlying natures,
when ninety-nine percent of the time the totality of the reality is an entirely different beast.
The wisest man is the silent one. Examine his actions. Judge him by them.”
― Karen Marie Moning

The current sociopolitical climate has me thinking about the consequences of labeling things, creating boxes, and simplifying ideas into news-ready headlines.

 

via Se7en

With more news sources than ever and less attention span than ever, you see ideas packaged into the attention-grabbing parts. The focus isn’t on education on issues anymore, but getting the click, making you stay on their page longer, sending you to a new article completely unrelated to the reason you clicked to the page.

Complex issues are simplified not even into their most basic forms – but instead into their most divisive forms because there's no money in the middle.

 

via Quote Investigator.

The amplified voices are those on the fringe of the average constituents' beliefs because those are the ones who are often the most outspoken.

Issues that should be bipartisan have been made "us" versus "them," or "liberal" versus "conservative," or "right" versus "wrong."

  

via BrainyQuotes.

In psychology, heuristics are mental models whose purpose is to help you make decisions easier. They’re a starting point to save mental bandwidth, allowing you to spend more brain cycles on the important stuff.

That’s a great use of "boxes" and "simplification" … but shouldn't preclude deeper thought on important issues.

In an ideal world, we would all have the bandwidth to view each individual case of an issue as a whole issue within itself. Most things in this world are various shades of grey, and when you change your vantage point, you can change your answer.

I recognize that’s not realistic.

Instead, I encourage you to remember to continue to think and learn ... even about things you already know.  Confirmation Bias is one of the more common forms of cognitive biases.  Here is an infographic that lists 50 common cognitive biases.  Click to explore further.

 

via VisualCapitalist.

Important issues deserve extra research. New insights happen in between the boundaries of what we know and what we don't.  Knowledge comes from truly understanding the border between what you are certain and uncertain about. 

I challenge you to look beyond the headlines, slogans, and talking points you like most. Look for dissenting opinions and understand what’s driving their dissent. Are they really blind or dumb (or are their value-systems just weighted differently)?

Not everything needs to be boxed. Not everything needs to be simple.

 

Applying This Lesson  

“I am ashamed to think how easily we capitulate to badges and names, to large societies and dead institutions.”
― Ralph Waldo Emerson, Self-Reliance

I love learning a lesson in one space and applying it to other spaces. It’s one of the cool things about AI. An algorithm can learn rules in the construction space that may help in the medicine or trading space.  Everything’s a lesson if you let it be.

In that vein, the lesson on labeling also applies to yourself and your business.

Many things are true because we believe them to be, but when we let go of the past beliefs, the impossible becomes possible, and the invisible visible.  

The past doesn’t define the future, and your personality isn’t necessarily permanent.

We are our choices ... and you can make choices today that change who you are (and what you or your business is capable of) tomorrow.

Hope that helps – Onwards!

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)

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)

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)