“There is nothing new in Wall Street. There can't be because speculation is as old as the hills. Whatever happens in the stock market today has happened before and will happen again.” Jesse Livermore
23 Truths I Wish I Knew at 23 - by Gurwinder - The Prism
Few things make you stupider than the belief that you need to have an opinion on everything.
If you want to be right, don’t try to be right, try to be less wrong. If you want to be smart, don’t try to be smart, try to be curious and humble.
No one is paying as much attention to you as you are. People are too concerned with how they appear to others to care much about how you appear to them.
Every “overnight success” is the result of years of thankless work. Success comes not from great acts of genius but from doing lots of small things consistently.
Failure is a mark of courage. It means you risked failure.
Many of the people you disagree with are not stupid, evil, or insane, but have had thoughts and experiences you haven't which led them to different conclusions.
In the long run, a lazy lifestyle creates more work and stress than a disciplined one.
You’re not inactive because you lack motivation, you lack motivation because you’re inactive. You don't need to feel inspired to start creating, you need to start creating to feel inspired. Action creates traction. All you need is to start and the rest will inevitably follow.
A lot of the time your feelings are invalid and you should feel differently.
You should just be yourself, not because it will make you more likable (it won’t) but because it's only by being yourself that you'll find people who like you for who you are rather than for who you're pretending to be.
Never argue with stupid people. It's easier to win an argument with a genius than an idiot.
If you can’t state the opposing view as well as the people who hold it, you shouldn’t feel entitled to your own view.
Don’t believe everything you think. The voice in your head is not you, and it’s not honest.
Make a habit of reading writers you expect to disagree with. One idea that challenges your beliefs is worth a hundred ideas that confirms them.
Be careful who you spend your time with, because you’ll become like them.
Don’t create the content you think people want to consume, create the content you want to consume. If it interests you, you’ll make it interesting to others.
You give the power to whatever you blame.
If you allow yourself to be provoked by trolls and narcissists, then you relinquish to them your time and energy, and thereby become their bitch.
Avoid people who love to gossip about others. They’re almost certainly gossiping about you.
When faced with misfortune, you can pity yourself for suffering it, or commend yourself for surviving it. The first option will extend your suffering, the second will shorten it.
Don’t take people too seriously – including yourself. Everyone is just a marketing campaign for their gametes.
Don’t take yourself seriously, but do take your work seriously. Do what you say you’re going to do. If you don’t, you’ll lose respect for yourself. And if you don’t respect yourself, you’ll find it effortless to trespass across your own boundaries and violate all that you value.
Your future-self would do anything to be you again. Treasure the time you have like you treasure the good old days, because today and tomorrow are the future’s good old days.
Never Mind Market Efficiency: Are the Markets Sensible? | Morningstar
John Rekenthaler explores the concept of market sensibility, moving away from the traditional efficient-market hypothesis (EMH). He examines whether investment markets make sensible decisions—those based on good judgment and practical ideas. Rekenthaler provides examples where markets have acted sensibly and instances where they have not, such as certain Treasury bonds and specific investment funds. He concludes that while markets often exhibit irrational behavior, it's challenging for investors to profit from this knowledge due to the risks involved in short selling.
In-Depth Exploration
The Efficient-Market Hypothesis (EMH)
Background: The EMH posits that asset prices fully reflect all available information, making it impossible to consistently achieve higher than average returns. However, Rekenthaler finds conflicting interpretations and criticisms within academia, making it a challenging concept to fully endorse or refute.
Criticisms: Events like Black Monday in 1987, where global equities dropped significantly without a clear reason, challenge the notion of market efficiency. Yet some academics argue that such examples show a misunderstanding of EMH.
Sensibility in Investments
Definition: Rekenthaler adopts the Cambridge Dictionary's definition of "sensible" as decisions based on good judgment or practical ideas. He argues that markets can be considered sensible if the collective judgment used to price investments can be justified by the available information at the time.
Practical Examples:
Apple (1997): The market anticipated bankruptcy, leading to extremely low stock prices. However, unexpected positive developments (Steve Jobs' return and Microsoft's investment) drastically changed the outlook, validating the market's initial valuation as sensible given the information at the time.
Japanese Equities (1989) & US Tech Stocks (2000): These were later viewed as bubbles, but at the time, the valuations could be justified based on the available data and prevailing investor sentiment.
Exceptions to Sensibility
Treasury Bonds (March 2020):
Issue: 30-year Treasury bonds yielded less than 1%, which Rekenthaler argues was indefensible for any economic forecast due to the low prospective gains over such a long period.
Implication: This example highlights a clear deviation from sensible market behavior, where the bond's price did not align with practical investment judgment.
Destiny Tech100 Fund (DXYZ):
Issue: This fund experienced extreme volatility and a massive 2,000% markup, which was not justifiable by any rational analysis.
Implication: The fund's behavior failed the sensibility test, showcasing irrational market actions that are difficult to justify.
Stock Carveouts:
Issue: When a company partially sells a subsidiary, sometimes the market's reaction leads to illogical valuations, such as the parent company having a negative net worth.
Implication: These occurrences, while rare, demonstrate instances where market behavior defies logical investment principles.
Challenges in Profiting from Market Irrationality
Short Selling Risks: Overpriced securities often present potential short-selling opportunities. However, the risks are high because prices can continue to rise irrationally before correcting, leading to significant losses for short sellers.
Active Management Struggles: Even well-informed and disciplined active managers struggle to capitalize on market irrationalities due to the inherent risks and the unpredictable nature of market corrections.
Recent Market Behavior
GameStop and AMC: Rekenthaler points to recent spikes in GameStop and AMC stock prices driven by social media influence and speculative trading. These movements, while quick and efficient in response to news, lack underlying business rationale, questioning the market's sanity despite its efficiency.
Broader Implications
Investment Strategy and Risk Management
Caution for Investors: The article advises caution in assuming that recognizing irrational market behavior will lead to profitable investment opportunities. The risks, particularly with short selling, can outweigh potential gains.
Active vs. Passive Management: The insights provided suggest that even active managers, despite their expertise, may not always outperform the market due to the unpredictable nature of market swings and irrational behaviors.
Understanding Market Dynamics
Behavioral Finance: Rekenthaler's examples underscore the importance of behavioral finance, which studies how psychological influences and biases affect market outcomes.
Market Anomalies: Recognizing that markets can behave irrationally at times helps investors prepare for and navigate periods of volatility and unexpected market movements.
Educational Value
Critical Thinking: The article encourages investors to critically assess market behaviors and not rely solely on theoretical models like the EMH. Understanding the nuances and complexities of market dynamics can lead to more informed investment decisions.
In summary, Rekenthaler's article provides a comprehensive examination of market sensibility, offering valuable insights into the challenges and opportunities within investment markets. It highlights the importance of practical judgment, the risks of capitalizing on irrational behaviors, and the need for critical thinking in investment strategies.
Key Quotes
On defining sensibility:
“We may therefore call an investment sensible if it is priced by sound collective judgment.”
On Treasury bonds:
“That yield could not be defended. Stocks may permit investment miracles, but government bonds do not.”
On Destiny Tech100:
“That openly fails the sensibility test... A 2,000% markup, however, cannot be countenanced.”
On market irrationality:
“Violations of the sensibility test typically occur with securities that are overpriced, as opposed to those that are open and obvious bargains.”
Van Halen's Brown M&Ms - Their Key To Rock and Roll Safety (safetydimensions.com.au)
The article discusses the famous rock band Van Halen's use of a seemingly trivial concert rider requirement—a bowl of M&Ms with all the brown ones removed—as a clever and effective safety strategy during their tours in the 1980s. This request was embedded within their technical rider, which contained detailed instructions for setting up their complex and often dangerous stage equipment. The presence of brown M&Ms served as an indicator that the concert promoters had read and followed the rider carefully, ensuring that the necessary safety measures had been taken. This strategy helped prevent potentially life-threatening accidents due to overlooked details.
Key Points
Van Halen's Concert Rider:
The rider included a clause demanding a bowl of M&Ms with all the brown ones removed.
This clause was often misunderstood by promoters as a trivial rock star whim.
Purpose of the Brown M&Ms Clause:
It was a test to ensure promoters had read and adhered to the detailed technical specifications in the rider.
The band’s stage setup was highly complex and required precise attention to detail to avoid safety hazards.
Implementation and Impact:
If the band found brown M&Ms backstage, it indicated that the promoter might have neglected other critical parts of the rider.
This would prompt a thorough line-check of the entire setup, often revealing significant oversights.
Real-World Example:
In Colorado, the failure to follow the rider resulted in $85,000 worth of damage due to the weight of the equipment sinking through the floor.
Broader Lessons in Safety and Compliance:
The M&M clause exemplifies the importance of attention to detail in safety protocols.
It demonstrates how seemingly minor details can serve as indicators of larger systemic issues in compliance and safety management.
Key Quotes
On the purpose of the clause:
"The presence of brown M&Ms would indicate that the promoter had not read the contract rider, and they would need to do a serious line-check of the entire production."
On the consequences of not following the rider:
"In Colorado, the failure to read the rider led to the sinking of the stage and $85,000 worth of damage."
On the broader implications:
"This story is a great example of the importance of attention to detail and how small things can reveal much larger issues."
Why It Matters
Safety and Compliance:
The article highlights the critical role of attention to detail in ensuring safety and compliance in complex operations.
It underscores how minor checks or indicators can be effectively used to gauge adherence to safety protocols.
Innovative Strategies:
Van Halen's use of the brown M&Ms clause is a creative approach to managing compliance, showing how unconventional methods can address serious issues.
This strategy can inspire other industries to think outside the box when it comes to ensuring safety and compliance.
Risk Management:
The story serves as an educational tool for risk management professionals, illustrating the importance of thorough checks and the potential consequences of oversight.
It provides a practical example of how to implement checks that ensure all safety protocols are followed meticulously.
Attention to Detail:
The importance of attention to detail is emphasized, not just in the context of rock concerts but in any field where safety is paramount.
It advocates for a culture of meticulousness and thoroughness in professional practices.
In conclusion, the article on Van Halen’s brown M&Ms clause offers valuable insights into innovative safety strategies, the importance of attention to detail, and the broader implications of compliance and risk management. It serves as a compelling example of how creative solutions can address significant safety concerns in various industries.
The document, titled "Fooled By Randomness," explores the pitfalls of overconfidence, randomness, and data mining in the context of investing, illustrated through a personal anecdote about attempting to predict horse race outcomes using a mathematical formula. The author recounts how an initial success led to overconfidence and subsequent failures, drawing parallels to common mistakes made by investors. The piece delves into behavioral finance concepts, highlighting cognitive biases that lead to poor investment decisions. It also underscores the inherent randomness in stock market returns, the flawed practice of data mining, and the misconception of fund manager skill. The document concludes with a critique of high-risk investment strategies and the allure of hedge funds, advocating for a more prudent, long-term investment approach.
Key Points
Personal Anecdote:
The author and fellow math majors attempted to predict horse race winners using a mathematical formula.
Initial success led to overconfidence, but the formula failed in subsequent races.
Behavioral Finance:
Overconfidence: Investors often overestimate their ability to predict market movements.
Fooled by Randomness: People tend to see patterns in random events, leading to erroneous conclusions.
Randomness in Investing:
Stock market returns are influenced by unpredictable factors.
The concept of randomness in stock prices is popularized by Burton Malkiel’s "A Random Walk Down Wall Street."
Data Mining:
The practice involves analyzing past data to create strategies that may not hold in the future.
Short-term data is often misleading due to randomness.
Investment Options:
Low Risk: Investing in government bonds and FDIC insured accounts, yielding low returns.
Moderate Risk: Diversifying in stock and bond funds, accepting temporary losses for long-term gains.
High Risk: Seeking maximum returns with a high possibility of permanent loss.
Fund Manager Skill:
Investors often mistake good performance for manager skill, not accounting for luck and volatility.
A large population of funds ensures some will outperform by chance alone.
Critique of Hedge Funds:
Hedge funds are over-respected despite often underperforming.
Survivorship bias and illiquid assets skew performance data.
The "Lazy Golfer Portfolio" of index funds outperforms the average hedge fund over ten years with lower fees.
Key Quotes
"One characteristic shared by horse pickers and active investors is overconfidence; they are unaware of the difficult odds they face."
"Speculations that succeed by random chance (better known as luck) can do funny things to your mind."
"Data mining will be with us as long as investment firms succeed in attracting assets by offering products that promise market-beating returns."
"To the dismay of all investors, fund managers and horse race fans, past results cannot be used to predict the future."
"Risk and reward are inseparable. A fundamental truth in investing is that the larger the return we seek, the greater the possibility of permanent loss."
"Investors underestimate the probability that a track record was generated by pure chance especially in large fund populations and when fund managers take excessive risks."
"Wall Street’s business model is greed-focused – acting as if there is no such thing as 'enough.'"
"The Lazy Golfer portfolio... Rebalance the portfolio on your birthday and ignore the stock market for the rest of the year."
Why It Matters
Understanding the content of this document is crucial for several reasons:
Behavioral Finance Education: It highlights common cognitive biases that can lead to poor investment decisions, providing valuable lessons for both novice and experienced investors.
Investment Strategy: By illustrating the pitfalls of overconfidence, data mining, and chasing high returns, it encourages a more disciplined, long-term approach to investing.
Risk Management: The discussion on different risk levels and their implications helps investors make informed decisions based on their risk tolerance and financial goals.
Fund Performance Evaluation: It sheds light on the importance of distinguishing between skill and luck in fund performance, promoting a more critical evaluation of fund managers.
Critique of Hedge Funds: The critique of hedge funds and the promotion of a simple, low-cost investment strategy (the Lazy Golfer Portfolio) provides a compelling argument for passive investing.
Overall, the document serves as a cautionary tale and a guide to avoiding common investment mistakes, advocating for a more thoughtful and less speculative approach to managing investments.
Meredith Whittaker warns in her speech about the power of the tech industry
Meredith Whittaker, the recipient of the 2024 Helmut Schmidt Future Prize, delivered a poignant and critical speech addressing the pervasive influence of the tech industry, particularly focusing on artificial intelligence (AI). She emphasized the historical and ongoing issues related to AI, highlighting its origins as a marketing term rather than a technical one and tracing its evolution through the lens of the surveillance business model. Whittaker discussed the problematic nature of AI's current applications, especially in surveillance and military contexts, and called for a critical and proactive stance towards understanding and regulating AI technologies.
Historical Context and Origins of AI
Whittaker begins by emphasizing that AI, as we know it, originated more as a marketing strategy than a purely scientific breakthrough. John McCarthy coined the term "artificial intelligence" in 1956 to distinguish his work from the existing field of cybernetics and to attract funding. This highlights that AI's roots are entrenched in the need for academic and financial recognition, rather than a unified technical approach.
The Surveillance Business Model
Commercial Surveillance
The Clinton administration’s 1996 internet policies laid the foundation for the surveillance business model. By not imposing restrictions on data collection from networked computation, they allowed private companies to gather extensive personal data.
The endorsement of advertising as the primary business model for the internet meant that companies were incentivized to collect as much data as possible to "know their customer" and target advertisements effectively.
Monopoly Formation
Companies like Google and Facebook used this data-driven model to grow into tech giants. Their early adoption of these practices allowed them to build vast computational infrastructures, creating network effects and economies of scale that reinforced their dominance.
The US government facilitated this dominance through trade agreements and soft power, ensuring other regions, like the EU, adopted similar paradigms.
AI’s Current Landscape
Re-emergence and Hype
The resurgence of AI in the past decade is attributed to the availability of massive computational power and extensive datasets, rather than fundamentally new scientific methods. This resurgence was marked by significant improvements in AI applications, such as image classification, thanks to these resources.
However, Whittaker argues that this resurgence is more about marketing and hype, driven by the tech industry’s need to maintain its surveillance-based business model.
Integration with Surveillance
Modern AI is deeply integrated with surveillance technologies. The enormous datasets required for current AI applications are a direct result of pervasive data collection practices.
This integration raises significant privacy and ethical concerns, as AI systems are often used to bolster surveillance capabilities, leading to broader societal implications.
Ethical Concerns and Military Applications
AI in Defense
Whittaker highlights the troubling trend of AI technologies being used in military contexts, such as autonomous weapons and surveillance systems. These applications often rely on predictive models based on surveillance data, which can lead to significant ethical dilemmas.
The use of AI in military decision-making, such as targeting in drone strikes, raises serious concerns about accountability, accuracy, and the dehumanization of warfare.
Call to Action
Critical Examination and Regulation
Whittaker calls for a critical examination of the narratives surrounding AI. She urges us to see beyond the hype and recognize the underlying surveillance business model that drives much of the current AI innovation.
There is a pressing need for regulatory frameworks that address the ethical and societal impacts of AI. This includes implementing privacy protections, ensuring transparency in AI decision-making, and holding tech companies accountable for the societal consequences of their technologies.
Broader Implications
Whittaker’s speech underscores the broader implications of AI and the tech industry’s power. By tying the history and development of AI to the surveillance business model, she highlights the need for a more ethical and equitable approach to technology. This involves:
Public Awareness: Educating the public about the true nature of AI and its implications.
Policy Interventions: Developing policies that protect privacy and ensure ethical use of AI.
Corporate Accountability: Holding tech companies accountable for their role in perpetuating surveillance and ensuring they prioritize societal well-being over profit.
Key Quotes
"AI is a marketing term, not a technical term of art."
"The current AI craze is a result of this toxic surveillance business model."
"We need to recognize mass surveillance – and ultimately the surveillance business model – as the root of the large-scale tech we’re currently calling 'AI'."
"The metastatic shareholder capitalism-driven pursuit of endless growth and revenue that ultimately propels these massive corporations frequently diverges from the path toward a liveable future."
Conclusion
Meredith Whittaker’s speech is a powerful reminder of the complex interplay between technology, business models, and societal impacts. It calls for a fundamental rethinking of how we approach AI, emphasizing the need for ethical considerations and regulatory interventions to ensure that technological advancements benefit society as a whole.
Ben Franklin: The Thirteen Necessary Virtues (fs.blog)
These names of virtues, with their precepts, were:
TEMPERANCE. Eat not to dullness; drink not to elevation.
SILENCE. Speak not but what may benefit others or yourself; avoid trifling conversation.
ORDER. Let all your things have their places; let each part of your business have its time.
RESOLUTION. Resolve to perform what you ought; perform without fail what you resolve.
FRUGALITY. Make no expense but to do good to others or yourself; i.e., waste nothing.
INDUSTRY. Lose no time; be always employ’d in something useful; cut off all unnecessary actions.
SINCERITY. Use no hurtful deceit; think innocently and justly, and, if you speak, speak accordingly.
JUSTICE. Wrong none by doing injuries or omitting the benefits that are your duty.
MODERATION. Avoid extremes; forbear resenting injuries so much as you think they deserve.
CLEANLINESS. Tolerate no uncleanliness in body, cloaths, or habitation.
TRANQUILLITY. Be not disturbed at trifles, or at accidents common or unavoidable.
CHASTITY. Rarely use venery but for health or offspring, never to dulness, weakness, or the injury of your own or another’s peace or reputation.
HUMILITY. Imitate Jesus and Socrates.
Making decisions | A Working Library
Sometimes a phrase contains a lot of subtle wisdom:
There’s a really important thing that sometimes nervous people like me don’t realize—that the expression “to make a decision” is perfectly accurate: a decision is something you create. There’s an inclination to think that with enough research and thinking and conversation and information, it’s possible to determine what the correct decision is; to think that decision making is an intellectual puzzle. But generally it’s not. You make decisions. Something is created when you make a decision. It’s an act of will, not an act of thought.
I suspect this is also why making decisions is so often exhausting: acts of will require more energy than simply thinking. But if we recognize decision-making as a kind of creative practice, it becomes easier to see how we might plan our days to make space (both physical and temporal) for it.