Different by Youngme Moon

Key takeaways

  • Removing an authoritative metric to measure performance invites fresh reinterpretation and creative differentiation
  • Having an authoritative metric in place is the surest way to invite competition and conformity
  • “For the most part, we do not see before we define, we define before we see”  Public Opinion, Walter Lippman
  • In business product categories are very flexible. All it takes is a perceptual shift to transform the consumption behavior of the masses
  • “Intuition becomes increasingly valuable in new information society precisely because there is so much data”, John Naisbitt

Key lessons learned from 2020 coronavirus sell offs – DONT TALK ABOUT TRADING

  • Key weakness of my profile Yang Wood Day Master profile
    • easily confused when provided with too much conflicting social signals
    • slow in decision making process
    • recommendations: avoid unnecessary conversations and stick to simple system that works
  • Do not enter into positions until SPY MACD bullish crossover occurs.
  • Practice “Let’s not talk about trading”
    • When people ask how you pay for your expenses, just reply money from parents.
    • When people send messages about trading related stuff just don’t reply
    • Too many inputs from unqualified personnels creates confusion in the mind leads to bad decision
    • Arguments is a time sink, creates a lot of unnecessary stress, drains will power, emotional and mental strengths. This leads to poor decision making when it matters
    • Wasting time explaining the obvious to people does not lead to me having more money in my pocket whereas giving people wrong info leads to bad relationships later on.
    • Set positions and forget
    • Do not waste time debating about news on social networks. It leads to hurt feels amongst friends and relatives.
    • No point reading news as bulk of the macro signals are already reflected in the prices of index by SPY. It does not generate profit.
    • Don’t attempt to derive satisfaction and self-worth from trading profits. If you feel good now you will probably feel like shit later when profits start diving
    • Do not talk about profits made during trades, makes others who did not make that money feel bad about themselves.
    • Do not talk about losses made during trades, provides others the opportunity to make you feel even worse with their useless feedbacks.

Related references

Thoughts on intuition and logic

The limbic and reptilian parts of the human brain have had more time to evolve. Compared to these two parts, the frontal lobe of the human brain where logic resides is a more recent phenomena. Ironically, the logical functions carried out by this part of the brain, which makes man distinct from other animals, are the ones most easily replicated by machines.

The entire human body, not just the deliberate thinking portion of it, should be considered to be a neural network. Using only the thinking portion of the human body for decision making purposes is sub-optimal. This is especially true for a human that has actively engaged in calibrating his body for a specific purpose. Prime examples are deliberate cultivation and heavy reliance on muscle memory by professional athletics, chefs, actors, music composers and detectives.

Intuitive gut feel can be considered muscle memory cultivated over time for specific functions yet expressed as formalized equations. To free up time, individuals can actively convert what they “intuitively know” into formalized equations and have the corresponding functions delegated to machines. Thereafter they could either further compound the effects of this process by building up muscle memories in other domains or sit by the beach and do nothing.

Humans will always have a role available to play in the future regardless of society’s degree of automation.

Related readings

 

Chat with Quynh on trading

News sources utilized

  • Zacks
  • Motley Fools

Buy rumors and sell on news

  • rumors are not official news but signals that a news might be coming soon
  • continuous upwards movement of share price for few days means news might be announced soon
  • once news is out share price will adjust based on actual numbers

Buy on over reaction to bad news and sell on recovery

  • There is usually overreaction

The dichotomy between privacy and health

1984: Big Brother is Watching
Across multiple literature, its been stated privacy versus health will be one of the primary dichotomy societies around the world will need to juggle with as technological advances are made in the fields of artificial intelligence, communications (surveillance) and medical science (genetic research).
 
What is surprising was the rate at which the Corona pandemic catalyzed this change. In light of this, it is fascinating to observe how different societies position along the spectrum. Some societies has opted for surveillance to the maximum extend possible with current technology while others opted for its polar opposite going to the extend of staging mass protests against it use. 
 

Related readings:

  • The AI Economy, Roger Bootler
  • To Be a Machine, Mark O’Connell
  • Irrational Exuberance, Shiller, Robert J.
  • Life 3.0: Being Human in the Age of Artificial Intelligence, Max Tegmark
  • Mind Children The Future of Robot, Hans Moravec
  • The Singularity Is Near, Ray Kurzweil
  • 1984, George Orwell

Thoughts on the nature of framing

Optical illusion of the old lady and young lady

The basis we use for interpreting what is happening our world is through the understanding of our history. History heavily relies on narrative constructs.

The critical flaw with using narration as a tool to understand, encode and communicate what has transpired is it can only support data in a chronological order while reality is inherently chaotic, multi-linear, on occasions non-linear and confounds understanding thus narration. To tell a coherent tale of what has transpired, authors are forced to decide what to include and leave out of the narrative they weave. This phenomena is commonly labelled as the narrative fallacy.

Compound narrative fallacy with a collection of common human cognitive bias such as the framing bias, survivor bias, confirmation bias and consistency bias and you get a recipe for a fragmented society. This is especially more so when you have multiple equally plausible narratives that are diametrically opposed but draw evidences from the same chaotic sample space to reinforce their positions.

The task of deciphering what has transpired becomes even more daunting to the everyday individual with the reintermediation of social platforms as our primary news source. In the days prior, individuals need only rely on one official news source on how to understanding what is happening, usually from their government. Now, individuals are bombard on a daily basis with news sources sponsored by multiple parties with varying interest and agendas. In this day and age, it has become crucial for individuals to exercise critical thinking.

Some final food for thoughts:

  • Iran is portrayed as an evil country in American media
  • America is portrayed as the devils incarnate in Iranian media
  • China is portrayed as an evil country in American media
  • America is portrayed as an evil country in Chinese media
  • Why is it that the winners are always as good and righteous in any battle?
  • “If God’s on our side, who the hell could be on theirs?” Private Reiben in Saving Private Ryan.

Thought provoking artifacts

Conflicting frames about Bills Gates

Bill Gates the evil person
Bill and Melinda Gates the philanthropists

Conflicting frames about the 2020 CoronaVirus

Conflicting frames about global warming

Related references:

Continue reading “Thoughts on the nature of framing”

Predator’s Ball by Connie Bruck

  • no matter how much research you done regarding a stock you don’t have a contract what the future price should be
  • with high yield bond there is a contract for a certain price in a future, if you are correct about the calculation, you will be correct about your yield
  • bargain price: liquidation price 75cents on the dollar buy at 20 cents
  • when you are not a big established investment firm like Lehmen brothers, you have no franchise to protect. You are free to go the unconventional route for potential outsized returns
  • great ideas are born bad. Its easy to make your way to a great idea from crazy outrageous ones than cautious and sensible ones. Investment bankers by default filter out the crazy outrageous ones.
  • Contrarian thinkers need to train themselves to see things via unconventional routes
  • ways to structure a bond
    • give money back sooner
    • give higher interest rates
    • give more stock
    • give stocks cheap
  • It is easier for corporation to pay interest which is tax deductible than dividends which are not
  • Bonds offer process
    • first tier  high rollers offer liquidity get to buy at cheaper price and exit earlier
    • second tier payers, with franchise to protect, who want to avoid stigma of being junk bond buyers will come in later at more expensive price and exit later.
  • Successful leverage buyout scenario: after buy out use cashflow from business to pay off the junk bonds thus deleverage the business
  • Mutual fund arbitrage: compare value of underlying portfolio and stock price
  • If you are right about a company being undervalued and it is willing to put itself up for sale, there will be buyers
  • Poison pill: defense mechanism against corporate take overs. When would be acquirers crosses threshold of ownership, existing shareholders are given extravagant rights rights making it less desirable as take over target
  • Michael Milken:
    • perception versus reality, see what the world could not.
    • Vision is Strength.
    • capital is abundant, vision is scarce.
    • excess capital is not strength but opportunity for weakness
    • capital put in the hands of someone with vision will result in drastically different results.
    • return of the owner manager as opposed to the corporate manager
    • by-pass the China wall principle where companies try to isolate the deal making and arbitrage departments
    • knows many industry in depth

Related references

King Icahn, biography of a renegade capitalist by Mark Stevens

  • way of thinking
    • There is a strategy behind everything. Everything fits. Thinking this way taught me to compete in many things, not only take over but chess and arbitrage
    • Empiricism says knowledge is based on observation and experience, not feelings
    • Studying 20th century philosophy trains your mind for takeovers
    • Chain thinking: just like chess, in any transaction, think of every single possible move and counter move
    • always consider what might be the worst case scenario and then protect your downside while increasing your control
    • a civilization starts to decline when a large part of its population stops working
  • Icahn/Kingsley theory: focus the market’s attention on the disparity in values and someone will buy you out
    • Take over strategy potential outcome after indicating it as a take over target
      • acquisition of shares by original suitor
      • hostile challenger
      • white knight  who will come and free up the locked up value
    • Prefer stocks with limited downside exposure, gravitate towards out of favor stocks that had already been discounted by the market
    • When analyzing a company, earnings does not always present a clear picture. Depreciation is paper losses. Cashflow presents a better picture. Key components to analyze
      • asset
      • return on equity
      • cashflow
      • capitalization
    • committed the mistake of just focusing on financial engineering to reduce cost, think about how to grow the business
    • Did not realize after fully taking over a company that the revenue side of the business is usually circumscribed to external factors not under direct management control
  • On negotiations
    • everything has to be negotiated
    • threaten, continuously threaten by painting a very dire picture. This helps frame the alternative which you demand as something very very reasonable
    • wear down your opponent
    • answer a question with a question
    • always push the deal as far as it can without blowing up
    • wait until a company is so stretched in need of a deal before buying on the most favorable terms
  • On goal setting
    • have no fixed goals
    • see all the possibilities
  • Princeton liberal arts eduction:
    • exposure to eclectic mix of human knowledge teaching a student how to think, explore and question rather than prepare them for a specific career
    • the best thinkers will rise to the top of their chosen careers precisely because they have not limited themselves to narrow courses of study

Related references

Liar’s poker by Micheal Lewis

  • Michael Milken:
    • between perception and reality there is a gap
    • herd instincts: investors are constrained by appearance. A manager of a respectable financial institution will shun “fallen angels” so as to avoid appearing imprudent to his colleagues
    • forces wishing to keep a large company afloat are far greater than those that wish to see it perish
    • credit rating systems are flawed. It focuses on the past instead of the future. Ignore large fortune 500 companies in favor of ones with no credit standings to find a good deal.
    • The market which may be quick to digest earnings data was grossly inefficient in valuing everything.
  • Lessons from Solomon brother traders
    • I don’t pat myself in the back, because the next sensation is a sharp kick lower down
    • those who say don’t know, those who know don’t say
    • Despite the valuable lessons history can offer us, its shown that man does not learn any of these valuable lessons.
  • Benjamin Graham: The more elaborate the mathematics, the more uncertain and speculative the outcome. Avoid substituting experience with theory.
  • Key historic events:
    • 1933 Glass Steagall act: separation of investment banking and retail banking
    • July 1944 Bretton wood systems: World currencies agree to a fix exchange rate against the USD, USD agree to fix exchange rate with Gold.
    • 1971 Collapse of the Bretton Wood systems: US, faced with increasing pressure to maintain the USD gold exchange rates as its foreign reserves were depleted by a extended Vietnam war, went off the gold standard to prevent a run.
    • 6th October 1979 The Volcker Act : money supply will be fixed, interest rates would float
    •  12th Nov 1999: repeal of the Glass Steagall act: banks can now take use consumer deposits for investment purposes.

Related references