Flirting with Models: Wayne Himelsein

Link: https://blog.thinknewfound.com/podcast/s2e7-wayne-himelsein/

About Wayne: CIO of Logica Capital

Transcription: Otter.ai


Overview

Every trade is implicitly long or short volatility or optionality

  • There is variability in every asset and its distribution dictates whether you are long or short.
  • Every trade is either a bet on convergence or divergence. Convergence trades are short volatility

Quant vs Discretionary

“There’s good and bad in all of it. So the best you can do for yourself by going with what you know because you’ll be able to ask better questions and be more comfortable with what’s happening day-to-day.”

  • Myth of quants building a black box then “going to the beach”

“The market is always changing. In fact, it’s funny even the idea of factors and categories, if you think of something like value and growth. These two big facets of the market, even those are evolving. [Consider] that you buy a value stock, and it turns around and starts moving in your favor. Well, now it’s a growth stock. So literally, the categories are changing on us. So if you bought a value book, and you leave it for six months, you’re now a growth book, if you were right on your picks.”

  • Using quant to “mechanize” what works vs mining for patterns

“Finance algorithms that developed from logic and experience that simply seek to mechanize what is already well understood, have a chance at success. Those that begin in data analysis, categorization, quantification, or statistical or numerical gymnastics do not.”

Opportunities in volatility trading

Traders have different “assumptions across the volatility surface, the strikes up and down and across the calendar upwards and outwards, There are different prices for every option. Because of all this modeling and people having demand for different options at different calendars in different strikes, there’s going to be cheaper and more expensive….Take advantage of the weirdness and pricing and model variants across the option surface.”

An inverse relationship between signal strength and opportunity size

  • As your signal strength declines you need to diversify more. “To have more probabilities repeated more often, [so] more positions”
  • Hoffstein: “Information ratio is equal to your information coefficient times square to breadth. If you have to lower your information coefficient, but your breadth goes way up, you can actually end up with higher information ratio”

Re-phrasing a bit: expectancy scales with number of trials but volatility scales with square root of number of trials. If your bankroll is large and your business diversified, it follows that your focus should be on hunting for high expectancy games, not minimizing risk.

Evaluating a strategy

  1. Use daily returns to get more data points. Monthly returns mask too much.
  2. Are you achieving your premise?

    “So you’ve said yourself, I know where I want to neutralize, and I know where I want to get my alpha. And if that’s where you get your alpha, you have to know that number one, you have alpha there. So if you look at your growth tilt and measure that against Fama growth factor, do you beat it? If not, you’ve got no edge.”

    • Map the strategy.
      • Compare the exposures to time series of different exposures to see how it behaves. This requires using mathematical tools that do not rely on linearity (ie regressions).
        • “I don’t ever listen to what [the manager] tells me. I just run it versus we have in here about 180 different exposures that we have time series for factors or exposures [to find out] “what is inside this thing?”
      • How intentional are the exposures?
        • Managers will tell you that they’re doing something but don’t even know what they’re exposed to. “Did you know you have a 30% exposure to momentum? Oh, no, I didn’t. I’m actually a value investor.” (Me: sounds similar to performance attribution frameworks behind “hedge fund replication” strategies)

Risk

Beta is a poor quantity to use to balance your portfolio

  • Beta equals correlation times vol ratio
    • It’s easy to compute which makes it popular
    • …but since its inputs are non-stationary, non-linear and themselves volatile it’s garbage in/garbage out.
    • Important to understand if a beta-hedge portfolio will bleed longer or shorter as correlation increases. (Me: This is why gross exposures are important to constrain)
  • How to balance a portfolio without relying on beta?
    • Geometric approaches that account for non-linearity
      • Clustering distance approaches
      • Stochastic dominance

Market neutrality is a “funny” concept

  • What does it mean to even be neutral?
    • “What do you want to be neutral to? Are you directionally neutral? Are you factor neutral? You can [initiate] a directionally neutral portfolio that has equal long shorts, with a complete growth, tilt, or a value tilt or some other factor tilt like a volatility tilt.

Overcrowding

“If we find a good pair trade, rest assured, many others have found it. And there’s just gobs of computing power, and PhDs and all the rest doing the same thing. And so we’re all going after the same edge. When things start to go wrong, the differences between the different groups is that they manage the risk differently. And one of the best means of managing risk in these markets [is to manage leverage]. The overcrowding risk is that everybody’s in this trade, and it’s a good trade. That’s why everybody’s in it. So you’ve done the right thing. But as some of these bigger shops start to unwind, it becomes everything going the wrong way. Others are needing to exit because they have LPs to answer to or they have risk that they’re managing to, so as long as you’re in it, you’re exposed to that. And it’s difficult to manage because at the get-go, you made the right bet.”

Walking away or sticking with a “broken” strategy?

Difficult question since the pricing may be more favorable as anomaly gets stretched but unclear whether the relationship will revert and on what timeline. There’s career risk is sticking with it vs the weight of the historical evidence for the opportunity.

“The more your measure won’t determine whether something’s out of favor, the more time you might give it to try to fix it”

“Comes down to a personal decision. How much time am I willing to spend tweaking and contorting to try to figure out whether I can fix it. And we all have our limits. It comes down to a business question as well. It’s not just tweaking and contorting and trying to fix it. But how much time can you spend defending it? How sticky is your capital? Even if it does come back still be in business?”

An easy example was the trade that shorted both the triple long and triple short ETFs on the same reference asset. The trade was over once the cost to borrow the shares exceeded the edge in the trade. This was easy to measure and therefore abandon when it became too crowded.

Hedging non-linearity or skew

  • “The only way to get rid of the left tail is to balance it with the right tail. And to have that obviously, you have to have the right offset temporarily. You need the time association to match that when this thing goes down, the other thing goes up. So you need to understand the time relationship between the two.”
    • Stop-losses are “synthetic left tail mitigator”. They are not fully reliable because of:
      1. Gaps
      2. Discipline
    • Tradeoffs between hit rate and cost of the hedge. Need to define what type of exposure you are ok with to target the right option hedge. Just like insurance has cost levers like premiums, coverage amounts, durations, and deductibles options portfolios can be custom tailored.
    • Flight to quality assets like gold, USD, treasuries in a permanent portfolio
    • Managers who engineer defensive market-neutral portfolios

Final words on hedging

  • Depending on the nature of the crisis hedges behave differently. Since we cannot predict the nature nor timing of a crisis it’s best to be diversified across hedges.
    • “Back to the larger insurance analogy, you have your medical and you have your dental and you have your vision. And so I don’t know where I’m going to get hurt. But either way it’s covered.”
  • Tolerating the cost
    • “Optionality being potentially the heaviest cost again, to me, it’s not expensive when you get what you want. But since it is more often a bleed than a payoff, perhaps people should have more treasures and gold and a little bit less optionality. But definitely all concurrently.”

Thought experiment

You can only own 1 asset and never trade it again, what do you pick?

SP500. The only reason people underperform the market is they want to control volatility and liquidity needs. But if we remove these concerns the best thing is to just own the market in perpetuity.

“But it’s a dry heat”

It crossed 100 degrees a couple times this week in the East Bay. It’s a dry heat. If it’s 100 degrees with no humidity, what temperature do you think that equates to if you had 75% humidity?

About 80 degrees! I know this because I coach Zak’s soccer team, so I learned about the “heat index”. It basically allows you to compare desert heats with NYC-subway-platform-in-August-heat.

This chart is courtesy of NATA

I think I forgot what humidity feels like. This shows that 70 degrees with 90% humidity has a higher heat index than 102 with no humidity.

Finally, if you are in HS it’s two-a-day season. Good luck with that.

P.S.

I was curious so I did a super dirty scatterplot of state heat index vs midpoint rate of each state’s income tax rate range. The R-squared is zero. Nothing to see here.

source for calculating heat index: NOAA and CurrentResults
source for 2019 state income tax rates: Money-Zine
(If interested I can share the details of how I compiled the data. Like I said, it’s dirty, but a more accurate approach in the same vein is unlikely to yield a relationship. I have ideas for other approaches that might, but I’m skeptical there’s any relationship here after seeing this. I thought to do it b/c I’ve heard CA people think higher state taxes were somehow justified by the climate. My gut response from my open-outcry floor days is a double-tomahawk overhand sold!)

HS Advice: Saved By The Bell vs Dazed and Confused

“All I’m saying is that if I ever start referring to these as the best years of my life – remind me to kill myself.”  – Randy “Pink” Floyd

If you don’t know who that is, you don’t know the inspiration for the title “Moontower”. Immediately stop reading and go stream Dazed and Confused. I’ll venmo you the money if cash is tight, just don’t let this ignorance remain untreated.

Permanently memorable quotes, casting so good it can only be described as lucky, a signature dad-rock soundtrack, Austin Texas, and a story that unfolds over the last day of school. Linklater delivered a pure shot of joy with this film. If you want to Ebert the movie you could dissect its themes of puberty, responsibility, and what it means to be cool. But it will all come back to the multi-faceted characters. The few who can travel between the worlds of nerds, jocks, and stoners. If you infiltrated those camps, the way these spirits could pass through clique walls, you’d find a truth common to the rest of their cardboard cut-out friends:

They yearn to defy sorting. Quarterback. Valedictorian. Come on, we’re more than that.

A bored Randy “Pink” Floyd, the king of his H.S., knows this is a fake place. He knows you can’t wear a varsity jacket to your first job. Maybe he’s read Asimov. “Past glories are poor feeding”. Dazed and Confused tormented its characters with the knowledge that there was going to be a future.

Contrast this with Saved By the Bell. You knew everything that was going to happen. That was the beauty of the show. It always resolved to the chord your ear expected. Zack and Kelly would always find a way. Chuck Klosterman described it as the “ultrasimplistic, hyperstereotypical high school experience” . As long as the writers suspended consideration of post-HS life the saccharine storylines and eye candy justified keeping the show on in the background.

  • If you are a fan of Saved By the Bell, you should check out Chuck Klosterman’s clever essay Being Zack Morris in his 2003 book Sex, Drugs, and Cocoa Puffs. He goes into the Tori Paradox, a phenomona you are sure to recognize.
  • Freaks and Geeks is a top 5 favorite TV series. A cast of future stars, epic 70s soundtrack. I was sad when it ended. The oral history of the Judd Apatow show.

Why do I care about high school this week?

Local public schools started this past Tuesday in our summer-hating district. This reminded me that there’s a Paul Graham essay I like to share with HS students. I wish I would have read it the same year I heard Smells Like Teen Spirit. The HS kids I’ve shared it with feel like it’s horizon-expanding advice.

School authorities never let Graham give the talk. It inverts the advice of the typical graduation speech. He is matter-of-fact about what is fake and corrupt about HS. He is more interested in what the student can do in spite of the system’s flaws. He wastes no time with blame. It’s a call to action. A call to higher standards than good grades and conformity.

You don’t need to be a teen, parent or have any other qualification to benefit from reading it.

The text with my highlights is here.

Some themes

  • School won’t tell you, but you must focus on doing hard things. Find out what that means.
  • He applies the computer science term premature optimization to HS. I’ve previously mentioned this is supported by research (snapshot from my David Epstein notes)
  • Obedience is stupid. So is rebellion. I’ll rephrase Graham loosely: you need to see through the contrived experience. He offers practical advice to do this.

Most importantly, his essay gives students more credit than our cultural expectations do. He wraps:

Your life doesn’t have to be shaped by admissions officers. It could be shaped by your own curiosity. It is for all ambitious adults. And you don’t have to wait to start. In fact, you don’t have to wait to be an adult. There’s no switch inside you that magically flips when you turn a certain age or graduate from some
institution. You start being an adult when you decide to take responsibility for your life. You can do that at any age.

This may sound like bullshit. I’m just a minor, you may think, I have no money, I have to live at home, I have to do what adults tell me all day long. Well, most adults labor under restrictions just as cumbersome, and they manage to get things done. If you think it’s restrictive being a kid, imagine having kids.

The only real difference between adults and high school kids is that adults realize they need to get things done, and high school kids don’t. That realization hits most people around 23. But I’m letting you in on the secret early. So get to work. Maybe you can be the first generation whose greatest regret from high school isn’t how much time you wasted.

This is the advice Randy “Pink” Floyd yearned to hear.

If you are interested in more on this topic:

  • screenshot of author David Epstein (who I’ve discussed before) explaining how Michelle Obama’s “swerve” advice to her daughters is supported by research. The whole letter is here.
  • If you want to get practical about Graham and Obama’s advice then Taylor Pearson’s idea of “optimizing for interesting” will calibrate your compass so you can get started. It reaffirms your faith in your “gut feelings” while subjecting it to the “focus on your outputs” test. Here it is with my highlights.

Notes from Invest Like the Best: Ali Hamed

Link: http://investorfieldguide.com/ali/

About Ali: Partner at CoVenture fund


His approach

  • He looks at new asset classes that can be hard to value.
  • Alternative financing like asset-backed loans (loans against fruit inventory, app for fast-food chain which allows them to clock employees in and out and allow them to pay employees whenever they wanted for a slight pay haircut)
  • Fee structures depend on the dispersion of manager skill.

Coventure recognized many seed companies never get to Series A

  • Fail to build the planned software to get to market. So Covenutures helps them.
  • Software types who don’t understand the industry they are building a solution for
  • Don’t understand the team they need

How does CoVenture fit into this?

The lesson is that the capital was easier to find than the people who can execute so :

  • Giving young businesses guidance and connecting them to the personnel they need is very valuable.
  • Having a service which serves common needs to many prospective startups is how to scale this idea.

Thoughts on cost of capital

  • If one VC fund can convince its LPs to accept 1/2 the going return because it has the clout to get the best deals that’s another way of saying it has a lower cost of capital. Sequoia can offer lower rates of return because they are less risky than an upstart fund
  • These relative differences in costs of capital sustain significant advantages.
  • A fund may offer a startup cheap financing in exchange for warrants (similar to a convert). This is a bad strategy b/c the performance of the instruments is inversely correlated. If the company takes off and does well, the warrants will perform but a larger fund with a low cost of capital like Blackrock or Apollo will refinance the debt piece for cheaper. In the case where the debt is not refinanced the warrants will be worthless.

Conundrums for seed funds

  • They are expected to “stick to their knitting” and be contrarian. This is practically impossible since being contrarian requires you to exit the seed company in a year or so to a Series A fund which is by definition consensus.
  • Any seed fund of quality naturally wants to raise more money but will find itself capacity constrained so it will drift towards Series A deals which are outside their expertise
  • Pre-seed round is about trying to methodically uncover if you are creating customer value. Revenue can be falsely equated to customer value. For example, you can spend money marketing which will lead to more revenue but this is not the relevant KPI (“key performance indicator”) to test the hypothesis that you are increasing customer value. The seed round is then about trying to find out if the improvements to KPI can scale.
  • Important to have a strong understanding of the role of the round you are in
  • Judgment vs Empathy at the core of a solution
    • Empathy reflects a true understanding of the practical trade-offs that lie within a business problem.
    • Judgment is typically what an arrogant or ignorant outsider looking at the problem prescribes when crafting the solution
  • Technology has made starting companies cheap but scaling is more expensive.
    • Trade-off when raising capital: balancing getting off to a fast start to acquire customers and scale versus discipline and overleverage.

A link to another post with takeaways from this podcast: https://thewaiterspad.com/2018/01/24/ali-hamed/

Notes from Capital Allocators: Tali Sharot

About Tali: Professor and author of The Influential Mind, The Science of Optimism, and The Optimism Bias

Humans have evolved to maximize positive emotion which is a reward for engaging behaviors which promote survival (sex, eating, social acceptance).

We have built-in biases which push us towards maximizing this emotional well being.

Comparing alternatives requires us to put a value on which actions will improve our well-being, but this is a significant task requiring us to continually weigh our immediate happiness vs future happiness. This is difficult comparison since it requires exchanging immediate, visible gratification for longer-term, invisible, and often compounded benefits. The cost of these decisions is not immediately visible, but the benefit is.

Tali’s research seeks to understand the mechanism by which our built-in biases confound these comparisons so that we can make the costs and benefits of our options more readily available or design nudges which push us towards better long term behavior in cases where we reflexively choose poorly for short term benefit in defiance of what we might actually want.

Optimism Bias

  • We paradoxically hold private optimism vs. public despair
    • “Machines are going to take everyone’s job; except mine”
    • “The market is going to crash, but I’ll be ready and willing to buy when they do”
  • We tend to learn less from things which give us negative feelings
    • We ignore them
    • We explain them away more easily rather than attributing our role to them.
  • We seek opinions which agree with our priors.
    • She cites a study where a group is discussing the value of real estate. When people were agreeing the pleasure centers of their brain light up.
These last 2 points conspire to boost the well-documented confirmation bias.

Is the optimism bias adaptive?

Whether it’s adaptive or not depends on the consequences.

  • It’s not adaptive when it encourages you to take reckless risks
  • On the other hand if you are very motivated in a task because you are overconfident it may be a self-fulfilling prophesy.

Home Country Bias

  • Driven by preference for control rather than the uncertainty that comes with investing in the unfamiliar. Sense of control is also shown to independently be a source of positive emotion.

Reducing Bias

The prescription for dealing with biases varies across individuals. How responsive individuals are to social rewards, anxiety-reducing rewards, risk tolerance all lives on a spectrum.

How can we combat confirmation bias?

  • Confirmation bias compels motivated reasoning. To counteract that find outside points of view that don’t share your priors.
  • Be aware of group dynamics especially our preference for agreeing.
    • For example, before a group discussion surrounding a decision, it is good practice to ask everyone to write their opinion down before the discussion.
  • Be aware of our tendency to confuse confidence for competence. [This reminds me of mimicry in nature. For example, several snake breeds are imposters of the venomous coral snake. Just as a true expert will spot an imposter, a coral snake will intimidate their copycat cousins.]
How can we encourage incremental actions whose benefit is unseen or far in the future?
  • Feedback. We can provide rewards for near-term milestones.
    • She gave the example of a display showing how many people at the hospital washed hands so employees are encouraged to increase the score. Seeing the score increase serves as a psychic prize.

“Number Neighbors”

The NY Post wrote about the phenomenon of having text conversations with your “number neighbor”. It’s what it sounds like. Someone whose phone number is different than your own by a single digit. Before you dismiss this as the latest evidence of dystopian estrangement I’ll share a story. Several years ago, I was hanging out with Ben and one of his close college friends, Ryan. We were trying to decide on where to eat and suddenly Ryan texts the 2 choices to someone else who settled the question.

Me to Ryan, “Who the heck was that?”

The response came matter-of-factly, “Carlos”.

Umm, ok, who the f is Carlos.

Turns out Carlos is the guy he texts whenever he needs to break a trivial tie. You see, several years earlier, Ryan was trying to decide on a TV to buy and texted a friend who knew about such things. Well, he texted the wrong number but still got a response. “Samsung”. Ever since then, Ryan texts that number which belongs to Carlos.

So, of course, I can’t let Ryan hog this knight who promises to joust decision fatigue on a stranger’s behalf. He gave me Carlos’ number and the rules: Keep it simple, 2 choices.

I relied on “Carlos the Question Man” as he’s labeled in my phone for years, throwing him a question every few months. Carlos never asked my name. I haven’t texted him in years but the “number neighbor” article made me think of Carlos. So as I write this on Friday nite I texted him. I just realized it’s after 1am in the 617 area code and now I feel bad.

In case you’re curious about the text, here you go.

Homeschooling

Last week’s description of our friends’ homeschooling adventure in Europe was a bit of a dog whistle. The idea of “worldschooling” or homeschooling has crossed several of your minds. Especially just to try it for a year. I’ve been poking around homeschooling websites the way the curious might browse Ashley Madison. Kinda naughty. But, unlike swipe right or whatever you do on AM, the promise of homeschooling is constructive.

Its advocates will say it’s a better match for a modern world where information is free and conformity is increasingly expensive. Its detractors will scream “socialization” as soon as the word “home” is followed by the “sc” syllable.

If the idea strikes a nerve, perhaps the pang feels something like:

  • You have a vague sense that school hasn’t evolved as much as the world around us.
  • It feels like a compromise between cost and scale that ends up serving none of its students especially well.
  • The default option’s tyrannical grip on the education menu is out of proportion to its proven merit.
It’s like being dropped off at JFK with the mythical around-the-world ticket only to find all flights lead to Orlando. All the interesting flights depart from Terminal 4 but everyone else is robotically boarding for Florida. Oh screw it, I’m sure Disneyworld will be nice in August.
Well, you and I know it’s gonna be muggy, with long lines and overpriced rooms. Welcome to the education system. You chose It’s A Small World over the real thing.

When I wonder aloud about homeschooling, someone always seems to pull the “you went to regular school and turned out great”. Thanks for the vote of confidence, but

a) I might be the way I am in spite of my schooling

and

b) Your observation of my external circumstances is nothing but a projection of your own values. That is a validation of my school experience for you, not me. And again see “a”. I’m a size seller of the cause-effect relationship.

Personally, school assassinated my will to learn. Maybe if I spend $300 an hour talking about it on a leather couch I can discover why. And I’m not even suggesting homeschooling would have been a better outcome, whatever that means. But we know kids are born learners. To murder that is an unreported crime. I’d hate to spend more time thinking about what car to lease than what the default meaning of education is where I live.

When I was young, I thought it was about getting As. Let’s be blunt. That’s a low bar for being educated. Perhaps necessary, definitely insufficient.

***

With all that in mind, I’ll share Bryne Hobart’s essay which struck a nerve by putting words to my feelings better than I can. It also reminds you that the reversibility of the choices means the risks are controlled. Important when you can’t shake the feeling that you are gambling with beloved young lives.

Of interest to finance folks or quant-inclined might be the fact that Byrne is an investor at SAC Capital, didn’t graduate from college, and has a cool essay framing a “barbell approach” to education using portfolio theory to value alt-degrees and substitutes for credentials. Check it here.

Deceiving Your Kids

So I asked a colleague who is due to have a baby in the next 2 months if she found out the sex. She called my question with the gender and raised me with the little guy’s name. I’m not sure what my reaction was but I’d venture it was somewhere between raised eyebrows and gaping jaw. With as much grace as a person can conjure to deflect the impression that they are not a serial killer, she quickly added that they aren’t into secrets or surprises. This isn’t the first time I’ve been dealt the name of a womb’s resident, but it’s unusual, and she, no doubt having encountered dumb faces like mine, had her defense set to hair-trigger. The exchange naturally turned to my presumption that this same child would not know Santa. He won’t.

I confided that this was a minor source of conflict between Yinh and I. Minor only because Yinh was mildly against lying to the kids about St. Nick, while I was prepared to die on that hill. So I got my way and now she calls me Griswold. Our kids believe in Santa but she forces me to have skin in the game.

This raises the more serious questions about the lies we tell our children. We all do it. We all had it done to us. Adolescence is like an extended episode of Mythbusters where we get our worldview debunked for about 10 years straight without commercials. Paul Graham brilliantly reminds us that while we must lie to the kids we should understand the costs. We should understand which rationalizations are really about protecting ourselves. Finally, recognize that “most [of us] go through life with bits of packing material
adhering to [our] minds and never know it.” 

Shedding it all is an active process I see people struggling with right into old age. I still discover residue in my mental desk hinting at a bigger mess in the back of its drawers.

If lies are the drug, Graham teaches us what they are indicated for but doesn’t sugarcoat the side effects. Here’s the red pill.

Negative Energy in Physics and in Your Life

Elon Musk is certain we live in a simulation. Neil de Grasse Tyson thinks it’s also pretty likely. Cutting to its heart, the argument boils down to statistics:

  • The universe is vast. So vast it rounds up to infinity vast.
  • You’re laughably overconfident to think there aren’t plenty of species more advanced than our own.
  • Those alien species would have access to computers powerful enough to run huge numbers of simulations which are as detailed as our actual existence. And they would have an interest in doing so.
  • The number of simulations running in parallel would dwarf the population of its organic creators.  Just think of how each of us humans has a many-to-one relationship with software. Code, like any language, is free once it exists. We can all have every app. My having an app doesn’t preclude you from having it.
  • The ratio of code to humans is incalculable, just as the ratio of simulated beings would be to the number of original beings.
  • The chance you are one of the originals is effectively zero.

To wonder if this theory is true feels like it elevates the entire notion of truth to a stage it can’t compete on. As they say, it’s just “turtles all the way down”. Don’t bother.

But now that your mind is limber let’s back up to the first premise: the universe is vast.
Earth is part of a familiar solar system. That’s that model you made for 4th-grade science fair with toothpicks and styrofoam. And Pluto. That solar system is one of millions in the Milky Way galaxy.

As Nasa diagrams the situation to kids:

The Milky Way, as depicted by the Chinese throwing star in that diagram, is one of the billions of galaxies comprising the Laniakea supercluster:

Adding to this orgy of nested giant numbers, we can observe millions of superclusters.

The infiniteness of universe’s size translates to the infiniteness of possibilities. Suddenly the simulation idea doesn’t feel so absurd even if its veracity doesn’t matter.

Where did all of this even come from?

Scientists contend the Big Bang initialized the universe nearly 14 billion years ago. Stephen Hawking, the late scientist buried in Westminster Abbey between Darwin and Newton, walks us through it:

  • You need 3 ingredients to make a universe: matter, energy, and space
  • As Einstein showed humanity, E = MC^2. So matter and energy are 2 sides of the same coin.
  • We need to explain where just 2 ingredients came from. Space and energy.

Hawking warns us that common sense is going to be a poor guide since we don’t commonly encounter the creation of something out of nothing. So he draws an analogy:

Imagine a man wants to build a hill on a flat piece of land. The hill will represent the universe. To make this hill he digs a hole in the ground and uses that soil to dig his hill. But of course he’s not just making a hill — he’s also making a hole, in effect a negative version of the hill. The stuff that was in the hole has now become the hill, so it all perfectly balances out. The stuff that was in the hole has now become the hill, so it all perfectly balances out. This is the principle behind what happened at the beginning of the universe. When the Big Bang produced a massive amount of positive energy, it simultaneously produced the same amount of negative energy. In this way, the positive and the negative add up to zero, always. It’s another law of nature.

Negative energy?

Space is a battery whose metaphorical negative charge balances the universe’s positive charge — the mass and energy all around us.

Hawking reminds us that math, not intuition, is the relevant guide but if you want to pretend you are Christopher Nolan, researching relativity theory and black holes for a sequel to Interstellar, check out the rest of the amazing Maria Popova’s article here.

For the rest of us knuckle-draggers, we can recognize how negative energy works in our lives.

  • Jared Dillian posed the following proposition: Work, family, fitness, fun, sleep. Choose 3.
Maybe there are 6 things to choose from, maybe you can only choose 2. Not the point. Whenever you see someone who appears to have it all remember that there is a corresponding negative energy hole that was required to build the things you can see. Negative energy reminds us that nobody is immune from the laws of balance in the universe. Don’t be so hard on yourself. Maybe you live in sprints. Focus on 3 out of 5 for short bursts, then switch it up. Maybe you try to keep your slowest aspect much closer to the pack all the time. Whatever your strategy, it will not defy the physics of yin and yang.
  • Negative energy reminds us to be honest about how we use our time.
We are wired to be doing stuff. In motion. Professor Scott Galloway observes on a simple level, there’s a low-level ‘security camera’ inside your brain trying to figure out if you’re adding value to the world. We are vulnerable to Do Something Syndrome.

Movement teases us with the illusion of progress. Movement offers shelter from failure. When you’re in motion, you feel like you’re doing something. We convince ourselves that as long as we’re in motion, we can’t fail.

If you keep going into overtime you can never lose. Or win.

  • Negative energy honors others’ tradeoffs.

Scott Young observes how our own overemphasis on achievement is a bias which can be difficult to overcome when we deal with others who may appear more simple. The amazing elders in my life come to mind. Providing for and raising their children while enjoying simple pleasures is the extent of their ambitions. If we believe these goals to be somehow incomplete, we are probably miscalculating. Be wary of discounting seemingly quaint objectives. Young shows just how self-reinforcing achievement bias can be:

“If you don’t value achievement, and don’t get really good at writing, you probably won’t be very articulate arguing in favor of non-achievement as a virtue. I think this bias probably means we should consider non-achievers words more carefully, especially since those voices are rarer. It also means we ought to talk to more everyday people and not merely look up to the most famous and successful for all worldly wisdom.”

The Magic for Making Quantum Leaps

James Holzhauer put Jeopardy back in the spotlight this year. He almost broke Ken Jenning’s record cumulative winnings of $2.5 million in less than half the attempts. Putting his dominance in context would almost dehumanize him. His average daily win of $77,006.75 is higher than the previous single-day record of $70,000. He owns the top 16 highest daily wins ever with the record now set at $131,127.

Bobby Fischer was a good not great chess player at age 12. At age 13, he played “the game of the century”. A performance that would have been studied and marveled at if Fischer was an adult. At age 14, he won the world championship. He did all of this without a coach. (courtesy of the Adam Robinson interview I referenced last week).

Stephen Curry. Under-sized and under-recruited, the Warrior’s point guard has forced us to reimagine what we can expect from a shooter. In his 2015/16 MVP season, he dropped 402 3-pointers shattering his own prior record of 272, set 3 years earlier. The chart that circulated after the season showed just how obscene it was. As of this past October, Curry had 6 games in his career with 11 or more 3-pointer. That feat has only been recorded 7 times prior to him in NBA history. I took Zak to a game for the first time this season and it happened to be one of them. Curry scored 51 points in 3 quarters before calling it a night.

If you watch kids play basketball in the Bay Area they all emulate their hero. Chewing on their mouthpieces and chucking long 3s, these kids are innocent but naive. They see themselves as the next “baby-faced assassin” instead of Lebron who may as well be the Incredible Hulk. Curry is skinny and looks small on tv (he’s 6’3 so not exactly turning heads at Safeway either). I hate to say it, but sorry kids. Gladwell, you should cover your ears too. More went into reinventing the 3-pointer than just practice. Coach Steve Kerr, himself one of NBA history’s best marksmen not to mention a teammate of Michael Jordan, has called Curry’s eye-hand coordination the best he’s ever seen. Curry is an outstanding golfer and Kerr speculates that Curry would be a force on the pro tour if that was his focus (maybe we’ll get to find out when his ankles get too old for hoops). Curry’s younger brother plays for the Trailblazers and his father contributed enough to the Hornets early years to win a Sixth Man of the Year award. Pretty sure there was some mitosis involved with those skills.

Whether it’s a quantum leap in a game, discipline, or individual we demand a reason. Genes and genius can suffice but don’t satisfy. It’s more like magic.

I had zero mental model of how he created that piece in the same timeframe we all had…it seemed like the skills required were completely different. You could not simply scale up my abilities and get [his]…It seems to require completely different mental inputs entirely. The feeling I get, as a very good bodypainter looking at Sanatan’s work, is that I am looking at magic. And that, in fact, is my definition of magic – competence so much more advanced than yours…alien mental models [are at work].

– @utotranslucence

You feel like its magic because you are bringing a knife to a gunfight.

Using bodypainting competitions as a backdrop (I encourage you to google Sanatan’s creations) read her mental approach to getting better at anything. The intuition and counterintuition is worth exploring for yourself and it shows a possible door to extreme performance relative to whatever you may have previously considered possible.

Her essay.
Version with my highlights here.

And some of my thoughts inspired by and adjacent to her essay.