Narrative

From our A-Team of seasoned subject matter experts, the Narrative is an evolving stream of perspectives and insights on a broad range of financial subjects and asset classes. Please read, enjoy and share.

Author: W. Ben Hunt, Ph.D.
Date: May 24, 2017
Category: Rabbit Hole
Tags: Silicon Valley, data science, biases, language, memory, NIPS, deep learning, machine learning

Previously I shared some research on how recollections of successive events physically entangle each other when brain cells store them. As a fascinating and different approach to studying memory, in this paper a group of European researchers used Wikipedia page views of aircraft crashes to study memory.

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Author: Rusty Guinn
Date: May 19, 2017
Category: Things That Matter
Tags: things that don't matter, portfolio construction, active investing, ETFs, liquidity, narratives, performance-chasing, cash

Market returns have continued to defy the odds, but the data, our consultants, our advisors, our home offices and our instincts are telling us that the combination of demographic slowing, stagnant productivity, limited debt capacity, low rates and high valuations isn’t going to end well. Or at a minimum, we remain optimistic but confused.

When it’s hard to see what’s two feet ahead of our own noses, when the game feels rigged, sometimes it feels like we have no choice but to stay at the table and play. After all, it’s the only game in town. And so instead of walking away and taking what the market gives us, we tweak, we tilt, we “take chips off the table,” we “go all in” and we hack, hack, hack at the beams and joists of our own homes for the great bonfire.

This bias to action is a road to ruin. That’s why the endless tweaking, trading and rebalancing of our portfolios takes spot #4 on our list of Things that Don’t Matter.

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Mo’ Compute Mo’ Problems

Author: W. Ben Hunt, Ph.D.
Date: May 16, 2017
Category: Rabbit Hole
Tags: big compute, AI, big data, automation, autonomy, Kevin Kelly, intelligence, Silicon Valley

Unsurprisingly, we humans are pretty competent creatures within the domains we have contrived (such as finance) and spent decades practicing. So it is, generally, still hard (and expensive) in 2017 to quickly build a machine which is consistently better at even a thin, discrete sliver of a complex, human-contrived domain…

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Future Flash Crashes, Digital Darwinism & the Resurgence of Hardware

Author: W. Ben Hunt, Ph.D.
Date: May 4, 2017
Category: Rabbit Hole
Tags: technology, big compute, AI

Remember a few years back when a bogus AP tweet instantly wiped $100bn off the US markets? In April 2013 the Associated Press’ Twitter account was compromised by hackers who tweeted “Breaking: Two Explosions in the White House and Barack Obama is injured.” The tweet was quickly confirmed to be an alternative fact (as we say in 2017), but not before the Dow dropped 145 points (1%) in two minutes.

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Alibaba’s AI, JP Morgan’s Risky Language & the Nurture of Reality

Author: W. Ben Hunt, Ph.D.
Date: April 26, 2017
Category: Rabbit Hole
Tags: big compute, AI, algorithms, video games, Alibaba, StarCraft, Facebook, Google, DeepMind, NLP, STEM, memories, physics, Chögyam Trungpa

AI has moved one step closer to mastering the classic video game StarCraft. Google, Facebook and now Alibaba have been working on AI StarCraft players, and last week a team from China’s Alibaba published a paper describing a system that learned to execute a number of strategies employed by high-level players without being given any specific instruction on how best to manage combat.

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Break the Wheel | The Five Things that Don’t Matter | Part III

Author: Rusty Guinn
Date: April 24, 2017
Category: Theory in Action
Tags: active management, stock picking, AQR, scientific method, data mining

Epsilon Theory readers, my kids eat because I’m a fund manager. Mostly hot dogs and Kraft macaroni & cheese, but they eat. So it pains me to tell you that the amount of time, personnel and attention we all spend picking, talking to, debating and stressing over fund managers is ridiculous. This is why picking fund managers comes in at #3 on our list of Things that Don’t Matter.

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AI Hedge Funds, Corporate Inequality & Microdosing LSD

Author: W. Ben Hunt, Ph.D.
Date: April 18, 2017
Category: Rabbit Hole
Tags: technology, big compute, AI, artificial intelligence, hedge funds, algorithms, quantum computing, Julia, income inequality, HBR, talent

Allow me to reintroduce Neville Crawley.

Neville Crawley is not only an Epsilon Theory fellow traveler and recent podcast guest, he’s also a brilliant technologist. As part of the ET 2.0 expanded sandbox, I’ve asked Neville to write a weekly-ish “Down the Rabbit Hole” column with his observations on what he calls Big Compute, I call non-human intelligences, and the rest of the world calls AI. This is the biggest revolution in markets and the world today.

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What a Good-Looking Question! The Five Things that Don’t Matter | Part II

Author: Rusty Guinn
Date: March 31, 2017
Category: Theory in Action
Tags: investment philosophy, code, active management, volatility, things that don't matter, bike shed, stocks, stock picking, portfolio risk

It is hardly a novel observation that disputes among those who agree on the most critical questions and disagree on details are often among the most violent. After all, more died in the disputes between French Catholics and Huguenots alone than in all three of the Crusades. And it took twice as long for John Lennon and Paul McCartney to get in a recording studio together after the Yoko Ono Experience than it took for King George III to receive John Adams as ambassador after the Treaty of Paris. As investors, however, we have turned this seemingly normal human behavior into an art form.

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