We’re Doing It Wrong

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Mike S
2 years ago

“Want to guess who spends more money on Big Compute than everyone else in the world combined? It’s the U.S. government, through the Dept. of Defense and the Dept. of Energy.” Tapping directly into the Narrative Machine is not for everyone…It will be an interesting journey, but narrative is imbedded in the world of digital exhaust, if you want to see where DoD tactics are going in the digital world and how that might cross pollinate, then look below! Narrative is a way, but cutting through the noise will only get louder and more complex. DARPA leaders are calling this “mosaic warfare.” Modern-day weapons to pieces in a jigsaw puzzle. Each piece of the puzzle is exquisite. It can only fit one way into the picture, and if one loses a piece, then the picture is incomplete. A tile in a mosaic is one small part of a bigger picture. “If you lose one tile, not a big deal,” he said. In this metaphor, a tile equals an individual weapon. Part of the concept is “combining weapons we already have today in new and surprising ways,” Grayson said. Key will be manned-unmanned teaming, disaggregating capabilities, and allowing commanders to seamlessly call on effects from sea, land or air depending on the situation and no matter which of the armed services is providing the capability. An example in the air domain might include a series of drones to accompany a typical battle formation of four fighter aircraft. One of the robotic… Read more »

2 years ago

Thanks for this note, Ben, it’s really illuminating. I think the “Doing it wrong” problem you identify in finance is very similar to a “Doing it wrong” problem I see in the broader AI field today. Instead of your dichotomy of “predict vs. calculate/simulate” I use “fit vs. model”, but I think they are more or less the same thing. A lot of mainstream AI today is about taking a set of possible inputs, each one associated with a desired output, and coming up with a function that does the best possible job doing the desired association. A grad student looking to get published will take a bunch of pictures of dogs, each one labeled “dog”, a bunch of trucks labeled “truck”, etc. and try to end up with a neural network that takes a new picture of a dog and calls it “dog”. Somebody trying to find an edge in a market might take a set of training examples, each one consisting of the price history of the week leading up to day T, each one associated with the return that occurred on day T+1. This person wants to be able, at some time in the future, to take the returns of the last week and predict what will happen tomorrow. Either way, they’re FITting a relationship between inputs and outputs, which is a very different thing from MODELing the real-world system that happened to produce that relationship in the first place. The line can be blurry and there… Read more »

2 years ago

I learned early on, when I started, back in the ’80s, that there is no Answer to the markets – certainly not one anyone could find – but I could “feel” something in the market – when sentiment was shifting or a market “story” was dead, for example – and combined with a rigorous application of almost-trite trading and investing rules (that many spout but few sincerely and consistently follow) have made a reasonably successful career out of trading and investing, despite never getting anywhere near an Answer. Over all these years, never believing there was an Answer out there helped keep me humble and saved me a lot of time, but as Ben pointed out in “American Bandstand,” it can be rational to act as if you believe a bit (even if you don’t) because it is part of the common knowledge. Thoughtful arm-length believing – and letting others think you believe – can help your trading and investing and is, IMO, the only way, at times, to keep your career and credibility afloat (sad, but true). I kind of recognized the common knowledge game, but never fully understood it – but “felt” it enough to use it in my investing. Ditto, “inflection points,” “when the story fails,” and so many other smart ET ideas and approaches that I didn’t even know I was leveraging in my trading and investing. It wasn’t until 2013, when I read Ben’s ET manifesto, that I realized I’d been nibbling at the edges… Read more »

2 years ago
Reply to  Mark22

Completely agree. This blog has been a revelation. I used to work as an equities analyst and then left because I realized that approaching markets the standard way (think CFA syllabus) was a mug’s game. You’d only be as good the rest of the market if you do what the rest of the market does. I went into foreign policy work thinking I’d learn something about geopolitics and, in turn, global macro, but in the last few weeks I’ve probably learned as much about the latter as I had in years working in diplomacy. You guys might meanwhile like this: https://www.the-american-interest.com/2017/07/03/flattened-disintermediation-goes-global/

Jane VanFossen
2 years ago
Reply to  Michael

Michael, thanks for the link. It’s a good one.

John McCook
1 month ago

Hi Ben,
I think that many traders do not need to determine how people react. If as you’ve said in the past, HFT traders can front run orders there is no need to know what will happen only what the trade that has been placed.

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