The Elegance of Brute Force part 2
The Elegance of Brute Force part 2
In part one we looked at the brute force equation in regards to computers with the Amiga versus early PC. The Amiga programs for instance were all segregated and self contained making their removal easy and the likelihood of one program causing problems in another almost impossible. The Amiga could be simply turned on and off without elaborate shutdowns or start ups… unlike PCs in which all programs bleed into each other and load up at the beginning. Over time brute force would ameliorate many of these problems. But now, on the way to the summation in which we look at how application of these theories can produce tangible results that benefit us in an easy to quantify way, we come to one of the most important features and that is exponential application, which I would like to call “exponentiality” even though it is probably not yet a word.
The five main areas that we will explore this in will be our favorite, music (music production in particular) as well as money making/management, pleasure and art. (Other items are likely to enter in the summation.
If you are so smart then why aren’t you rich?
When I was young I heard this idea expressed often even though it is too ambiguous to be of much value.
Advantages that one is born into or acquires count heavily towards the end result and of course luck, both bad and good affect that final result despite all of our efforts; we have only the absolute ability to harm ourselves. (It is preferable to attempt to positively influence the outcome however)
Nicholas Taleb deals with this concept in his excellent book fooled by randomness which explores how humans in addition to not being very practical in terms of probability analysis, actually are in much less control of their outcomes (with the exception of being able to produce bad results) than they think.
Exponentiality is one of the strongest forces in wealth creation and maintenance though it is not the only one.
The idea of exponentiality is very present in Talebs thinking as he makes a case for people’s improper evaluation of the rare events. One point in particular would be people who offer out of the money options that are likely to expire worthless consistently on the bet that they will not be realized. Every day they collect steady money as the options fail to be in the money. But then the rare event occurs and after many days of seemingly easy money, they are wiped out by all of the cheap options becoming in the money. In fact, Taleb points out that most people would rather make small money 99 days out of 100 and lose than fail 99 out of 100 and in the end clean up because it is too hard on humans to wake up and fail every day.
Taleb is taking advantage of exponentiality. In a 50 – 50 proposition steady losing streaks are the rode to ruin but when you are getting 100,000 to one, as long as you don’t go broke or die while waiting, exponentiality is the only way to go. There is exponentiality in almost everything as we will explore later, and this factor is what causes people to analyze situations badly. In investment there are many situations to turn exponentiality in your favor and there are times when you don’t want a lot of it.
The first thing to factor in is where are you relatively and how do you feel about this. The framework by which we look at exponentiality is critical. Are you happy or are you desperate? On a scale of 1 to 100 with 100 being the happiest and most satisfied we will proceed.
If I am 100 that means that life is supreme, every day I get up and do what I like, enjoying life to the maximum while having not only enough capital to never worry about the necessities of life, I have more than ample insurance against the usual problems that can occur. In such a case then my main goal would be for preservation of the existing condition and I would use exponentiality as a defensive against the extreme condition. A small portion of my wealth would be put towards “insurance” of various sorts. We would want different currencies, precious metals, puts on different entities, property, assets in other countries. It is the sort of problem everyone would love to have.
On the other hand, let’s say you are a 5. Now everything is radically different. You might not have long to live, you are in a war zone, life is cheap and you need to get out now or forget it. If you think you have 5 weeks of survival time it is best to load up the assets (Keep a little bit for food) in one big Hail Mary and try to grow your money large enough to get away and start a life elsewhere. Of course that is a silly situation (You probably don’t have Wall Street tools in a war zone) and we all sit in between somewhere. Thus your age, health, wealth, demeanor, income, location, goals and many other factors affect your money management decisions. But having said that, most people do not understand the concept of risk and the most important thing they fail to see is that the things they are think are safe have not the degree of reduced risk that they think. On the flip side of the coin, peoples fear of risk lead them to miss out on the benefits of exponentiality. Lets say that there was a stock that you could invest in that would lead pay off 500 to 1 if it came through but there was a 50 – 50 chance that they would go bankrupt. Most investors would say that the risk is too great but if you were to always approach this opportunity by putting 1 % of your investing money in such situations in the long run you would finish rich. As we tighten up the percentages we can make similar assumptions. 50-50 with a chance of 100 to one is still quite wonderful.
And this thing they call safety is not all that it is touted as being. Take for instance investing in stale items like bonds and the Dow. There are times when such staleness is welcome but now is definitely not one of them. Without going into the details too deeply as this could expand this writing far too much in a direction that is really supplemental to our current point (we will go into great detail about this in future writings) a simple cursory glance at your utility bills of ten years ago along with energy prices, health care, tuition, insurance, food, taxes and thousands of other items paints a clear picture: Inflation is the dominant theme of this investing generation. (In fact it is the theme of the century not withstanding a rare interruption in its course during the great depression) In simple terms holding the Dow would have made you modest returns but adjusted for inflation they are not as impressive as the nominal values. Don’t use the silly core rate that the establishment uses to con people without enough time to work out its mode of control. Did your food, insurance, school, energy etc. increase at the core rate? (Frequently quoted at 2% and other such silly numbers) I experienced doublings of my expenses in most categories and this is not 2% a year. The cause is obvious but also outside the scope of this writing so we will just point out that if you are experiencing greater than 7% inflation, being in bonds yielding less than 5% or the indexes that are even less impressive given your returns is playing the game of appearing to win every day while being exposed to the outliers in possibilities which I think are far more likely to occur than establishment salesmen would lead you to believe. Why expose yourself to actual risk such as the bear market mauling of 2000 – 2003 or worse for nominal gains that hardly change a persons’ life?
Time is working against everyone, the demographics of the baby boom generation retiring and using up their paltry savings for such retirement is not appealing. The Dennis Gartmans of the world (a brilliant trader) would have you believe that the current monetary conditions can go on forever as well but do you want to bet on a historical amount of credit creation and debt as hedge funds are blowing up right as we speak? Inflation, demographics, structural imbalances demand that we have a little bit more in the fuel tank for our living and/or retirement. Exposure to assets that have the potential to grow in great multiples is important, in particular ones that are in a bull mode and showing consistent rising in value every year.
The famous Cramer on CNBC is a good entertainer and he in fact has great researchers behind him. He warned everyone of the Canadian Income trusts (without stating the reason though evaluation expansion made tinkering by lawmakers a distinct danger as the prices rose to extreme highs) and then turned around after they had been blasted into the dirt and told everyone to go into them for the yield that is a sign of smart people behind him. But there is a poison to Cramer’s’ stodgy hackneyed approach and this leads his viewers into a very stale, exposed and unimaginative view of markets. Cramer lectures everyone to absolutely avoid stocks under 10 dollars which is about as mindless of an instruction as could be given. There is some sense to this given that he is advising viewers of moderate sophistication away from an area that without deep study and quality information can burn your hide off. But the exponentiality of this group is of maximum value to a person looking to actually get rich, or survive a possible grinding downturn in typical markets. Look for instance at the junior Uranium stocks in the small duration of 1999 to 2006. Investors taking a few thousand dollars into the sector could be multi-millionaires now. It was not a very illogical place to be if you had done your homework. It still is a very good place to be though instead of a situation where anything you buy makes you rich in 1999, today you have to be very sharp to pick out the best companies out of over 400 (there must have been less than 10 in 1999) Uranium mining stocks. Add to the fact that they have risen to the moon in a short period of time; it is a difficult place to enter now. I think if you entered the right companies and just waited long enough that you could not fail but it is perhaps better to wait for the sector to have a large correction and come down in price and then jump on for the ride. Find a good research company and learn as much as you can before doing this. Using some portion of your money gives you exponentiality as does gold/silver, oil/gas and other similar things like base metals to a lesser extent. These are things that are bets against the 100 year (the last thirty have started exponentiality in a negative way for money creation and inflation) non stop trend of higher prices for goods and services.
Why do you want stocks under 10 dollars? (Even though this is relative, the market value, asset value and share structure dictates the real story) GSPG seems cheap at half a penny but they recently had an offering of a BILLION shares!!) is that you can not make 100 times your money or more in the world that Cramer tells everyone to operate in. If you are Nike then you sell shoes to the entire world, how do you double your sales without selling to Venus and Mars even though they are both alright tonight? But if you are a company that sells shoes to people in your neighborhood then the potential for doubling sales is easy in fact raising sales by 100 times is quite reasonable. Small priced stocks is your window to making large wealth out of small asset amounts, it is up to you to figure out how much of your spare money to put into them.
If you study bull runs in various asset classes you see many examples of stocks making millionaires out of thousandaires.
Pay for your research, it will increase your odds of success and give you exposure to financial exponentiality. If you look at current conditions in financial markets and political craziness I think it is an easy bet that there will be more than a few bumps along the way.
There are many other vehicles to do this in but what is critical is that you work to deeply understand what it is that you are doing. Options, warrants, futures, small stocks and other items are just a small sampling of the myriad of rich possibilities for the individual that is disciplined and willing to work at being good at them. But if you are not disciplined and don’t like to work, do just one piece of work and that is to find a reliable information source. Then plunk down your loot and sit back taking the occasional glance to make sure all is copasetic.
This just touches the tip of the iceberg but is a good place to start.
In part one we looked at the brute force equation in regards to computers with the Amiga versus early PC. The Amiga programs for instance were all segregated and self contained making their removal easy and the likelihood of one program causing problems in another almost impossible. The Amiga could be simply turned on and off without elaborate shutdowns or start ups… unlike PCs in which all programs bleed into each other and load up at the beginning. Over time brute force would ameliorate many of these problems. But now, on the way to the summation in which we look at how application of these theories can produce tangible results that benefit us in an easy to quantify way, we come to one of the most important features and that is exponential application, which I would like to call “exponentiality” even though it is probably not yet a word.
The five main areas that we will explore this in will be our favorite, music (music production in particular) as well as money making/management, pleasure and art. (Other items are likely to enter in the summation.
If you are so smart then why aren’t you rich?
When I was young I heard this idea expressed often even though it is too ambiguous to be of much value.
Advantages that one is born into or acquires count heavily towards the end result and of course luck, both bad and good affect that final result despite all of our efforts; we have only the absolute ability to harm ourselves. (It is preferable to attempt to positively influence the outcome however)
Nicholas Taleb deals with this concept in his excellent book fooled by randomness which explores how humans in addition to not being very practical in terms of probability analysis, actually are in much less control of their outcomes (with the exception of being able to produce bad results) than they think.
Exponentiality is one of the strongest forces in wealth creation and maintenance though it is not the only one.
The idea of exponentiality is very present in Talebs thinking as he makes a case for people’s improper evaluation of the rare events. One point in particular would be people who offer out of the money options that are likely to expire worthless consistently on the bet that they will not be realized. Every day they collect steady money as the options fail to be in the money. But then the rare event occurs and after many days of seemingly easy money, they are wiped out by all of the cheap options becoming in the money. In fact, Taleb points out that most people would rather make small money 99 days out of 100 and lose than fail 99 out of 100 and in the end clean up because it is too hard on humans to wake up and fail every day.
Taleb is taking advantage of exponentiality. In a 50 – 50 proposition steady losing streaks are the rode to ruin but when you are getting 100,000 to one, as long as you don’t go broke or die while waiting, exponentiality is the only way to go. There is exponentiality in almost everything as we will explore later, and this factor is what causes people to analyze situations badly. In investment there are many situations to turn exponentiality in your favor and there are times when you don’t want a lot of it.
The first thing to factor in is where are you relatively and how do you feel about this. The framework by which we look at exponentiality is critical. Are you happy or are you desperate? On a scale of 1 to 100 with 100 being the happiest and most satisfied we will proceed.
If I am 100 that means that life is supreme, every day I get up and do what I like, enjoying life to the maximum while having not only enough capital to never worry about the necessities of life, I have more than ample insurance against the usual problems that can occur. In such a case then my main goal would be for preservation of the existing condition and I would use exponentiality as a defensive against the extreme condition. A small portion of my wealth would be put towards “insurance” of various sorts. We would want different currencies, precious metals, puts on different entities, property, assets in other countries. It is the sort of problem everyone would love to have.
On the other hand, let’s say you are a 5. Now everything is radically different. You might not have long to live, you are in a war zone, life is cheap and you need to get out now or forget it. If you think you have 5 weeks of survival time it is best to load up the assets (Keep a little bit for food) in one big Hail Mary and try to grow your money large enough to get away and start a life elsewhere. Of course that is a silly situation (You probably don’t have Wall Street tools in a war zone) and we all sit in between somewhere. Thus your age, health, wealth, demeanor, income, location, goals and many other factors affect your money management decisions. But having said that, most people do not understand the concept of risk and the most important thing they fail to see is that the things they are think are safe have not the degree of reduced risk that they think. On the flip side of the coin, peoples fear of risk lead them to miss out on the benefits of exponentiality. Lets say that there was a stock that you could invest in that would lead pay off 500 to 1 if it came through but there was a 50 – 50 chance that they would go bankrupt. Most investors would say that the risk is too great but if you were to always approach this opportunity by putting 1 % of your investing money in such situations in the long run you would finish rich. As we tighten up the percentages we can make similar assumptions. 50-50 with a chance of 100 to one is still quite wonderful.
And this thing they call safety is not all that it is touted as being. Take for instance investing in stale items like bonds and the Dow. There are times when such staleness is welcome but now is definitely not one of them. Without going into the details too deeply as this could expand this writing far too much in a direction that is really supplemental to our current point (we will go into great detail about this in future writings) a simple cursory glance at your utility bills of ten years ago along with energy prices, health care, tuition, insurance, food, taxes and thousands of other items paints a clear picture: Inflation is the dominant theme of this investing generation. (In fact it is the theme of the century not withstanding a rare interruption in its course during the great depression) In simple terms holding the Dow would have made you modest returns but adjusted for inflation they are not as impressive as the nominal values. Don’t use the silly core rate that the establishment uses to con people without enough time to work out its mode of control. Did your food, insurance, school, energy etc. increase at the core rate? (Frequently quoted at 2% and other such silly numbers) I experienced doublings of my expenses in most categories and this is not 2% a year. The cause is obvious but also outside the scope of this writing so we will just point out that if you are experiencing greater than 7% inflation, being in bonds yielding less than 5% or the indexes that are even less impressive given your returns is playing the game of appearing to win every day while being exposed to the outliers in possibilities which I think are far more likely to occur than establishment salesmen would lead you to believe. Why expose yourself to actual risk such as the bear market mauling of 2000 – 2003 or worse for nominal gains that hardly change a persons’ life?
Time is working against everyone, the demographics of the baby boom generation retiring and using up their paltry savings for such retirement is not appealing. The Dennis Gartmans of the world (a brilliant trader) would have you believe that the current monetary conditions can go on forever as well but do you want to bet on a historical amount of credit creation and debt as hedge funds are blowing up right as we speak? Inflation, demographics, structural imbalances demand that we have a little bit more in the fuel tank for our living and/or retirement. Exposure to assets that have the potential to grow in great multiples is important, in particular ones that are in a bull mode and showing consistent rising in value every year.
The famous Cramer on CNBC is a good entertainer and he in fact has great researchers behind him. He warned everyone of the Canadian Income trusts (without stating the reason though evaluation expansion made tinkering by lawmakers a distinct danger as the prices rose to extreme highs) and then turned around after they had been blasted into the dirt and told everyone to go into them for the yield that is a sign of smart people behind him. But there is a poison to Cramer’s’ stodgy hackneyed approach and this leads his viewers into a very stale, exposed and unimaginative view of markets. Cramer lectures everyone to absolutely avoid stocks under 10 dollars which is about as mindless of an instruction as could be given. There is some sense to this given that he is advising viewers of moderate sophistication away from an area that without deep study and quality information can burn your hide off. But the exponentiality of this group is of maximum value to a person looking to actually get rich, or survive a possible grinding downturn in typical markets. Look for instance at the junior Uranium stocks in the small duration of 1999 to 2006. Investors taking a few thousand dollars into the sector could be multi-millionaires now. It was not a very illogical place to be if you had done your homework. It still is a very good place to be though instead of a situation where anything you buy makes you rich in 1999, today you have to be very sharp to pick out the best companies out of over 400 (there must have been less than 10 in 1999) Uranium mining stocks. Add to the fact that they have risen to the moon in a short period of time; it is a difficult place to enter now. I think if you entered the right companies and just waited long enough that you could not fail but it is perhaps better to wait for the sector to have a large correction and come down in price and then jump on for the ride. Find a good research company and learn as much as you can before doing this. Using some portion of your money gives you exponentiality as does gold/silver, oil/gas and other similar things like base metals to a lesser extent. These are things that are bets against the 100 year (the last thirty have started exponentiality in a negative way for money creation and inflation) non stop trend of higher prices for goods and services.
Why do you want stocks under 10 dollars? (Even though this is relative, the market value, asset value and share structure dictates the real story) GSPG seems cheap at half a penny but they recently had an offering of a BILLION shares!!) is that you can not make 100 times your money or more in the world that Cramer tells everyone to operate in. If you are Nike then you sell shoes to the entire world, how do you double your sales without selling to Venus and Mars even though they are both alright tonight? But if you are a company that sells shoes to people in your neighborhood then the potential for doubling sales is easy in fact raising sales by 100 times is quite reasonable. Small priced stocks is your window to making large wealth out of small asset amounts, it is up to you to figure out how much of your spare money to put into them.
If you study bull runs in various asset classes you see many examples of stocks making millionaires out of thousandaires.
Pay for your research, it will increase your odds of success and give you exposure to financial exponentiality. If you look at current conditions in financial markets and political craziness I think it is an easy bet that there will be more than a few bumps along the way.
There are many other vehicles to do this in but what is critical is that you work to deeply understand what it is that you are doing. Options, warrants, futures, small stocks and other items are just a small sampling of the myriad of rich possibilities for the individual that is disciplined and willing to work at being good at them. But if you are not disciplined and don’t like to work, do just one piece of work and that is to find a reliable information source. Then plunk down your loot and sit back taking the occasional glance to make sure all is copasetic.
This just touches the tip of the iceberg but is a good place to start.
posted by Steve Kusaba | 11:32 PM
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