Intro

This week of mine was filled by lethargy, and the high motivation level maintained since mid-June has seen its first major dip - sometimes I wonder how this correlates to the market. Maybe I should start using my mental energy level as a signal to backtest my yet-to-have investment strategy. However, when that signal looms near the bottom, my trading system/strategy will never deliver, so I will have to wait till it comes back up again to test this theory.

Nevertheless, my pace of reading has not at all decelerated, although I started to doubt if it’s because of all the scattered reading that’s been drawing all my energy away. My book review site has resumed its construction, and I should expect to put it up for the public by the end of the week.

Whilst I am struggling to produce outputs in many aspects, this newsletter is still born, not only because I attach quite a high priority to it, but also because I somewhat deeply enjoy putting down my thoughts down. As an INTP (not that I really approve their methodology and the whole theory of dividing people into 16 categories arbitrarily), I indulge in the joy of spending quality time thinking about random topics; but I enjoy even more looking at them outside my own mind more vividly. Even if some of the contents are merely summaries of other people’s opinions or just a collection of spontaneous thoughts, I still feel a stronger sense of clarity and fulfilment based on the experience of last two weeks.

The topics selected for this issue are even more diverse - have a look yourself!

Inbox

Chinese businessmen paradox

• Why are “poorly-educated” Chinese businessmen so successful in terms of business performance? Why is there almost no correlation between education and business skills in them? The author raised the same question I have pondered over myself many times but never fully admitted. The article approached the topic by bisecting “learning” into two distinct paths:
  • Two Approaches to problem solving:
    1. Theory and Insight - what our education system prioritizes
    2. Trial and Error - what successful Chinese businessmen pursue
  • While the former is indispensable and unquestionably important in society, without which we would have little progress with any major social advances, the latter is perfect for business, as business lessons are capricious, and one has to respond to it in a very flexible and agile manner. The article also considers the “Lean startup methodology”, that is, launching early and failing fast, as repackaging of the “trial-and-error” mode of learning.
  • “Madness is doing the same thing again and again, and expecting different results”. While there might not be a distinctively clear pattern behind all successful business people, the one behind the unsuccessful is rather evident - they are unable to learn the right lessons from each failed attempt.

Useless math that became useful

• As I disclosed last week in my thoughts about “fake demands” in ML, I held nothing against fundamental research in the field, and in fact I found some solid proof to answer the question “why do we need to put efforts into theoretical research that has no practical utilities in real world”. This discussion post proposed a number of mathematical works deemed useless at the time but became invaluable to its own field and/or some other seemingly unrelated fields in the fullness of time.

Tiny Projects

• Here is a personal webpage that tracks the small and swift projects launched by the author individually. During the past two years, 8 projects have already been launched and maintained. The creator of the projects also kept records of the page views/downloads of each of them, as well as the revenues generated.
• I am personally very fond of this idea - it’s like running a VC fund, except without the fund, and all the Vs are launched by oneself. You keep a portfolio of small “startup” projects, so that the loss of project failing is much less significant, hence reducing the overall risk. Also, the efforts required to get one project up and running is much smaller even though the maintenance cost might increase while running all the projects in parallel.
• The author also listed a few pros and cons for the tiny-project mode:
  • Pros:
    1. Rapidly launching new projects is so much fun
    2. One can start to find patterns among the successful projects
    3. Stakes are incredibly low, zero pressure if something fails
    4. Developer skills sky-rocketed
  • Cons:
    1. Time management and context switching can become challenging when there are 5+ projects running
    2. The dilemma of building new projects for the upvote and audience or building out of pure interest
• I am currently caught up in the very early stage of a few mid-scale projects, and I would love to adapt them to this mini-project style as much as possible so that I can maximize the fun and learning opportunities.

Understanding Jane Street

• I had never heard of the name of it until my first year of uni, and only realised what a beast in quant trading world it actually is a year after. And once I did, it’s probably one of the most frequently recurring company name I hear in my life. For a reason (or a combination of many, really). Byrne offered three main ones:
  1. Their secrecy about everything plus aggressive recruiting
  2. Uncommon decisions such as systematically buying black swan insurance and using Ocaml language
  3. Undoubtable success in making profits - a formidable 10X growth from 2019 to 2020.
• Jane street is a big market-maker, and they get a steady return in exchange for taking some big tail risks. They specialised in ETF first and they trade many other things now - equities, bonds, options, commodities, crypto, etc.
• The article was structured to cover many key topics to a prop trading firm - what they do, associated risks, trading system language, and strategies and secrecy about them. In each part, a broader overview was provided for background information and general insight, and then comes the part where Jane Street stands out. I particularly dig the language section, where Jane Street is clearly an outlier, but the reasoning behind this decision made perfect sense to me in hindsight, and eventually their immense contribution to the open source libraries and the language itself has been a win-win for almost everyone in Ocaml community.
• I will definitely re-read the Risk section soon, partly because I don’t believe I understand everything there and partly because I think this section is vital to Jane Street’s success.
• Towards the end of the article, an introspective question was thrown up, and I find it most intriguing: What are prop trading firms for? Is “liquidity provision” a socially useful thing, or is it a way that millionaire options traders rationalize the fact that they’re not building something socially useful but less lucrative? This moral question may or may not haunt those in this trade, as many are pretty anchored on wealth anyway, but Byrne nevertheless offered two “moral” arguments for taking a Jane Street job with minimal guilt:
  1. Market liquidity is useful, as it increases the present value of every financial asset, and the automation of providing it can maximize the efficiency so that the smart employees can turn to do other more meaningful work
  2. Trading is like a lottery in the way that its social function is to convert mass innumeracy into funding for better causes. He also stated that there is a very high overlap between quant finance and Effective Altruism.
• I don’t really care for these two crafted moral reliefs, but of course, whatever makes you sleep at night. I can hardly believe people in Jane Street went there for the social causes, but I also don’t think the public should point fingers at them. For many that embrace challenges, it is a very engaging and fun job, and it certainly pays the bills (of 10 families perhaps).

Thoughts

Next generation of Chinese businessmen

Following the article shown above, I had a very interesting discussion with a friend about one very common phenomenon in these successful business people: although they did not receive the “formal education” themselves and achieved high regardless, they often have a very high expectation, if not a demand, from their offspring to be very well educated in school and academically well-performing.

• We had a few hypotheses about this supposedly self-contradictory observation:
  1. They are self-aware that luck played an important part in their own success, and believed that the “theory-insight” education is a much more stable path
  2. They did not have a choice in their childhood, so that their longing for “formal education” has to be passed on to their next generation
  3. They may be supporting a rather expensive education without asking why as a form of overcompensation for their lack of presence around their children due to business.
  4. Having an acute sense for trends, which made them who they are in the first place, they started to realise that it is increasingly more difficult to succeed without a proper school education, unlike their own times when the society was much less sturdy and many opportunities were floating around
  5. The matter of social status - money is great and all, it does not necessarily improve your social status. In Chinese, there is a special word “rural tycoon” reserved for a group of people who are rich but “vulgar”. Therefore, having children with success in proper education may well complete their pursuit of social status - or at least the appearance of it.
• Contingent on different backgrounds and cases, different combinations of a subset of these hypotheses should suffice to explain. There are certainly many other cases where the wealthy parents want their children to take after their path as well.

Brag documents and cringe culture

• Let me be open and straightforward above all: I do not like bragging at all. Rather, I detest the notion of it peculiarly. I know it’s more than common for people to share their experience and achievements in real life or on social media, and indeed, very occasionally I have the urge to share one or two of mine with my family and close friends as well. But it stops there.
• To be fair, most of this article is not about showing off at all. It’s more about keeping stock of our track records for retrospective and self-motivation purposes. It does, however, encourage people to share it with managers, peers, and others for recognition, as well as holding a brag-writing session with others.
• I don’t have anything against anyone who shares their achievements out of delight and earnestness, and many times I do take some joy and motivation out of it too. I know it’s a vague idea to define, but there is this mesmerizing community that deems boasting about their achievements as yet another achievement somehow, and they’d be happy to boast about it too if recursion allows. I know the author of the article did not mean this way, but it most certainly reminds me of this cringe - which further reminds me of the one particular social media that happens to have the highest concentration of cringe. I will carry on with this idea next week. I stake my reputation this time.

Miscellaneous

Youtube Channels for the intellectually curious

• Yes, I have been a certified (by myself) hoarder for the majority of my life. My inability to resist hoarding online resources and putting them at the bottom of my browser bookmark list is no different from the same mindset I had as a child to collect all the stickers I can find in a store without ever using them until they are not sticky anymore. The analogy aside, I have also followed many youtubers on a very diverse set of subjects in hope of learning them some day - physics, general CS, ML, news and politics, geography, music, sports, languages, etc.
• Yet here’s another thread on what youtube channels people follow to learn more about a field. I am well aware that I won’t have the energy to take in more information than what I already process every day, but I just can’t feel missed out. I’m sure I’ll phase out this feeling one day. But before that, I will still scroll down the list and scrape for some new kicks.

How NOT to make an indie game

• A sobering video on some lessons learnt by the solo developer during the 4-year dev experience of the game Patch Quest.
• Some key takeaways I had from this video:
  1. While it’s okay to keep a list of cool features to have in the game, don’t dive in just yet and try to tape them all together in the game.
  2. Find a core idea for the game and prototype as early as possible.
  3. Can build on existing games and make our own twists
  4. Find all ppl available around to verify if the prototype is valid/fun

What are swaps?

• I watched the movie The Big Short last month and was most fascinated by its narrative of the financial crisis, in particular their using numerous perspectives - ranging from big-name quant traders, a garage hedge fund, former traders, investment bankers, realtors, asset managers, and so many more - to shed light on the proceedings and unfolding of the 2008 recession.
• Inspired by this film, I then turned to watch The Margin Call last week, which was perhaps not as stunning as the former, but still utterly enjoyable. Instead of attempting to recount the whole timeline of events from different angles, this story focused on one company only, but it dug much deeper into the inner working of it, and eventually showed how the decisions of this firm alone led to the beginning of an avalanche.
• Since I am still a layman in finance (I’m trying to read more but it takes time), I had no clue what “swaps” were before watching the movies. And to be honest, even after watching those I’m still confused, as they refer to it in so many different and seemingly unrelated contexts. Therefore, making a small step away from laymanship, I found some very nice explanations and examples of swaps and finally got my head around them. The resources I think that helped me the most are listed below:
  • Investopedia: Swaps
  • MoneyWeek Video: What is a swap
  • Investopedia: CDS

Aphantasia

• According to the wikipedia page, aphantasia refers to the inability to voluntarily create mental images in one’s mind.
• Although this phenomenon most certainly sounds like a disorder or a disability of some sort, it is surprisingly not a consensus among those with aphantasia. From this reddit post, while many are willing to try anything to gain the ability to visualise things and memories in their mind, some of the demographic are, on the other hand, content with this particular form of lack of imagination. The latter group sees it more or less as an enhancement of their critical thinking and analytical skills, such that they are no longer bound to the dependence of images. Some other benefits they highlighted include not worrying about traumatic experiences and images, reading fast, better communication, stronger conceptualisation, and so on and so forth. In fact, they regard it as a feature, not a bug.
• Moreover, aphantasia most certainly does not equate loss of creativity. On the contrary, they can be brilliant inventors, musicians, entrepreneurs, and most other professions that require creativity. The wikipedia page also supplied us with some notable figures with this condition. It’s just that they use their “imagination” in a different but effective way.
• Even so, I would stick to my current form of image-rich imagination if I were to choose. I can simply choose to use less of it if needed. It is nice to have a choice after all.