The meta game of money?
How old-world investment managers may soon meet their match.
Welcome to Off Mute –a free-ranging, conversational mailing by Tyler Lastovich. This is a project to get thoughts out of my notes and into the world, but I do hope you enjoy it! If you ever have a question, comment, or hate what I said, please do let me know. I live for a little friendly argument.
This weeks letter was inspired by reading this article, a piece about investment managers and the 'meta game' they play. From the perspective of an outsider it walks a fine line between insightful and ridiculous. It portrays investors as operating in levels based on what kind of insights they have. The more holistic they can see the market, the better they act as investors.
The Level 4 investors I have met have an unusual intensity and see their interactions with the market to more fully realize themselves.
I mean, c'mon. What are these guys –magicians, yogis? Without question, the primary takeaway I had from this essay was "there is a way things are done". I am not at all saying this is inherently bad, but systems like this have a tendency to come crashing down.
The financial world is such a strange space. It is filled with strong opinions, loud voices, and ideas. Unlike many other fields, there is no barrier to entry. This leads to a truly massive understanding gap. You have some of the smartest people programming trading algorithms to skim tiny fractions off of trades right next to Uncle Jim slinging $TSLA put options on a whim. Somehow, both can still be successful.
The fascinating aspect of this is all the Uncle Jims in aggregate materially impact the outcomes of the Einsteins. This coupling is not a typical thing. Simply speaking, the public stock market is the most quantified, yet least predictable market I can think of. In engineering people argue about implementations, but in the end one result is quantifiably better than another, measured by speed, efficiency, or usability. When considering stocks everything is a guess. Even the smartest person in the world is going to be wrong sometimes. There is no ground truth, only characterization of how likely something is to occur.
Another aspect I find head-scratching is why everyone is so eager to say that they are right and everyone else is wrong. I see this so much on FinTwit that I have started to wonder how much it expands the envelope of potential outcomes. Where else do people stand to gain so much by agreeing, yet can't bring themselves to do so? The need to be contrarian is just too strong.
Quantification and Classification
I can't think of another industry that is so primed for near-complete disruption. Highly compensated employees doing numerical analysis. Predicting trends, setting expectations, modeling results. These all sound like ideal tasks for computers, not people. Complex market actions will become trivial to perform as technical complexity continues to be abstracted away by automation. Within a few years the Uncle Jims should have access to self-managed algorithmic trading. Transferring the concepts of no-code from making websites to trading analysis and algorithms is a natural progression. I know there are already a few companies working on this, but I haven't seen one emerge as a leader.
From a data standpoint, the stock market encompasses a relatively small, fixed problem set. People and their emotions are the hard part. As compute time get cheaper, using advanced machine learning for every type of analysis will become more accessible. Large NLP models will run sentiment analysis, model the effect of political impacts, regulations, and monitor international affairs. This means more competition to red-blooded analysts in the technical finance space. More APIs, more platforms, and more niche products. I am confident we will see all sorts of Alpacas, while fewer follow-my-lead investors.
What will the post-Robinhood market 5 years now look like? Probably not all that different, but there will definitely be greater diversity among the field. If I had to bet, technical strategies will be the default in <10 years. Reducing asymmetric information is good for the common man. Machine learning stands to initially harm those who don't have access, then make a fast reversal as usage becomes more generally available. Long data. Short feelings.
New music recommendation each week from nearly 1M minutes of Spotify streaming. Fun, wild, somber, and everything in-between. Have recommendations? All genres are welcome –send them my way!
Wolfmother [ Rock, Modern Classic Rock ] What a band out of time. I have been listening to Wolfmother for a while now and these songs really hold up to the test of time. With a rough old-school sound, they are one of the few modern rock bands that capture the essence of the classic rock I grew up with. A+ music to get stuff done around the house or garage.
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An exercise in creating serendipity. lastovich.me/now
Research: 60% Writing: 15%, Code: 15% Design: 10%
RESEARCH – This week was fascinating. I dove ever-deeper into the metaverse, looking into the companies that are bringing it to life. I will save my research for publishing later, but the takeaways are that we will still have concentrated gains for the top players.
WRITING – I am now 6000 words into my essay on the metaverse. This week I added diagrams on how basic APIs work and cleaned up the high-level concept. There is still more review to go, but I feel the initial content is now complete. It has been a very rewarding experience to write it.
CODE – With the metaverse piece nearing completion, I will need to make sure I can capture any potential exposure that it gets. I pushed changes to the homepage and transactional pages for Honest AI this week to keep a more consistent brand theme.
DESIGN – This week I designed the full brand called [redacted] for a metaverse company that I am potentially starting. This concept is all about machine learning and would require investment capital or some serious free cloud credits. I am really pleased with the design language of the new project. With equally mild and wild elements it isn't like anything out there right now. All the imagery is generated in Processing, then cropped and edited to work just right.
Consider this the most sneak of peaks…
Enjoy the rest of the week,