Three Longs & Three Shorts

Published on: 16 Dec, 2018

At the end of each week, we will share with you our favourite reads. We would be grateful if you could reciprocate. This week’s reads focus on data as the new WMD, the king of quant investing, the other side of Elon Musk’s genius, socialism, grit and perseverance and lifting weights to fight depression.

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1. Long read: Christopher Wylie – what happens next?
Authors: Jo Ellison
Source: Financial Times (https://www.google.co.in/amp/s/amp.ft.com/content/4c394bbe-f22f-11e8-ae55-df4bf40f9d0d)

Christopher Wylie, the former Cambridge Analytica employee, who blew the cover on what the group was upto, is a very original thinker. In this remarkable interview with the FT, the Canadian – who dropped out of school, then taught himself to write code and then studied law at the London School of Economics – talks about: (a) how the modern tech companies are exploiting our personal data and given others the ability to “weaponise” our personal data; and (b) the links between popular culture, fashion and politics. Key quotes from a refreshingly original interview:

“I think a lot of regulators and legislators are realising that the argument that we should have development without any rules and regulations, just for the sake of innovating, can go terribly wrong. When you have data and algorithms being weaponised and being used against a population, to undermine their very perception of what’s real, the impact of that is Donald Trump, or Brexit, or the rapid expansion of the alt-right and neo-Nazis. Our products, in my view, are weapons of mass destruction. And that has been facilitated, in many cases knowingly, by companies like Facebook…We are trading our democracy for ad optimisation. I don’t agree with that trade-off.”

“The first discussion I had with Steve Bannon, we ended up talking about fashion, because he was asking “How do you create cultural change?” He thinks about what he’s doing as a cultural war. And when you look at weapons, weapons have two fundamental aspects. You’ve got a payload and you’ve got a targeting system. The payload in cultural warfare are narratives, and the targeting systems are algorithms. And that war is fought, at the moment, in the domain of cyberspace. Fashion and politics are the same industry. in many regards, because it’s about identity, and it’s cyclical, and people get really emotive about it. In psychology they call it an affective response, where you have a gut response. Fashion affects you.”

2. Long read: Jim Simons – the Numbers King
Author: D.T.Max
Source: New Yorker (https://www.newyorker.com/magazine/2017/12/18/jim-simons-the-numbers-king)

The revolution that Jim Simons, an award winning Maths professor from Stony Brook University, started in 1982 when he set up Renaissance Capital has changed the face of investing. Inspired by the success of Renaissance’s Medallion fund – 75% CAGR before fees from 1991 to 2005 – a whole generation of quant funds have transformed investing. Now, the majority of American money that is traded is managed by quants and their algorithms. This New Yorker article helps you understand the remarkable man behind this revolution.

A decade into his “retirement” from Renaissance Capital he is still one of the highest paid individuals in the world (puling in nearly a couple of billion dollars each year) thanks to his massive stake in the hedge fund he founded. In fact, the Renaissance Medallion fund still makes so much money that it for at least a decade now it has stopped taking any inflows.

But what makes Simons really interesting is not just his enormous networth (estimated at nearly $20bn). It is how he spends his wealth. Simons is spending close to $90m each year in funding and running the Flatiron Institute in Manhattan. The Institute’s sole job is to make world class computing firepower available to America’s smartest academics.

“The Flatiron Institute, which is in an eleven-story fin-de-siècle building on the corner of Twenty-first Street and Fifth Avenue, is devoted exclusively to computational science—the development and application of algorithms to analyze enormous caches of scientific data. In recent decades, university researchers have become adept at collecting digital information: trillions of base pairs from sequenced human genomes; light measurements from billions of stars. But, because few of these scientists are professional coders, they have often analyzed their hauls with jury-rigged code that has been farmed out to graduate students. The institute’s aim is to help provide top researchers across the scientific spectrum with bespoke algorithms that can detect even the faintest tune in the digital cacophony…The Flatiron doesn’t conduct any new experiments. Most of its fellows collaborate with universities that generate fresh data from “wet” labs—the ones with autoclaves and genetically engineered mice—and other facilities. The institute’s algorithms and computer models are meant to help its fellows uncover information hidden in data sets that have already been collected: inferring the location of new planets from the distorted space-time that surrounds them; identifying links to mutations among apparently functionless parts of chromosomes. As a result, the interior of the institute looks less like a lab than like an ordinary Flatiron-district office: casually dressed people sitting all day at desks, staring at screens, under high ceilings.”

Reading this piece makes you realise that the top researchers across disciplines as diverse as biotech, climatology, physics and finance are all collecting vast amounts of data and then applying quant techniques to tease out signals. That in turn is changing the nature of research & academia. Out of the window goes abstract theoreticising (for example, the kind of work that made Einstein an immortal) and into the arena comes data collection and heavy number crunching. In that sense, what Jim Simons is doing is taking the methods that made him rich and spreading them across all other academic disciplines. Now, that’s called building a real legacy.

3. Long read: Dr. Elon & Mr. Musk: Life Inside Tesla’s Production Hell
Author: Charles Duhigg
Source: WIRED (https://www.wired.com/story/elon-musk-tesla-life-inside-gigafactory/)

An investigative piece about Elon Musk’s travails with Gigafactory and Model 3 by Charles Duhigg, the Pullitzer prize winner and author of The Power of Habit. Charles brings out the other side of genius in this piece in the WIRED. It is full of anecdotes, sometimes hilarious but often times grave enough to know that beautiful minds come with an immense inherent ability to self-destruct.

““The overarching purpose of Tesla Motors (and the reason I am funding the company) is to help expedite the move from a mine-and-burn hydrocarbon economy toward a solar electric economy,” Musk wrote in a 2006 document he called “The Secret Tesla Motors Master Plan.” “We will not stop until every car on the road is electric,” he said at one point. It was a lesson in his approach to life. “Optimism, pessimism, fuck that,” he once told WIRED about his other company, SpaceX. “We’re going to make it happen. As God is my bloody witness, I’m hell-bent on making it work.”

Silicon Valley was built on such audaciousness. Musk’s story, in particular, has been embraced as proof that believing in the impossible can sometimes make it real.”

“Musk’s odd behavior isn’t unique or even extreme in the annals of inventors. Howard Hughes lived like a hermit in hotels, watching movies in the nude and refusing to cut his fingernails. Nikola Tesla, who pioneered alternating current electricity delivery—and who is honored in the name of Musk’s company—died destitute, convinced he had invented a motor that could run on “cosmic rays” and obsessed with caring for sick pigeons. (He is reputed to have said of one, “I loved that pigeon as a man loves a woman, and she loved me.”)

There’s a sense of tragedy in such stories because these men seemed, at one point, to rise above the masses and suggest that genius is possible. Silicon Valley in particular reveres these kind of heroes—and the more willful and ornery they are, the better. Technologists are often called upon to do things that seem impossible, and so they celebrate when doubters are proven wrong—when dismissal of an idea becomes evidence of its visionary reach. The idea of the odd genius is afforded a special status within technology. People lionize inventors who listen to their intuition and ignore naysayers, who hold themselves and everyone else to a standard of perfection, regardless of what it costs those around them. Steve Jobs is gone; now we have Elon Musk.”

“On July 1—more than two years after opening reservations for the Model 3—Musk finally sent the jubilant email many employees had been waiting for. “I think we just became a real car company,” he wrote. Tesla had manufactured 5,031 Model 3 vehicles during a seven-day period. They had hit their goal, six months late, at a cost of hundreds of millions of dollars and dozens of executive departures. “What an incredible job by an amazing team,” Musk wrote. “Couldn’t be more proud to work with you.”

Employees inside the company also thought it was amazing, though some cite different reasons.

“For me, the fact that we were able to build at scale, amid all that craziness, that’s the real accomplishment,” one former engineering executive told me. “Just think about it: We designed a car that is so simple and elegant you can build it in a tent. You can build it when your CEO is melting down. You can build it when everyone is quitting or getting fired. That’s a real accomplishment. That’s amazing.”

4. Short read: Why northern Europe is the new American dream?
Author: Simon Kuper
Source: Financial Times (https://www.google.co.in/amp/s/amp.ft.com/content/4ccd99be-f2a1-11e8-ae55-df4bf40f9d0d)

Simon Kuper is in superb form in this fluent essay on how overworked American professionals now look enviously at Northern Europeans. Why? Because many Northern Europeans “get home from work in time for dinner with the kids; no stress about paying for their education or healthcare; safe streets in a safe region; an affordable home near extended family; frequent holidays and a long life. You won’t get rich, but you won’t need to either.”

As Donald Trump has said “Sadly, the American dream is dead.” America now is a society dominated by heirs, “the predictable result of 80 years of national wealth accumulation and low to non-existent inheritance taxes. The US has less social mobility than northern Europe…most Democrats and young Americans now believe in “socialism”. By that, they seem to mean a more equal society with decent social services – in short, something like Northern Europe.”

5. Short read: The State of Being Stuck
Author: Ben Orlin
Source: Math with Bad Drawings (https://mathwithbaddrawings.com/2017/09/20/the-state-of-being-stuck/)

A wonderful piece on patience and perseverance from a Mathematician’s perspective – virtues key to success in any field, more so if you are an inventor. But this article ties it in with the whole process of learning for children and adults alike and adopting a growth mindset to living – accepting ‘the state of being stuck’ as Andrew Wiles puts it.

“What you have to handle when you start doing mathematics as an older child or as an adult is accepting the state of being stuck,” Wiles said. “People don’t get used to that. They find it very stressful.”

“These days, the educational conversation revolves instead around Carol Dweck’s grit-related concept of mindsets.

Some people exhibit a fixed mindset. They believe that one’s intelligence and abilities are unchanging, stable traits. Success, to them, is not about effort; it’s about raw ability. To struggle is to reveal your intellectual shortcomings. They can accept the state of being stuck only insofar as they accept the state of being visibly and irrefutably stupid—which is to say, not very far.

By contrast, those with a growth mindset believe that effort fuels progress. The harder you work, the more you’ll learn. To be stuck is a transient state, which you overcome with patience and persistence.”

“If you hold one mental image of Wiles, he wants it to be this: not the triumphant scholar with the medal around his neck, but the child learning to glory in the state of being stuck.“

6. Short read: Lifting Weights Has a Surprising Effect on Mental Health
Author: Christina Finn
Source: Tonic (https://tonic.vice.com/en_us/article/nepdpm/lifting-weights-has-a-surprising-effect-on-mental-health)

There is plenty of research which shows that exercise can help with depression. Most studies however focus on aerobic exercise (running, cycling, etc). Could it be that lifting weights also helps tackle depression? In a paper published in JAMA Psychiatry, researchers analysed the results of 33 experiments focused on this issue. They found that:

a) Strength training was linked across the board to improvements in depressive symptoms, such as low mood, a loss of interest in activities, and feelings of worthlessness. In fact, “…resistance training may be particularly effective for those with greater depressive symptoms.”

b) “…the number of weekly workouts didn’t seem to matter. The benefits were much the same, whether people trained twice or five times a week. In addition, improvements in physical strength didn’t correlate with less depression. Just getting the training done, irrespective of the amount of strength gained, seemed to help.”

c) “Resistance training…is also a highly effective way to manage symptoms of anxiety…Both types of exercise led to a significant drop in symptoms of worry, with subjects in the resistance training group seeing the best results. In fact, lifting weights just twice a week led to a remission rate that was on par with antidepressants.”

d) “Six months of resistance training has also been shown to increase the size of certain regions of the brain. And this change in brain structure was tied to an improvement in mental function.”

Note: the above material is neither investment research, nor financial advice. Marcellus is not authorized to provide either. Marcellus does not seek payment for or business from this email in any shape or form. Marcellus Investment Managers is regulated by the Securities and Exchange Board of India as a provider of Portfolio Management Services.