## Posts

Should I take glucosamine? 2020-12-02T05:20:04.734Z
Charting Is Mostly Superstition 2020-08-23T20:26:15.474Z
Market Misconceptions 2020-08-20T04:46:21.991Z
The Wrong Side of Risk 2020-08-16T03:50:03.900Z
How to Lose a Fair Game 2020-08-14T18:41:13.638Z
Repeat Until Broke 2020-08-13T07:19:30.156Z
You Need More Money 2020-08-12T06:16:09.827Z
When is the right time to hole up? 2020-03-14T21:42:39.523Z
Do 24-hour hand sanitizers actually work? 2020-03-01T20:41:43.288Z
gilch's Shortform 2019-08-26T01:50:09.933Z
Stupid Questions June 2017 2017-06-10T18:32:57.352Z
Stupid Questions May 2017 2017-04-25T20:28:53.797Z
Open thread, Apr. 24 - Apr. 30, 2017 2017-04-24T19:43:36.697Z
Open thread, Apr. 17 - Apr. 23, 2017 2017-04-18T02:47:46.389Z
Cheating Omega 2017-04-13T03:39:10.943Z

Comment by gilch on A No-Nonsense Guide to Early Retirement · 2021-02-25T02:32:59.739Z · LW · GW

Skimming that link, I think it shows backtesting; have you actually beaten the index yourself with real money?

I am not rich yet. I haven't been doing this long enough for my results to be meaningful. Ask me that again in five years. Or ten.

When the hypothesis at hand makes time valuable - when the proposition at hand, conditional on its being true, means there are certain things we should be doing NOW - then you've got to do your best to figure things out with the evidence that we have. — Eliezer Yudkowsky, You're Entitled to Arguments, But Not (That Particular) Proof

[Not an argument from authority; Yudkowsky just explained it well.] In the meantime, to the best of my knowledge, we should be using leverage, and weighting the bonds more heavily than the stocks. I'm confident enough in this that the bulk of my portfolio is leveraged bonds balanced against about half as much in leveraged stocks, and most of my savings is invested in my portfolio.

I agree that it is wise to be skeptical of backtests (as a rule of thumb) but rejecting them categorically is a mistake.

So let's back up a step. Why be skeptical of backtests? Because any monkey can overfit to noise and make a backtest look good, but such a strategy is useless going forward. The more parameters in a backtested strategy, the more suspicious you should be. Wait, that's an oversimplification. There's a one-parameter equation that can exactly fit any scatter plot, but it might take hundreds of thousands of digits to do so, and getting even one of them wrong gives you a completely different plot. That's extreme compared to even a run-of-the-mill overfit backtest. (Occam's razor as typically worded is wrong, but Solomonoff fixed it for us.) So let's say the more fine-tuned the backtest has to be to look good, the less likely it works.

So, how fine-tuned is my strategy? Well, how much can we perturb it before it breaks? (For the one-parameter scatter equation, it's a ridiculously tiny amount.) For a typical overfit backtest, it's bigger, but usually still pretty small. So,

• Does it matter what year it starts? Not really, for the period when we have data.
• Does it work if we scramble the order of the years? Pretty much.
• Does it have to be BND? No. Other long-term bond funds, e.g. TLT also work.
• Does it have to be VTI? No. Other stock market funds, e.g. SPY, IWM, and QQQ also work.
• Does it matter how often we rebalance? Not really. Once per quarter, once per month, or triggered at 10% absolute deviation all work.

Where's the fine tuning? This strategy seems pretty robust. Is it the relative vol weighting? Targeting the same volatility as the stock portfolio alone? The easiest type of backtest would set this with the benefit of hindsight. But volatility is much more predictable than price. So I'm not very concerned. And indeed, a walk-forward backtest that dynamically weights based on a 1-month simple moving average of historical volatility to estimate future volatility also works. But 1-month is arbitrary, right? Maybe I fine-tuned that one. But 3 months works even better. And 2 months also works. And so does an exponential moving average. We can perturb that parameter quite a bit. A fixed 1:2 ratio the whole time also works. As does 1:3. No fine-tuning here.

Do we at least have a plausible explanation for why this strategy should work? Yes. Bonds are a "safe haven" asset. When stocks look scary, people look for "safer" investments. That explains the anticorrelation. And yet we expect both asset types to appreciate in value over time. Stocks pay dividends and companies get bought out at above-market prices. Bonds pay interest. They're both pretty good investments in their own right.

Past results are no guarantee of the future, but I think it's valid to use induction here. If we dynamically target vol, then if the anticorellation or relative ratio relationship breaks, we'll still do OK.

1. it's really easy to lose a bunch of money if you use it wrong

Very true, and important. Overbetting is the second-fastest way I know to lose money in the stock market (after overtrading). Don't bet the farm. Don't bet over Kelly. I explained this in my link. But with reasonable precautions, leverage is pretty safe. Not 100% safe. After all, you can die in a car accident before you have a chance to enjoy your early retirement. Big index funds have not historically dropped to zero overnight. You would have had time to make adjustments in a crash. And there are relatively inexpensive ways to hedge against the extreme tail, like far-OTM puts or VIX calls.

But what are the chances that the optimal Kelly bet is exactly 1x leverage? On priors, for the stock market, I'd start with 2x. But you can do better with dynamic vol targeting.

1. I'm not sure there's a reliable way to borrow money at low enough rates to get good results. Most of what I've read about leverage pretends the interest rate is 0, which it's not -- looks like Robinhood offers 2.5%? What's the most reliable interest rate people can get, and does this rate kill results?

Inflation is a drag. Taxes are a drag. And yes, interest rates are a drag when using leverage. Leveraging up is never going to improve your Sharpe ratio by itself, because leverage isn't free. Some brokers are unreasonable here. You can buy a leveraged ETF and not bother with margin loans. These funds have the scale required to get the good rates. This even works in an IRA. It's not as flexible as margin, but you don't need it for this strategy.

For other strategies, you can finance with box spreads to get very good rates, even as a retail investor. These are more dangerous if you don't know exactly what you are doing, (and very safe if you do) but the more passive investors can just use the leveraged ETFs.

Comment by gilch on A No-Nonsense Guide to Early Retirement · 2021-02-24T19:59:00.337Z · LW · GW

Don't discount bonds just because they have lower returns. They also have lower volatility. E.g. BND (Vanguard total bond market) has a Sharpe ratio of about 0.81, while VTI (Vangaurd total stock market) has a Sharpe ratio of about 0.56. That makes BND a better investment overall. If you had borrowed money to leverage BND up to the same volatility as VTI, you would have gotten a better return than from VTI alone.

Buying index funds is a much better plan than not buying assets, or using that money to buy liabilities. But I Can Beat the Index, and it's not that hard.

The key concepts here are diversification and leverage. A portfolio containing both stocks and bonds tends to have lower volatility than either would alone. Both tend to go up over time, but they have a tendency to move in opposite directions (i.e. they are anticorrelated), so a lot of the noise cancels out. That means you can borrow money to buy more assets and get better returns than you could from either while targeting the same amount of volatility exposure as you would get from the portfolio of stocks alone.

And with further diversification of assets one can do even better. They don't have to be anticorrelated. They're helpful even if they're uncorrelated.

Comment by gilch on Open & Welcome Thread – February 2021 · 2021-02-22T15:45:16.423Z · LW · GW

"Not even wrong."
"This sentence is a lie."

Comment by gilch on Reasonable ways for an average LW retail investor to get upside risk? · 2021-02-17T21:35:11.901Z · LW · GW

Box spreads. That's still margin though.

Leveraged ETFs.

Leverage is very important for maximizing returns, but too much is counterproductive. Sometimes even 1x is too much, or even 10x is not enough. The right amount is the Kelly fraction and it depends on the payoff distribution of your strategy, which you can only estimate. This is mostly what I was getting at in How to Lose a Fair Game

Comment by gilch on Reasonable ways for an average LW retail investor to get upside risk? · 2021-02-17T21:27:49.770Z · LW · GW

They all have a range of distributions but largely they are money-losing (on average). The reasons for this are fairly straightforward. Everyone likes lots of upside, with limited downside, so those bets get bid up and their expected returns fall. Personally I think these are a bad thing to do systematically*.

This is basically what I was trying to say in The Wrong Side of Risk.

Comment by gilch on Reasonable ways for an average LW retail investor to get upside risk? · 2021-02-17T18:15:48.399Z · LW · GW

In the case of a deep in-the-money cash-covered put, performance is pretty similar to simply holding the stock. (Less deep is synthetically equivalent to a covered call.) Historically, leverage of about 2x does better when holding the index, so as a rule of thumb, a 50% covered index put seems about right, but this can be adjusted based on current volatility levels.

I touched on Kelly a little bit in How to Lose a Fair Game. To calculate Kelly properly, you need to know your payoff distribution. In practice, you can't know this, but you can estimate it from historical price data, which is better than pulling a number out of your nose, but still highly uncertain. If you under-bet a little, your returns are suboptimal. If you over-bet a little, your returns are suboptimal, and you have to endure much higher volatility. (And if you over-bet a lot, you'll wipe out.) Since the consequences of betting a bit under Kelly are less bad than betting over Kelly, and your return distribution is uncertain, it's best to think of the Kelly fraction as an upper bound, rather than a target.

In particular, for a single asset, the formula becomes

Where is the drift, is the risk-free rate, and is the volatility. Future volatility is much easier to predict than future price. Even a simple moving average of historical volatility over the last month is probably a good enough estimator for our purposes, but you can do better with a GARCH model or something.

Comment by gilch on Reasonable ways for an average LW retail investor to get upside risk? · 2021-02-17T05:01:11.039Z · LW · GW

Buy SVXY in small amounts, and keep your exposure to it balanced (i.e. regularly pull excess money out so you don't lose it all when it inevitably crashes hard). It's a short-VIX ETF, which makes it kind of similar to selling straddles on a big index, but you don't need a margin account since it's an ETF. It's also a lot less hassle than rolling options every month.

You can also manually apply something like the VXTH hedging algorithm that I mentioned in my other comment to this one.

Comment by gilch on Reasonable ways for an average LW retail investor to get upside risk? · 2021-02-17T04:45:00.982Z · LW · GW

ARKK looks interesting. It's an ETF focusing on "disruptive innovation", so its upside is potentially pretty high. It's done quite well so far (its biggest holding is currently TSLA), but, as always, that's really no guarantee of future performance. It's hard to separate skill from luck, especially with so little data. I don't currently hold this one, but if I were looking for more "upside risk", it's one I'd consider adding to my portfolio.

Comment by gilch on Reasonable ways for an average LW retail investor to get upside risk? · 2021-02-17T04:26:01.077Z · LW · GW

The random calls and puts was more of an existence proof of the option seller's edge than an actual strategy.

Still, selling puts on big index ETFs is a good strategy, but it's one with negative skew. When the market crashes (and it eventually will), you'll lose a lot of money. As always, don't bet over Kelly. It's been working well for me so far, but I'm also hedging with VIX calls so I don't get wiped out next crash. The VXTH index uses a straightforward algorithm you could do manually to defend your short index puts with VIX calls. You'll get the best returns by selling slightly in-the-money (ITM) puts. (I'm not comfortable with that much variance, so I use out-of-the money (OTM) puts and hedge more than that at the cost of profits, but you might be OK with it.)

Selling straddles on big index ETFs is arguably a better strategy (if you can stomach it), but in small amounts since it's even more skewed than puts alone. The advantage here is that only one side can expire in the money, so playing both sides doesn't affect your margin requirement much, but almost doubles your premium. You could also use the VXTH defense on these, plus maybe a cheap far-OTM call, since short risk is potentially unlimited otherwise. You still need a big enough account to handle that much skew without betting over Kelly.

Negative skew is easier to deal with the more your account is diversified, since it tends to not happen all at once that way. These shouldn't be your only strategies.

Comment by gilch on The 10,000-Hour Rule is a myth · 2021-02-02T23:05:12.590Z · LW · GW

Salt, Fat, Acid, Heat looks related to this concept. But some of the elements are different.

Comment by gilch on The 10,000-Hour Rule is a myth · 2021-02-02T23:01:48.696Z · LW · GW

"Reduce" probably means boil off some water to increase the salt concentration of what remains.

Comment by gilch on gilch's Shortform · 2021-02-02T21:03:28.462Z · LW · GW

The instability appears to have passed. I didn't go long vol, although I had rebalanced early to reduce some dangerous exposure and reduced my usual small short vol position. I've now restored my usual short vol position. It could be months before we see a blip like this again.

Comment by gilch on gilch's Shortform · 2021-01-29T17:35:34.169Z · LW · GW

It's a day later, and I'm seeing it again, but barely. I want to see if it persists a while before acting so I don't get whipsawed.

Comment by gilch on Has anyone on LW written about material bottlenecks being the main factor in making any technological progress? · 2021-01-28T21:10:07.354Z · LW · GW

You might be confusing "Dyson sphere" with the Dyson shells from science fiction, which is more specific type of Dyson sphere. You don't need "scrith" or "neutronium" to make a Dyson sphere out of satellites (a Dyson swarm) which is the more realistic type that Dyson originally proposed, or out of statites (a Dyson bubble).

Comment by gilch on gilch's Shortform · 2021-01-28T14:41:43.844Z · LW · GW

At market open, the instability I was seeing appears to have passed. That did not last long. I'll keep checking it.

Comment by gilch on gilch's Shortform · 2021-01-27T23:40:46.899Z · LW · GW

I'm seeing some serious stock market instability starting near the end of the trading day today. The volatility curves are making me nervous. Sometimes it passes without much happening, but I think there's an elevated risk of a market crash in the next day or three. I can't say how hard. If this instability persists tomorrow morning, I'll be taking some precautions, probably going long volatility. If I had been paying more attention, I might have done this at the end of the trading day today. [As always, I am not your financial advisor, and without knowing your financial situation this cannot be financial advice. Please don't bet the farm. You are responsible for your own money.]

Charting is mostly superstition. This isn't based a gut feel, but on some statistical analysis of past market behavior that has been reliable enough in the past for me to take seriously. I'll try to remember to update this thread in the morning.

Comment by gilch on gilch's Shortform · 2021-01-19T06:33:30.854Z · LW · GW

Added that PyPI link to the release page. Although it was referring to the pip install command below that.

Comment by gilch on gilch's Shortform · 2021-01-17T05:44:25.178Z · LW · GW

Announcing the release of Hissp 0.2.0, my Lisp to Python transpiler, now available on PyPI.

I've overhauled the documentation with a new quick start in the style of Learn X in Y minutes, and a new macro tutorial, among other things.

New features include raw strings, module literals, unqualified reader macros, escape sequences in symbols and improvements to the basic macros.

Comment by gilch on What trade should we make if we're all getting the new COVID strain? · 2020-12-28T22:31:10.829Z · LW · GW

+1. I endorse the long-maturity US treasuries as a safe-haven asset. Especially if options are not an option. In a potential bear market, safe-havens are generally preferable to shorting a stock index, which is the wrong side of risk.

Everything dropped in the Corona Crash because brokers got scared and demanded more margin, so everybody had to come up with liquidity quickly. But then the treasuries recovered even faster than the stocks because of the flight to safety. That would have been a good opportunity to rebalance a stock/treasury portfolio and get the stock market on sale.

Comment by gilch on What trade should we make if we're all getting the new COVID strain? · 2020-12-28T22:15:51.998Z · LW · GW

Hypothetically speaking? [This is an example of a strategy for similar situations, not investment advice. I don't know your financial situation, and I don't know what the market will do. You are responsible for your own money.] If you're expecting a crash, and vol is currently moderate, you could sell one near-the-money SPY put and use the money to buy three out-of-the-money VIX calls.

Choose the dates and strikes so that you get more premium from the put than you have to pay out for the three calls.

If you're wrong about the crash and the market continues to go up or sideways, then all the options would expire worthless and you keep the excess premium.

If the market does crash hard, the VIX will also spike hard, and you should make much more on the three VIX calls than you lose on the one SPY put, although this can depend on exactly which strikes you choose. Gains could potentially be very large in this case. But you would need to close the position before VIX falls too much. VIX spikes don't tend to last very long.

It is possible to lose some money on this spread if the market drops a just a little but not enough to push the VIX high enough to compensate. The put could then expire in the money, while the calls expire worthless. But since the market only dropped a little, your loss shouldn't be too bad.

If your put is cash-covered, this isn't much riskier than holding SPY. But if you have the ability to sell naked puts, you should know what you are doing and not leverage too high. It's possible that your broker could start to liquidate your portfolio during the crash, so watch out for margin calls.

Why not just buy a VIX call? Notice what happens if you're wrong and the market goes up or sideways when you just buy the VIX call vs the spread.

Long options are the wrong side of risk. It's a better deal in the long run to sell insurance than to buy lottery tickets, although it may not feel that way. But buying some reinsurance can be prudent.

Comment by gilch on What trade should we make if we're all getting the new COVID strain? · 2020-12-26T02:37:30.342Z · LW · GW

VIX options, VIX futures, or ETFs based on these, such as VIXY. The VIX itself doesn't really have an underlying asset, but it's based on the implied volatility of options. Various option spreads can work, like straddle-strangle swaps, but they're harder to use if you don't know what you're doing.

Be warned, these do not move exactly like the VIX. For example, you have to pay the market a risk premium to hold VIXY, because the market pays you when it crashes. It's like buying insurance. If you think you can predict the timing of a vol spike, it's the right kind of asset to use, but over the long term, it's the wrong side of risk, and you will lose more money than you gain. Don't hold VIXY long term. I'm usually in the opposite position, SVXY, to collect that premium, but in small amounts relative to my portfolio size.

Comment by gilch on Anti-EMH Evidence (and a plea for help) · 2020-12-18T17:47:38.783Z · LW · GW

I closed my HCAC put at a small profit today.

Comment by gilch on Luna Lovegood and the Chamber of Secrets - Part 7 · 2020-12-17T23:31:54.404Z · LW · GW

Harry is a Parselmouth because he can speak Parseltongue. He's not a Parseltongue.

Comment by gilch on Anti-EMH Evidence (and a plea for help) · 2020-12-17T17:32:36.220Z · LW · GW

Looks like HCAC wants to acquire Canoo. Roth Capital analysts are targeting $30. Comment by gilch on What confusions do people have about simulacrum levels? · 2020-12-15T17:58:53.802Z · LW · GW In Japanese, the days are written with 日 and 月, and then the five elements corresponding to each planet: 火, 水, 木, 金, and 土, followed by -曜日. It was spelled the same in Classical Chinese (where the Japanese got it from), until 1911. The Chinese had apparently learned of Hellenistic astrology by the 4th century. In Classical Chinese, I suppose e.g. Wednesday would be literally "Water-Luminary day". Comment by gilch on What confusions do people have about simulacrum levels? · 2020-12-15T08:28:03.627Z · LW · GW Names for days of the week are similarly derived from the planets in other languages, often from the local pantheon. Knowing which Chinese element was associated with which planet from watching the Sailor Moon anime was how I learned the weekday names and associated kanji in Japanese. Comment by gilch on What confusions do people have about simulacrum levels? · 2020-12-15T07:51:51.007Z · LW · GW In Old English Wednesday was "Wōdnesdæg", but yeah. Woden is the Anglo-Saxon version of Odin. Also Friday was "Frīġedæġ". It's not actually clear from the record if Fríge and Freyja are the same goddess or not, but they're so similar that it's a matter of some debate among scholars. The Norse pantheon apparently had no equivalent for Saturn, so Saturday kept the Roman name. The weekdays were named for the seven "naked-eye" planets known to Hellenistic astrology. (The Sun and Moon counted as planets in that system.) The seven planetary gods were said to watch over the Earth in hourly shifts in order of (geocentric) distance: Saturn, Jupiter, Mars, Sun, Venus, Mercury, Moon. Because a 24-hour day is 3 in arithmetic modulo 7, a different god opened each day of the week, and so the day was named for its opening god. Counting by 24's (or 3's) in this cycle ordered by distance gives us the familiar order of days of the week. Comment by gilch on What confusions do people have about simulacrum levels? · 2020-12-15T01:57:14.075Z · LW · GW French, but because my teacher tried to teach all of the days of the week at the same time, they still give me trouble. They're named as the planets: Sun-day, Moon-day, Mars-day, Mercury-day, Jupiter-day, Venus-day, and Saturn-day. It's easy to remember when you realize that the English names are just the equivalent Norse gods: Saturday, Sunday and Monday are obvious. Tyr's-day (god of combat, like Mars), Odin's-day (eloquent traveler god, like Mercury), Thor's-day (god of thunder and lightning, like Jupiter), and Freyja's-day (goddess of love, like Venus) are how we get the names Tuesday, Wednesday, Thursday, and Friday. Comment by gilch on Anti-EMH Evidence (and a plea for help) · 2020-12-10T17:18:52.196Z · LW · GW Looks like TRNE became Desktop Metal Inc. (DM). I had sold a 12.5 May put on TRNE and closed it today by buying back the DM put at a profit. Comment by gilch on Anti-EMH Evidence (and a plea for help) · 2020-12-08T03:10:29.430Z · LW · GW causing the call options to have negative extrinsic value, which causes people to exercise them Duly noted. That seems like a good time to buy back the calls. And then buy some more to exercise yourself. Not sure how long this lasts. Maybe it's enough to watch it twice a day, or maybe you have to program an order in advance. Once the merger happens [...], there is no longer a$10 floor.

How much warning do we get to redeem the shares? Maybe that's when you buy back the put. Although, if everybody thinks that at once and drives up the IV even more, maybe that's time to sell another one instead.

Comment by gilch on Anti-EMH Evidence (and a plea for help) · 2020-12-08T01:03:02.968Z · LW · GW

These SPAC options have really high implied volatility. Makes me want to sell them. The market tends to overestimate option volatility around known events because demand for options is very high at those times. Maybe a SPAC acquisition is similar. I'm not sure.

A covered call, or equivalently, a deep-in-the-money cash-covered put seems like a pretty good bet. The puts are simpler since you don't have to buy the shares, but the calls probably have better liquidity. If the bubble keeps inflating, you can keep some of that upside. If it pops, the premium from the option makes it hurt less. And you don't expect the shares to end up worth less than $10, which limits the risk even more. Out-of-the-money short puts also look promising. Between the premium and the$10 floor, the 12.5 May puts on both HCAC and TRNE look like free money right now. If it does end at $10 in May, you get nothing, but if there's a vol crush or price spike between now and then, you could exit and collect most of it early. I'm also wondering about exotic spreads between the options and the warrants. The warrants seem a lot cheaper than the options. +27 HCACW / -1 HCAC 17.5 call (any date) also looks like free money right now. [Epistemic status: thinking aloud about how else I might trade this. Not investment advice. There may be risks I'm not seeing yet. Don't bet the farm.] Comment by gilch on Anti-EMH Evidence (and a plea for help) · 2020-12-06T01:05:33.370Z · LW · GW Help me time the SPAC bubble My basic approach with bubbles is balancing. Think in terms of risk exposures rather than entries and exits. Consider how far the price might drop when the bubble finally pops (sometimes that's to zero) and consider how many dollars you're willing to lose on the bet. So, in the case of something that could drop to zero, that means never leaving any more than your maximum loss in dollars in the investment. As the bubble inflates, sell off shares to stay below that value. That means you're locking in gains. When it does finally pop, most of what's left at risk in there might evaporate, but you've kept your profits on the way up. If you think the floor is some value higher than zero, then you risk a fixed amount above the floor. If it dips significantly, it might be about to pop, or it might just be a swing on its way up. Try to keep your risk constant by putting more dollars in. This can be hard. Be systematic rather than emotional. E.g. maybe pre-commit to putting more dollars in once your investment's value drops below 90% of your max risk. But don't trade too often or you'll burn too much in transaction costs. The exact details of your system are less important than actually using a system. You might run into granularity issues if the price of a single share is above your risk target. At that point, you're done. Sell your last share and get out. This is pretty much the strategy you'd get by Kelly betting (or fractional Kelly betting) on a strategy that's a small part of your portfolio. For multiple simultaneous strategies that are a significant fraction of your portfolio, Kelly will also make you balance strategies against each other instead of just against cash. Can we do any better than this? Unless you've analyzed a real anomaly that lets you predict the crash better than the market, then the answer is probably "No." Although, if there are derivatives like options or futures or correlated assets, then maybe you have more (heh) options on how to trade this. But there's so much noise in the markets that it takes a lot of data to try and predict things better than the current price. A SPAC that only lasts two years is not going to have enough price history. But sometimes price anomalies cut across entire sectors. If you can aggregate returns data from multiple SPACs, then maybe you can try to analyze factors that apply to all of them (or most of them). The basic process is like I described in Charting Is Mostly Supersition. Sometimes you can find an anomaly that lets you predict things a little better than chance. Even small edges can be very valuable. Comment by gilch on Anti-EMH Evidence (and a plea for help) · 2020-12-05T23:56:09.276Z · LW · GW Most of the risk premium in investing is for negative skewness risk; it's compensation for the fat tail. And this includes the basic "buy and hold the stock index" strategy. Penny-picking isn't something to avoid. It's the investor's bread and butter. Because compensation for risk is compatible with the EMH, opportunities are not hard to find. The pennies can more than add up to the cost of occasionally getting run over, but only if you survive getting run over with enough left to keep playing the game. That means one must diversify as much as possible and not bet over Kelly. But all of that is just a foundation of smart beta. To do any better, one has to find the alpha: actual market anomalies incompatible with the EMH. One doesn't always know which is which. Comment by gilch on Are index funds still a good investment? · 2020-12-04T01:14:13.504Z · LW · GW If I were to want to decrease how long I am I'd just hold some cash, right? Right, e.g. 50% cash and 50% index fund would be 0.5x leverage. But this isn't once-and-done. You have to keep the ratio balanced as the index price changes, or you're changing that leverage factor. Notice that you tend to buy low and sell high when maintaining balance this way: As the bubble inflates, you're gradually pulling cash out of it, and when it finally crashes, you don't lose what you've already pulled out. And then you have a lot of cash on hand during the crash to buy the index when it's on sale. Had you not been maintaining the balance, all the gains from the inflation would be lost at the crash. Rebalancing does have some transaction costs, so one shouldn't do it too often. I do it about once a month or whenever volatility is dangerously high, but you'd get similar performance doing it once per quarter and when vol is high. The timing doesn't have to be too exact. Some do it whenever the portfolio has deviated from the target ratio by a certain percentage. And the balance doesn't necessarily have to be in cash for you to get similar benefits. Some other mostly-uncorrelated asset can work. Cash is not exactly risk-free. The dollar's performance has some amount of volatility relative to other currencies, and inflation means that you lose real value over time when holding cash. My portfolio balances the TQQQ against the anticorrelated TMF, with the mostly uncorrelated UGL as a ballast, and yes, some cash as well. If I wanted to go more long with leverage, would it make sense to preferentially do that in IRA accounts or in taxable? I'm less certain about this part. It really depends on your financial situation and goals. Probably preferentially IRA, because taxes add up a lot. There are limits to how much you can put into an IRA each year. If you're balancing a portfolio distributed among multiple accounts, and one is an IRA then it can seem to be more tax-efficient to keep a portion of the cash you're balancing against outside the IRA, but if you over-allocate and lose, then even if you have the money to make up for it, you can't just replace your losses by depositing more money in the IRA due to the contribution limit, and you've lost the tax benefits since you'd have to do the balance in a taxable account instead. I'm not sure what to recommend here. I'm putting the maximum amount in my Roth IRA every year, and it's pretty small compared to what I can afford to invest. If you manage your investments well, then you might want to retire earlier than age 59 & 1/2, which might make one think twice about using an IRA. However, a Roth IRA allows you to withdraw your contributions at any time without penalty, so there's little reason not to max it out. You can't access its growth without penalty until 59 & 1/2 (with a few exceptions), however, so if you're going to retire early, you still need to have a source of income to help make up the gap until age 59 & 1/2. Comment by gilch on Are index funds still a good investment? · 2020-12-03T04:40:38.882Z · LW · GW Most of the 3x ETFs compound daily, it's true. And there are costs to this--more from the fees than the compounding itself. But that doesn't automatically make them a bad long-term investment (even though I've heard that said). 3x funds are much more accessible than other kinds of leverage. You don't need a margin account. You don't need options. You can even trade them in an IRA where you don't have to pay taxes. That more than makes up for it. Most brokers charge way too much to consider using margin loans long term. IB does happen to be more reasonable, but loans are still not for free. And to get the best rates, you need a big account. You can't even get to 2x leverage on a Reg-T portfolio using margin loans. (On components sure, but not the whole portfolio, or you'll get a margin call next dip.) For portfolio margin, you need at least$100,000 at most brokers, and preferably a lot more so you don't get downgraded and margin called at the worst time. It's great if you can afford it, but one should start investing long before saving up that much.

Comment by gilch on Are index funds still a good investment? · 2020-12-03T02:54:56.234Z · LW · GW

80% of this game is showing up. (That's the Pareto principle, not an exact figure.) If you don't have a better plan for your money and have the means to ride out a portfolio drawdown for a year or three, then by all means, invest some of it in index funds. But you can do a lot better than that with a little more effort.

If you're concerned about a bubble, the correct move isn't to get out (or not get in), but to diversify and leverage down. If you're over-allocated when the bubble bursts, then you lose your shirt. Don't bet the farm. But if you always avoid bubbles, you miss all the gains when they inflate. And sometimes they can keep inflating for decades.

Many of the best investments have a returns distribution with a negative skew. They go up in price precisely because they're prone to crashing hard. That's the risk premium.

Investing is not about avoiding risk. It's about managing it. You want exposure to this skew risk so you can collect the premium for it. But you also have to be able to survive a drawdown. Kelly is the optimal balance, but it's hard to use it directly.

In practice, this means leveraging up for index funds most of the time, and adjusting the amount of leverage based on its risk. This can be hard to quantify, however, the most important factor for index funds is their volatility. (Volatility is certainly not the only kind of investment risk.) Unlike asset prices themselves, volatility is much more predictable.

I personally (at present) have a portfolio of mainly TQQQ, UGL, and TMF, plus cash (among a few other things that take more effort and knowledge to manage), which are 3x-leveraged Nasdaq-100, 2x gold, and 3x long-term treasury bond ETFs, respectively, which I can leverage back down (when necessary) by allocating more of the balance to cash. I frequently (at least monthly) adjust their weights based on their recent volatility to maintain fairly constant and equal volatility exposure to each. That means, for example, that my allocation in terms of dollars to TMF is about double that of my allocation to TQQQ, even though my allocation in terms of volatility exposure is about the same.

Comment by gilch on What Would Advanced Social Technology Look Like? · 2020-12-03T01:12:30.356Z · LW · GW

I looked up the real example: cadzu means "x1 walks on surface x2 using limbs x3". I think I see your point. Lambda calculus (and close derivatives, like Haskell) seem to do fine with only unary functions. To be fair, the definition of any word is kind of arbitrary, but it seems more elegant to build these up from smaller pieces.

After studying Iverson's J (itself an APL derivative), I think one could make a good case for arity-2 verbs taking only a subject and object, with adverbs remaining unary. From briefly skimming parts of a Lojban crash course just now, it appears that the places are usually more regular than you give them credit for. They tend to go in the order subject, object, destination, origin, means, although not all verbs have all of these, which does seem confusing.

I also stumbled across Ithkuil, another conlang which seems to have that terseness quality I was looking for, as well as claiming to be a logical language. But it's so difficult that nobody speaks it fluently.

Comment by gilch on Should I take glucosamine? · 2020-12-02T20:25:33.562Z · LW · GW

They said they controlled for that:

Multivariable-adjusted HR showed that the association was maintained after adjustment for age, sex, race, education, smoking status, and physical activity

Is there something in particular you saw that they did incorrectly in their analysis here?

Comment by gilch on The LessWrong 2018 Book is Available for Pre-order · 2020-12-02T19:43:08.088Z · LW · GW

This FAQ says that only 41 of the top 44 essays were included, but the back cover in the sample says that:

This book set contains 44 essays

Also, what were the other three, and why were they omitted?

Comment by gilch on What Would Advanced Social Technology Look Like? · 2020-12-01T03:32:07.260Z · LW · GW

What goals are we optimizing for?

Easy to learn? Toki pona beats Esperanto. But its goal of "simplifying thoughts" is perhaps the opposite of what we'd want.

Unambiguous grammar? Lojban is supposed to have it. I'm not sure how useful that is, but it seems better suited for technical writing--things like engineering, contracts, programming and mathematics--than any ambiguous language. But only the grammar is unambiguous. The vocabulary leaves some room for interpretation. Poetry is still possible.

Terseness? Supposedly, Chinese speakers have an advantage over English speakers when doing mental arithmetic. They can fit more digits into their auditory loop because their words for numbers are shorter. But you have to learn tones.

Natural languages vary a lot in their phonology. Taa has over a hundred phonemes, including tones and clicks. A language with more consonants, vowels, and tones can pack more information into fewer syllables, and thus more information into sentences of reasonable length. But the more complex your phonology, the more difficult it is to learn, and the easier it is to mishear over noise, unless there's some other redundancy. Languages developed in noisy tropical environments (like Hawaiian) have a much simpler phonology with an emphasis on sonorous vowels. Silbo Gomero is a whistled language that works over even longer distances. Morse code works over a simple on-off channel. (It could also work whistled.)

The optimal phonology would seem to depend on the available bandwidth. Perhaps an ideal language would have different modes depending on the situation. Maybe you could "spell out" a complex word using "letters" with names restricted to a simpler phonology, like one simple enough to whistle.

And spoken languages are not the same thing as written languages, although some of them are closely related. A written language need not be limited by human speech organs, although human eyes still matter. Mathematical notations can be highly specialized.

APL is notable example. Originally developed as a math notation, it is also "A Programming Language". Adherents emphasize that APL's extreme terseness allows them to effectively understand more code at once. Rather than coming up with a good name for a complex function, they can just use its whole definition in even less space.

Comment by gilch on The tech left behind · 2020-11-18T02:33:34.001Z · LW · GW

The Pimsleur series of language courses are just audio, and they use spaced repetition (among other research-backed techniques) without a computer. They've got an app now, but the original tapes would work on a Walkman. You're supposed to do one lesson per day. They've scheduled the material to bring vocabulary words up when you're about to forget them.

Comment by gilch on The tech left behind · 2020-11-18T02:23:01.194Z · LW · GW

I think the EBR-II reactor was a notable example. The government cut funding three years before the completion of the program. Its design is what we now call an "integral fast reactor". Its passive safety features demonstrated that it literally cannot melt down. An IFR design would also produce much less waste than a conventional light-water reactor.

Comment by gilch on The tech left behind · 2020-11-18T02:11:24.996Z · LW · GW

The Smalltalk programming language and environment was revolutionary at the time and still highly influential to this day. Lots of later languages have copied some of its features, and none of them really got it right.

The grammar is extremely simple and easy to pick up compared to most industry languages. A famous small program demonstrating all of the language (but not the library) fits on a postcard.

Using the debugger, you can catch an exception, walk up the stack, and correct, recompile and swap in individual methods while the program is still running. You can save the entire state of the program at any time and resume it at a later time, even on another machine. You need an entire OS in a VM to do this in almost any other language.

The tight feedback loops you get from its interactive programming stye is arguably superior to almost anything else we have today, although e.g. Python or ClojureScript can approach this level of interactivity, it isn't their default.

Smalltalk's first stable release was in 1980 and we still haven't caught up to its level in industry. It's hard to understand exactly how this happened historically, but it seems to be path dependence based on some combination of (relatively) poor marketing, early mistakes in design, and the limitations of older hardware that could barely handle those features when the industry was first taking off.

But there are open-source Smalltalks now, most deriving from Squeak. Pharo, Dolphin, and Cuis are notable. There is even a VM written in JavaScript so you can try it in your web browser.

Comment by gilch on The tech left behind · 2020-11-18T01:37:20.815Z · LW · GW

Aerospike rockets are supposed to be much more fuel-efficient in atmosphere than are the conventional bell nozzles.

There are good reasons "rocket science" has become a synonym for "difficult". Nobody wants to take a chance on unproven technology when designing rockets is already hard enough. Not even Elon Musk, at least so far.

Comment by gilch on Where do (did?) stable, cooperative institutions come from? · 2020-11-05T02:14:30.666Z · LW · GW

According to Strauss–Howe generational theory, history is made of cycling Saecula each divided into four generational Turnings: the High, the Awakening, the Unraveling, and the Crisis, in that order, which tend to last approximately 20 years while the next social generation of people advances in age and takes over their role in society. Each Turning is provoked by the flaws of the last.

We are now approaching the end of the current Crisis Turning (since about 2005). The Crisis is the Turning when institutions are at their nadir, due to their long Unraveling in the previous Turning (1982–2004), when individualism was at its peak. Institutions will be destroyed and rebuilt for the next Turning. The current Millennial Saeculum will end in approximately 2025 and usher in the next Saeculum. The coming High will be when collective institutions will be strongest and individualism will be at its weakest.

The fourness of the Turnings also pattern match onto other things. Strauss and Howe associate each social generation with the Prophet, Nomad, Hero, and Artist archetypes, in that order. (The Millenials are Heroes, Generation X are Nomads, etc.) I also wonder if this fourness also maps onto Simulacra Levels, after reading Zvi's The Four Children of the Seder as the Simulacra Levels, which also has a generational feel.

Given that framework, strong institutions develop in response to a crisis, when culture tilts toward collectivism. When that collective culture unravels into individualism, the institutions decay.

[Epistemic status: stab-in-the-dark pattern matching.]

Comment by gilch on Daniel Kokotajlo's Shortform · 2020-11-04T23:05:44.154Z · LW · GW

Reminds me of cookie cutters from The Diamond Age

A cookie-cutter was shaped like an aspirin tablet, except that the top and bottom were domed more to withstand ambient pressure; for like most other nanotechnological devices a cookie-cutter was filled with vacuum. Inside were two centrifuges, rotating on the same axis but in opposite directions, preventing the unit from acting like a gyroscope. The device could be triggered in various ways; the most primitive were simple seven-minute time bombs.

Detonation dissolved the bonds holding the centrifuges together so that each of a thousand or so ballisticules suddenly flew outward. The enclosing shell shattered easily, and each ballisticule kicked up a shock wave, doing surprisingly little damage at first, tracing narrow linear disturbances and occasionally taking a chip out of a bone. But soon they slowed to near the speed of sound, where shock wave piled on top of shock wave to produce a sonic boom. Then all the damage happened at once. Depending on the initial speed of the centrifuge, this could happen at varying distances from the detonation point; most everything inside the radius was undamaged but everything near it was pulped; hence "cookie-cutter." The victim then made a loud noise like the crack of a whip, as a few fragments exited his or her flesh and dropped through the sound barrier in air. Startled witnesses would turn just in time to see the victim flushing bright pink. Bloodred crescents would suddenly appear all over the body; these marked the geometric intersection of detonation surfaces with skin and were a boon to forensic types, who cloud thereby identify the type of cookie-cutter by comparing the marks against a handy pocket reference card. The victim was just a big leaky sack of undifferentiated gore at this point and, of course, never survived.

Comment by gilch on Non Polemic: How do you personally deal with "irrational" people? · 2020-11-04T05:03:31.176Z · LW · GW

Let us know how it goes.

Comment by gilch on Non Polemic: How do you personally deal with "irrational" people? · 2020-11-03T18:23:09.473Z · LW · GW

The reasonable man adapts himself to the world: the unreasonable one persists in trying to adapt the world to himself. Therefore all progress depends on the unreasonable man.

—George Bernard Shaw

I'm all for having an accurate map, and that does mean updating that map. But don't let that stop you from trying to alter the territory—and actually fixing problems.

If the world fails to meet your expectations, sometimes the problem is with the world.

Comment by gilch on Non Polemic: How do you personally deal with "irrational" people? · 2020-11-02T19:04:43.741Z · LW · GW

Have you seen Street Epistemology yet? It's an effective way of leading irrational people to notice their own contradictions, but it does take some patience.