There is so much going on, I mean, sort of in the world, that I have hard times focusing on a tangible thread of research, writing and blogging. The plan, for 2020, was to focus on three things: my personal strategy of investment in the stock market, business plan for my technological concept of Energy Ponds, and scientific research on the application of artificial intelligence to represent and study collective intelligence in human societies. There is like a fourth path, temporarily of secondary importance, namely the creation of new, 100% educational material for distance learning.
I like reviewing things from the end, and so I take a stance, in the first place, on that educational thing. Education should teach people something useful. I think that with all the COVID-19 crisis happening around, teaching social sciences should help my students to understand the events, and when I say ‘understand’, I follow its most fundamental aspect: that of creating some personal and collective order amongst the surrounding chaos. With that assumption in mind, I decided to prepare teaching material as much connected to the current events as possible. When financial markets go amok, teaching my students the fundamental principles of finance is a bit useless, as long as I don’t demonstrate how, and whether at all, those principles apply here and now. In some countries, e.g. Poland, investors in the stock market (including myself, to be clear) suddenly rush on the stock of biotech and medical companies, this is a financial change and a managerial change, as the managers of those life-science businesses will need to do something about that sudden interest. What they will do is going to impact the job which my son, age 24, is going to have, as IT engineer, in the near future.
Still, as much as I value the lore preached in the Church of What’s Going On Right Now, I value historical perspective. Akin to a squid, in my life, whenever I face chaos, I intuitively dive into a cloud of ink, namely into classical writings of philosophers, social thinkers, and historians. Uncertainty is the name of the game right now, and so I decide to dive into some foundational writings of Western statistics. There are two of them. The first is Abraham de Moivre’s ‘The doctrine of chances: or, A method of calculating the probabilities of events in play’, published in 1756, printed, as its cover page announces, for A.Millar, in the Strand. The second is the posthumous publication of ‘An Essay towards Solving a Problem in the Doctrine of Chances’, by the Late Reverend Mr. Thomas Bayes, published in 1763 as an article in the Royal Society’s journal ‘Philosophical Transactions’ (1683-1775, Vol. 53 1763). As I read the chronologically earlier treaty by de Moivre, I realise there is something even older, and not European at all: I Ching, or the Book of Changes, written and rewritten many times in China, during the entire millennium before Christ.
There is a common denominator to all those three classical writings. They all start from the assumption that reality is made of parts, and that we truly like just some of those parts. There are favourable events, and there is all the rest. The most fundamental message stemming from all those three seminal intellectual stances is that reality is essentially chaotic to us. We partition chaos into successes and failures, whilst being aware how gross a partition is that. The three books I am studying present three different approaches to structuring reality into what we like, and what we don’t really. I Ching proposes to define typical patterns – states of reality – defined at different levels of complexity, as individual happenings, combinations of three events in a row, then trigrams made of said sequences of three, and finally hexagrams made of two trigrams each. The central thought behind that classification is that some states of reality are more prone to change than others, and, in the same time, some sequences of change are much more likely to occur than others.
Abraham de Moivre’s ‘doctrine of chances’ focuses on the rationale behind playing and betting on some states of reality rather than others. Yes, of course, in his letter to Lord Carpenter, placed at the very beginning of the book, as some sort of pre-introduction, de Moivre stresses firmly that he is not writing about gambling: he just illustrates his method with examples from the world of gambling. Still, when I read what’s further, it just jumps to the eye: Abraham de Moivre was a savvy of gambling, like really. His method starts with the assumption that uncertain future is like a gambling house, with many tables. A different game is played at each table, with different rules and different payoffs. The central question that de Moivre tries to answer is how to use our knowledge of rules in the game so as to establish the well-founded of playing the game. From there on it is more or less what most of us studied at high school as basics of probability. There is a total number of events possible, everything put together in the same basket, and this number is n. In the world made of n, there are situations which we would like to take place, and the total number of such situations is k. The fraction k/n is informative about the general likelihood that in the cruel world of n, we find ourselves in the cosy k place.
Thomas Bayes’s, in his own ‘doctrine of chances’, claims that reality is a finite space of happenings and presents a method of slicing that space so as to narrow down our chances of getting what we want. Bayes, by an otherwise very explicit opposition to de Moivre, stressed strongly the point that we never completely now the rules of the game which we play with reality (reality plays with us?). His method is very much a way of making informed hypothesis about those rules. He distinguishes, for example, mutually consistent events from the mutually inconsistent ones, thus turning the reader’s attention towards the fact that opportunities rarely happen twice, whilst s**t usually comes in bundles. He construes that intriguingly empiricist example of throwing two
Page 17 of the published article: ‘1. I suppose the square table or plane ABCD to be so made and levelled that if either of the balls o r W be thrown upon it, there shall be the same probability that it rests upon any one equal part of the plane as another, and that it must necessarily rest somewhere upon it. 2. I suppose that the ball W shall be first thrown and through the point where it rests a line os shall be drawn parallel to AD, and meeting CD and AB in s and o; and that afterwards the ball O shall be thrown p + q or n times, and that it resting between AD and os after a single throw be called the happening of the event M in a single trial […]’.
Good. It is time to use the wisdom of sages from the past so as to solves some riddles of the present times. Here is the situation with my personal strategy of investment in the stock market. Until recently, i.e. until I made the decision which I am describing further below, I had two portfolios: one in Poland, with a local brokerage house, and another one international, run through the DEGIRO investment platform. When the coronavirus panic broke in financial markets, much blood trickled out of both of those portfolios of mine. Yet, for like 2 last weeks, events have been unfolding differently in those two worlds. In the Polish stock market, a crazy ride upwards has developed on anything even vaguely medical: biotech, medical equipment, even on trade in wood (wood ó cellulose ó toilet paper). On Friday, March 27th, 2020, I bought stock of Biomed Lublin. Nothing big. They have been dabbling for years in vaccines and bio-serums but used to be the mostly known for having completely failed on developing synthetic human blood serum. Last Friday, April 3rd, after less than one full week of trade, I had 331% of profit on that stock. Madness.
Against that Polish background, my international positions had a grim look. As for yesterday, only one – Incyte Corporation – was bringing me a slight profit, around 9%. All the rest – First Solar, Macrogenics, Norsk Hydro, Virgin Galactic, Vivint Solar, tracker Amundi Epra, tracker Invesco A QQQ – each of those guys was more or less sucked dead by the vampire of market reality. The decision I made yesterday, and which I expect to consume on Monday 6th, was to sell out everything from the international portfolio at DEGIRO, transfer the money as quickly as possible to my Polish account (as quickly as possible is bloody slow with DEGIRO; I don’t know why, but it takes them like 3 days to pay me my money back), and invest in the Polish biotech sector.
It was a normal decision in the world of investment: wrap up whatever you have left after a lost battle and move it to a field where you can win. Cut your losses short etc. Still, I experienced really strong emotions about that decision. I know, by science and by personal experience, that when I get emotional about something, there is a lot of information my brain tries to process in as short a time as possible. I want to learn investment, and to use writing and blogging so as to enhance my learning. Therefore, I take those classical views, from ancient China and much less ancient Europe, and I apply them to my own investment strategy.
In which of the three worlds was I when I was making that particular decision: “Sell out international, move to domestic, national biotech and medical”? Was I in the world of I Ching, in that sketched by Abraham de Moivre, or maybe was I in Thomas Bayes’s rectangle with two balls? Intuitively, I would say that I was mostly Bayesian. I mean, yes, I was perceiving the situation slightly de Moivrian: as if I had two gambling tables in front of me, each with different rules and payoffs. Still, I felt that I don’t really understand the rules of at least one of the two games, the international one. I had most of my stock in the US market, and in the German market. Those governments released huge packages of economic support for their locked-down economies, so why isn’t that stuff growing? In Poland, what our government proudly announced as Anti-Crisis Shield looks more like a bath robe, if you want my opinion. The real shield, pretty much unavoidable, will consist in amending the budget and passing from the planned zero deficit to something akin the budget of 2018, with like €10 bln of deficit, and that money should be pumped into the economy. Why is biotech and medical growing like hell in Poland, and not really growing elsewhere (at least not even remotely as fast)?
I had that feeling of playing two different games at two distinct tables. At the national Polish table, I understand the rules: we run short of medical supplies and short of ideas for cures and vaccines against COVID, and so the market turns towards anything related. Stands to reason. At the international table, I felt lost. I felt that I didn’t understand the game, which looks like a random hiccup more than like anything organized. I had one game in de Moivre’s lines (Polish market), and another one more Bayes (international). I quit the Bayesian one and prefer staying in Abraham de Moivre’s world of gambling when knowing the rules.
Aha! I see. I am obsessed (mildly) with perceiving mathematics as a reflection of how we experience and digest the stuff called reality. With that situation, and those dead guys (anonymous in the case of I Ching) lurking over my shoulder, I can distinguish two different types of statistics and probability: the data science of the known as opposed to the data science of the unknown. The former sums up and structures the acquired knowledge, whilst the latter attempts to put some order in the untidy happening of things.
Right. I made a move: sell out international, move to Polish life sciences business. What’s my next step? Which of the three worlds of probability am I unfolding in the backyard of my thinking, right now, as I write these words? As I focus on the Polish market, I notice that, in my thoughts, I am partitioning reality, once again, into the cosy world of known rules de Moivre style, and into the exploratory excitement, which accompanies me as I trace that Bayesian rectangle over reality. What are my border lines, which I cannot trespass? What is my elementary way of exploration, i.e. how do I throw the ball W, so as to cut my acceptable reality into distinct fields?
I know there is technical growth in the stock market – when some buyers outbid other buyers – and there is fundamental growth, driven by something happening to the real, productive assets, which financial securities give a claim on. I gladly jump of technical waves in the market, yet in the long run, I want to invest in business rather than in financial deeds. What fundamental direction is the market going to take. Will there really be a massive development in Polish biotech businesses. We live, we see, as our saying says.
I return to my take on collective intelligence. In two updates on my blog, one rather written ( The collective archetype of striking good deals in exports ), and another one more sort of You-Tube-spoken (A civilisation of droplets), I developed on what I think are the differences between individual intelligence, and the collective one. The role played by individual representation of reality seems to be amongst the most important distinctions. Question: how does my representation of the social environment play out in my individual intelligence regarding investment decisions?
That would be all for now. If you want to contact me directly, you can mail at: email@example.com .