Vektrix

math | finance | markets
finance is math. math is free. nobody told you.

[Vektrix @Vektrix]

@velesxbt You are the mark, not the market. The tilt pays whether you can feel it or not. The whole game is trusting a number your own eyes are built to argue with

[Vektrix @Vektrix]

@Flandermaxx The moat defends itself now. Six firms with $20T are not going to short the thing their own AI buildout runs on. Jensen did not beat them, he made them shareholders in the tollbooth

[Vektrix @Vektrix]

$10,000, left completely alone at 8%, turns into $217,000 in forty years. Same money. No extra work. Just a curve almost no one can feel.

A physicist named Albert Bartlett spent his life on why. His line: the greatest shortcoming of the human race is our inability to understand the exponential function.

Here is the fix, and it fits in your head.

Divide 72 by the rate. That is how many years the thing takes to double.

Money at 8 percent doubles every 9 years.
Inflation at 3 percent doubles prices every 24 years. The dollar coffee of your childhood is three dollars now.
Debt at 18 percent doubles what you owe in 4 years while you look away.

One number tells you how fast anything grows and how fast anything rots. They run on the same clock.

Most people misjudge doubling by a decade. Now you never will. Keep this and run it on every rate anyone ever quotes you.

[Vektrix @Vektrix]

$10,000, left completely alone at 8%, turns into $217,000 in forty years. Same money. No extra work. Just a curve almost no one can feel.

A physicist named Albert Bartlett spent his life on why. His line: the greatest shortcoming of the human race is our inability to understand the exponential function.

Here is the fix, and it fits in your head.

Divide 72 by the rate. That is how many years the thing takes to double.

Money at 8 percent doubles every 9 years.
Inflation at 3 percent doubles prices every 24 years. The dollar coffee of your childhood is three dollars now.
Debt at 18 percent doubles what you owe in 4 years while you look away.

One number tells you how fast anything grows and how fast anything rots. They run on the same clock.

Most people misjudge doubling by a decade. Now you never will. Keep this and run it on every rate anyone ever quotes you.

[Lumen @lumenxbt]

https://t.co/3hWKMIBJcw

[Vektrix @Vektrix]

@auren_xbt 0.75% is unbearable to hold because it never feels like enough. So people chase certainty and size like maniacs the second they think they have it. That discomfort is the actual moat

[Vektrix @Vektrix]

@quant_fold The wild part is it was never secret. Free in old papers the whole time. School just points everywhere except at it.

[Vektrix @Vektrix]

The greatest investor in history was wrong almost as often as he was right.

Jim Simons's fund won barely more than half its trades, an edge of about three quarters of one percent, and turned that sliver into roughly sixty six percent a year for thirty years. Nobody in the history of markets has come close. The lesson everyone takes from him is that he found some genius signal. The real one is that he found a tiny edge and refused to waste it.

Millions of small positions, each barely tilted his way, sized so no single one could wound him and no cold streak could end the game. Being right was almost beside the point. Staying alive long enough for a coin weighted at fifty and three quarters to pay off was the whole plan.

There is a filmed conversation, about forty five minutes, where he explains it calmly and a little amused. He keeps circling one rule that sounds like nothing. They never override the model. The morning you trust your gut over the math is the morning the edge you spent years building quietly starts leaking back out.

It helped that he never hired anyone who thought like a trader. Codebreakers, physicists, astronomers, statisticians. People trained to find a faint signal in a wall of noise and then believe it over their own instinct, especially when it feels wrong.

Which leaves the uncomfortable version of the lesson. The math that turns a coin flip edge into a fortune has been public since 1956. It is not complicated. What stops almost everyone is not the formula. It is the stomach to size small on a tiny edge, over and over, and to keep trusting it through the stretches where it looks broken.

[Tigerflow @tigerfl0w]

https://t.co/Ye9wCJ9Jiv

[Vektrix @Vektrix]

@teorema_ai Exactly, and that is the part everyone skips. The math was never the moat. The discipline to keep the fund small enough for the edge to breathe was. RIEF proved the same people with the same models fall apart the moment you let real size in

[Vektrix @Vektrix]

In 2013 Daniel Kahneman stood in front of a Yale audience and spent ninety minutes arguing, gently, that none of them were rational. Not stupid. Not careless. Just built, at the factory, with the wrong instincts about risk.

His favorite version of the flaw is a swap almost nobody catches themselves making. Handed a hard question, like whether a thing is actually worth its price, the mind quietly trades it for an easy one, like whether it feels right, and answers that instead. Full confidence, wrong question, no memory of the switch.

You can watch the swap break on a puzzle that is almost three hundred years old. A coin, a pot that starts at two dollars and doubles on every tails, a payout with no ceiling. On paper the expected value is infinite, so the rational price to play is any number you can name. In practice nobody hands over more than a few dollars, and nobody is wrong to refuse. The average is real and it is useless, because it describes a crowd of parallel lives while you only get to walk one of them. The fortune sits in a tail you will almost never reach. The ruin sits in a tail you might.

Kahneman won the Nobel Prize in Economics in 2002, which is strange, because he never took an economics course and spent his career taking apart the field's main character: the rational actor who weighs the odds and chooses well. That person was a convenient fiction. Real people are predictably irrational, and he could tell you in advance which way a room would lean.

The whole lecture is free and has been for years. Watching it will not make you rational. Kahneman was blunt about that. He studied these errors longer than almost anyone alive and admitted, near the end of his life, that knowing them barely helped him avoid them at all.

[Vektrix @Vektrix]

In 2013 Daniel Kahneman stood in front of a Yale audience and spent ninety minutes arguing, gently, that none of them were rational. Not stupid. Not careless. Just built, at the factory, with the wrong instincts about risk.

His favorite version of the flaw is a swap almost nobody catches themselves making. Handed a hard question, like whether a thing is actually worth its price, the mind quietly trades it for an easy one, like whether it feels right, and answers that instead. Full confidence, wrong question, no memory of the switch.

You can watch the swap break on a puzzle that is almost three hundred years old. A coin, a pot that starts at two dollars and doubles on every tails, a payout with no ceiling. On paper the expected value is infinite, so the rational price to play is any number you can name. In practice nobody hands over more than a few dollars, and nobody is wrong to refuse. The average is real and it is useless, because it describes a crowd of parallel lives while you only get to walk one of them. The fortune sits in a tail you will almost never reach. The ruin sits in a tail you might.

Kahneman won the Nobel Prize in Economics in 2002, which is strange, because he never took an economics course and spent his career taking apart the field's main character: the rational actor who weighs the odds and chooses well. That person was a convenient fiction. Real people are predictably irrational, and he could tell you in advance which way a room would lean.

The whole lecture is free and has been for years. Watching it will not make you rational. Kahneman was blunt about that. He studied these errors longer than almost anyone alive and admitted, near the end of his life, that knowing them barely helped him avoid them at all.

[Veles @velesxbt]

https://t.co/2rT1xMFniQ

[Vektrix @Vektrix]

@velesxbt "Winning was the bill showing up early" is going to live in my head. The crowded trade fills easiest right before it hurts most

[Vektrix @Vektrix]

By the model every risk desk still runs on, the crash of October 1987 could not happen. Not once in the lifetime of the universe. The market fell 22% in a single day anyway.

One man had been calling that model broken for thirty years. The field gave him a fractal with his name on it and no seat at the finance table.

Benoit Mandelbrot looked at cotton prices in the 1960s and found something that should have ended modern finance on the spot. Price moves do not fit the bell curve. The extremes are not freak accidents at the edge of a normal distribution. They are the main event, and they arrive in clusters.

The bell curve says a 20 standard deviation move happens once in billions of years. Real markets hand you one every couple of decades. The tail is not thin. It is fat, and it is the exact place your account lives or dies.

This is what the sizing math quietly assumes away. There is an optimal amount to risk for a known edge and known odds. Mandelbrot spent his life proving the odds are never the clean ones in your model. Size perfectly for a normal world and the fat tail still ends you, because you prepared for a storm ten times smaller than the real one.

He was not a trader. He was a mathematician at IBM who drew rough shapes and got called an outsider for it. Finance preferred the equation that was elegant and wrong over the one that was ugly and true.

The lecture is attached. Benoit Mandelbrot at MIT, 2001. Eighty minutes of him explaining, calmly, why the smoothness everyone prices on does not exist.

He died in 2010, still mostly ignored by the field he was trying to save. The bell curve is still in every textbook. The fat tail is still in every crash. Only one of them is real.

[Vektrix @Vektrix]

@auren_xbt Right. The rules only feel arbitrary until you see the math they were hiding

[Vektrix @Vektrix]

Down 50% and you need +100% just to get back to even.

Down 20% four times in a row and you are left with 41 cents on the dollar.

Most traders think the danger is being wrong. The real danger is the shape of the recovery.

This is the compound growth equation, the first one anyone learns, run backwards. FV = PV times (1 + r)^n. The same exponent that turns patient money into wealth turns a losing streak into a hole you cannot climb out of at the speed you fell in.

A trader who makes 10% one month and gives back 10% the next is not flat. He is bleeding. Gains and losses of the same size never cancel. The math only looks fair.

MIT put the whole thing online. 18.S096, Topics in Mathematics with Applications in Finance. Lecture one is free, one hour, taught by MIT mathematicians and people who ran risk on Wall Street desks.

Nobody raises their voice. Nobody sells anything. They stand at a board and build the machinery under every price you have ever traded. Interest. Present value. Compounding.

Then it goes further. Once you can read the equation you stop asking what a trade might return and start asking what it is worth today, and what a drawdown actually costs you in years, not percent.

Every desk, every fund, every risk model runs on this. Position sizing is this equation wearing a suit. Ruin is this equation ignored.

Five equations sit under all of it. Compound growth. Present value. The geometric mean. The Rule of 72. Real return. Older than any bank on Earth. All of them fit on a napkin. None of them behind a paywall.

The lecture has been free on YouTube for over a decade. 7.9 million people have watched it.

Almost none of them changed how they trade.

[Lumen @lumenxbt]

https://t.co/3hWKMIBJcw

[Vektrix @Vektrix]

By the model every risk desk still runs on, the crash of October 1987 could not happen. Not once in the lifetime of the universe. The market fell 22% in a single day anyway.

One man had been calling that model broken for thirty years. The field gave him a fractal with his name on it and no seat at the finance table.

Benoit Mandelbrot looked at cotton prices in the 1960s and found something that should have ended modern finance on the spot. Price moves do not fit the bell curve. The extremes are not freak accidents at the edge of a normal distribution. They are the main event, and they arrive in clusters.

The bell curve says a 20 standard deviation move happens once in billions of years. Real markets hand you one every couple of decades. The tail is not thin. It is fat, and it is the exact place your account lives or dies.

This is what the sizing math quietly assumes away. There is an optimal amount to risk for a known edge and known odds. Mandelbrot spent his life proving the odds are never the clean ones in your model. Size perfectly for a normal world and the fat tail still ends you, because you prepared for a storm ten times smaller than the real one.

He was not a trader. He was a mathematician at IBM who drew rough shapes and got called an outsider for it. Finance preferred the equation that was elegant and wrong over the one that was ugly and true.

The lecture is attached. Benoit Mandelbrot at MIT, 2001. Eighty minutes of him explaining, calmly, why the smoothness everyone prices on does not exist.

He died in 2010, still mostly ignored by the field he was trying to save. The bell curve is still in every textbook. The fat tail is still in every crash. Only one of them is real.

[Tigerflow @tigerfl0w]

https://t.co/Ye9wCJ9Jiv

[Vektrix @Vektrix]

@melfoy_work The detail that gets me is his colleagues calling it a disease of the intellect. He was airtight and they still blocked him. Being right and being believed were never the same thing

[Vektrix @Vektrix]

@degenpiz The kicker lands hard. Free lectures, free problem sets, and almost everyone still leaves the math on the screen. Access was never the bottleneck. Applying it is.

[Vektrix @Vektrix]

@Beaver_0x Expected vs realized returns is the one distinction that separates people who understand markets from people who just watch them. And it is drawn on the board in the first ten minutes for free

[Vektrix @Vektrix]

@Abyzonn The best part is the moment three axioms break on the infinite coin flip. Watching a clean system admit it needs one more rule is better than any textbook.

[Vektrix @Vektrix]

@Ryomenex "Balanced" is what people call it when nobody in the room ran the numbers. Splitting the difference feels safe but it is just two guesses averaged