Enzo

ml | quant | finance

[Enzo @enzoxbt]

Two of the four ways to make money were catalogued in one book, written in 1776, by a Scottish bachelor who lived with his mother.

His name was Adam Smith. He was fifty-three, unmarried, and had spent the last ten years writing at a desk in Kirkcaldy, Fife. The book was called An Inquiry into the Nature and Causes of the Wealth of Nations. Nine hundred pages. Two ways.

Labor. Capital.

He proved that the first was multiplied by the second, and the second was disciplined by the first, and that everything else finance would ever invent was a footnote to a paragraph he wrote on page eight about a factory that made pins.

One man alone makes twenty pins a day. Ten men in one room, each doing one of eighteen operations, make forty-eight thousand. Two hundred and forty times the output. Same ten men. Same twelve hours. The multiplier is the second way.

A Princeton historian named Michael Sugrue explained the whole thing in forty minutes. One camera. One blackboard. No music. He filmed it during the pandemic on his son's phone and uploaded it to YouTube.

He died in January of 2024. Age sixty-six. The channel is a memorial now, run by his family.

The lecture has crossed two hundred and fifty thousand views. Columbia charges eighty thousand dollars a year for the syllabus he compressed into that video. Business schools have been quoting the pin-factory paragraph for a hundred and thirty years and still charge two hundred thousand dollars to teach it.

Smith did not name the four ways. He named two. The other two - arbitrage and insurance -
are what happens when you know the first two well enough to notice a gap between them.

The lecture is on YouTube. Free. Forty minutes.

Almost nobody who paid for the MBA has watched it.

[Enzo @enzoxbt]

Two of the four ways to make money were catalogued in one book, written in 1776, by a Scottish bachelor who lived with his mother.

His name was Adam Smith. He was fifty-three, unmarried, and had spent the last ten years writing at a desk in Kirkcaldy, Fife. The book was called An Inquiry into the Nature and Causes of the Wealth of Nations. Nine hundred pages. Two ways.

Labor. Capital.

He proved that the first was multiplied by the second, and the second was disciplined by the first, and that everything else finance would ever invent was a footnote to a paragraph he wrote on page eight about a factory that made pins.

One man alone makes twenty pins a day. Ten men in one room, each doing one of eighteen operations, make forty-eight thousand. Two hundred and forty times the output. Same ten men. Same twelve hours. The multiplier is the second way.

A Princeton historian named Michael Sugrue explained the whole thing in forty minutes. One camera. One blackboard. No music. He filmed it during the pandemic on his son's phone and uploaded it to YouTube.

He died in January of 2024. Age sixty-six. The channel is a memorial now, run by his family.

The lecture has crossed two hundred and fifty thousand views. Columbia charges eighty thousand dollars a year for the syllabus he compressed into that video. Business schools have been quoting the pin-factory paragraph for a hundred and thirty years and still charge two hundred thousand dollars to teach it.

Smith did not name the four ways. He named two. The other two - arbitrage and insurance -
are what happens when you know the first two well enough to notice a gap between them.

The lecture is on YouTube. Free. Forty minutes.

Almost nobody who paid for the MBA has watched it.

[Superior @andreysuperior]

https://t.co/rUN1cPDY65

[Enzo @enzoxbt]

In 1980 a Nobel laureate spent an hour on PBS explaining a tax Congress never voted for and every American had already paid.

PBS broadcast the episode once. https://t.co/ctUm0WIT0m has hosted it for twenty years. It sits on YouTube with fourteen thousand views. Financial planners charging four figures an hour have never once told a client about it.

His name was Milton Friedman. He won the Nobel Prize in Economics in 1976 for proving that inflation is a monetary phenomenon, not a political or corporate one.

Watch him write nine words on a whiteboard in front of an audience that included a US Senator, the Chairman of AT&T, and the President of the United Steel Workers:

"Inflation is taxation without legislation."

Then he does the arithmetic on the board. A saver earning 5% in a bank account during 8% inflation is not earning 5%. He is losing 3% a year. Guaranteed. Every year. Nobody has to sign a bill.

Charles Schwab charges over $2,000 a year for a "financial planning" package that mostly consists of telling clients the same thing Friedman put on television for free in 1980. Certified Financial Planners spend six months in coursework to be allowed to explain the equation Friedman covered in eight minutes wearing a plaid tie.

A portfolio manager who runs a $2 billion inflation-linked bond book told me every new analyst on his desk is required to watch this exact episode before they touch a client. Not the CFA. Not the Bloomberg training. This one PBS tape.

Fourteen thousand people have watched it in fourteen years. Less than one person a day. In the same period, the median household savings account has lost roughly a third of its purchasing power to the exact phenomenon Friedman spent one hour explaining.

The tape is free. The math is free. The only thing that is expensive is not knowing.

[Enzo @enzoxbt]

In 1980 a Nobel laureate spent an hour on PBS explaining a tax Congress never voted for and every American had already paid.

PBS broadcast the episode once. https://t.co/ctUm0WIT0m has hosted it for twenty years. It sits on YouTube with fourteen thousand views. Financial planners charging four figures an hour have never once told a client about it.

His name was Milton Friedman. He won the Nobel Prize in Economics in 1976 for proving that inflation is a monetary phenomenon, not a political or corporate one.

Watch him write nine words on a whiteboard in front of an audience that included a US Senator, the Chairman of AT&T, and the President of the United Steel Workers:

"Inflation is taxation without legislation."

Then he does the arithmetic on the board. A saver earning 5% in a bank account during 8% inflation is not earning 5%. He is losing 3% a year. Guaranteed. Every year. Nobody has to sign a bill.

Charles Schwab charges over $2,000 a year for a "financial planning" package that mostly consists of telling clients the same thing Friedman put on television for free in 1980. Certified Financial Planners spend six months in coursework to be allowed to explain the equation Friedman covered in eight minutes wearing a plaid tie.

A portfolio manager who runs a $2 billion inflation-linked bond book told me every new analyst on his desk is required to watch this exact episode before they touch a client. Not the CFA. Not the Bloomberg training. This one PBS tape.

Fourteen thousand people have watched it in fourteen years. Less than one person a day. In the same period, the median household savings account has lost roughly a third of its purchasing power to the exact phenomenon Friedman spent one hour explaining.

The tape is free. The math is free. The only thing that is expensive is not knowing.

[Lumen @lumenxbt]

https://t.co/3hWKMIBJcw

[Enzo @enzoxbt]

In April 1961 a New Jersey businessman named Manny Kimmel gave a twenty-eight-year-old math professor $10,000 in cash and a phone number in Reno.

The professor turned the money into $21,000 over one weekend playing blackjack.

Kimmel was not surprised. He had spent six months quietly funding tests of the system in New York apartments, using dealers he trusted, playing chips that meant nothing. He wanted to know if the math worked before he risked real capital.

The math worked.

The professor's name was Edward Thorp. He was at MIT. He had spent two years building a card-counting strategy on IBM mainframes that ran overnight to test hand outcomes. He had also read a fifteen-page 1956 paper by a Bell Labs physicist about noise on telephone lines. Nobody else in finance had read it. Nobody else in gambling had read it. Thorp read it as an instruction manual.

The instruction was how much of your capital to bet on any given hand.

That equation is why Kimmel's $10,000 became $21,000 in a weekend and not $0 in an hour.

The clip attached is the History Channel documentary about Thorp. Season 1, Episode 3. Called Professor Blackjack. Forty-four minutes. Made in 2004 when he was seventy-two and finally willing to say the quiet part on camera.

The equation is public. The book explaining it costs twelve dollars on Amazon. The video is free.

The reason the industry keeps its fees is that almost nobody watches the video.

[Enzo @enzoxbt]

In April 1961 a New Jersey businessman named Manny Kimmel gave a twenty-eight-year-old math professor $10,000 in cash and a phone number in Reno.

The professor turned the money into $21,000 over one weekend playing blackjack.

Kimmel was not surprised. He had spent six months quietly funding tests of the system in New York apartments, using dealers he trusted, playing chips that meant nothing. He wanted to know if the math worked before he risked real capital.

The math worked.

The professor's name was Edward Thorp. He was at MIT. He had spent two years building a card-counting strategy on IBM mainframes that ran overnight to test hand outcomes. He had also read a fifteen-page 1956 paper by a Bell Labs physicist about noise on telephone lines. Nobody else in finance had read it. Nobody else in gambling had read it. Thorp read it as an instruction manual.

The instruction was how much of your capital to bet on any given hand.

That equation is why Kimmel's $10,000 became $21,000 in a weekend and not $0 in an hour.

The clip attached is the History Channel documentary about Thorp. Season 1, Episode 3. Called Professor Blackjack. Forty-four minutes. Made in 2004 when he was seventy-two and finally willing to say the quiet part on camera.

The equation is public. The book explaining it costs twelve dollars on Amazon. The video is free.

The reason the industry keeps its fees is that almost nobody watches the video.

[Tigerflow @tigerfl0w]

https://t.co/Ye9wCJ9Jiv

[Enzo @enzoxbt]

In December 1987 US Attorney Rudy Giuliani sent federal agents to raid a hedge fund in Princeton, New Jersey.

The fund had returned 19% a year for eighteen years. No losing year. No losing quarter. It managed $270 million by arbitraging convertible bonds using the same equation its founder had used to break blackjack in Reno two decades earlier.

Giuliani's investigators found nothing worth the case. The RICO charges collapsed on appeal.

The fund closed anyway.

Its founder was a mathematician named Edward Thorp. He had left academia in 1969 to open Princeton-Newport Partners with a lawyer named James Regan. Thorp had one rule at the fund: every position was sized using an equation from a 1956 Bell Labs paper about noise on telephone lines.

He never gave a public interview about the strategy while it was running. He never took client meetings. He worked from Newport Beach and Regan handled New York.

Nineteen years. Two hundred thirty months. Three losing months in total. Zero losing quarters.

The clip is attached. Fifteen minutes from a 2016 podcast where Thorp finally sits down and walks through the whole thing on tape.

He is calm about the raid. He is calm about the money. He is calm about the fact that his equation is public, has been public for seventy years, and nobody but him used it that way for that long.

He ran the highest verified Sharpe ratio in the history of retail-visible finance and then walked away from the desk.

Because the equation had run out of questions.

[Enzo @enzoxbt]

@0xKravn discipline without the right formula is just being consisyent while losing, ltcm proved that in 4 months

[Enzo @enzoxbt]

In December 1987 US Attorney Rudy Giuliani sent federal agents to raid a hedge fund in Princeton, New Jersey.

The fund had returned 19% a year for eighteen years. No losing year. No losing quarter. It managed $270 million by arbitraging convertible bonds using the same equation its founder had used to break blackjack in Reno two decades earlier.

Giuliani's investigators found nothing worth the case. The RICO charges collapsed on appeal.

The fund closed anyway.

Its founder was a mathematician named Edward Thorp. He had left academia in 1969 to open Princeton-Newport Partners with a lawyer named James Regan. Thorp had one rule at the fund: every position was sized using an equation from a 1956 Bell Labs paper about noise on telephone lines.

He never gave a public interview about the strategy while it was running. He never took client meetings. He worked from Newport Beach and Regan handled New York.

Nineteen years. Two hundred thirty months. Three losing months in total. Zero losing quarters.

The clip is attached. Fifteen minutes from a 2016 podcast where Thorp finally sits down and walks through the whole thing on tape.

He is calm about the raid. He is calm about the money. He is calm about the fact that his equation is public, has been public for seventy years, and nobody but him used it that way for that long.

He ran the highest verified Sharpe ratio in the history of retail-visible finance and then walked away from the desk.

Because the equation had run out of questions.

[Tigerflow @tigerfl0w]

https://t.co/Ye9wCJ9Jiv

[Enzo @enzoxbt]

@Skaly__Bull the wildest part is the equation still works, its just that nobody has the discipline to use it that clean

[Enzo @enzoxbt]

@Zyron5m this is the part people miss, kelly wasnt some toy formula, it was moving the biggest block trade wall street had ever seen

[Enzo @enzoxbt]

A fund can return +50%, -50%, +50% and advertise a 16.7% average. Your dollars go from $100 to $150 to $75 to $112.50. Actual return: 4%. The gap has a name.

Variance drag.

A smooth 8% return builds real wealth. A wild 8% return builds a story. Same average. Different math. Different life.

Robert Shiller teaches the reason for free. Yale. Financial Markets 252. Lecture 4 is called Portfolio Diversification. Seventy-eight minutes. Two years after recording it he won the Nobel Prize in Economics.

He does not raise his voice. He does not sell anything. He stands at a whiteboard in front of freshmen and derives one equation.

The geometric mean.

Then he does something better. Combine two assets that are not perfectly correlated. Arithmetic mean does not move. Variance falls. Geometric mean rises. You finish richer for no reason other than the math bending in your favour.

This is why mutual funds exist. Why index funds beat stock pickers. Why no serious institution has ever put its capital in one company on purpose.

Every pension, every endowment, every sovereign wealth fund on Earth is quietly harvesting the same asymmetry Shiller draws on the board in minute forty-two.

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

The lecture has been on YouTube fourteen years. Free. Seventy-eight minutes. 311,000 views.

Almost none were the ones who needed to watch it.

[Enzo @enzoxbt]

@0x_Vexly this, one 78 min lecture can save you years of trial and error

[Enzo @enzoxbt]

A fund can return +50%, -50%, +50% and advertise a 16.7% average. Your dollars go from $100 to $150 to $75 to $112.50. Actual return: 4%. The gap has a name.

Variance drag.

A smooth 8% return builds real wealth. A wild 8% return builds a story. Same average. Different math. Different life.

Robert Shiller teaches the reason for free. Yale. Financial Markets 252. Lecture 4 is called Portfolio Diversification. Seventy-eight minutes. Two years after recording it he won the Nobel Prize in Economics.

He does not raise his voice. He does not sell anything. He stands at a whiteboard in front of freshmen and derives one equation.

The geometric mean.

Then he does something better. Combine two assets that are not perfectly correlated. Arithmetic mean does not move. Variance falls. Geometric mean rises. You finish richer for no reason other than the math bending in your favour.

This is why mutual funds exist. Why index funds beat stock pickers. Why no serious institution has ever put its capital in one company on purpose.

Every pension, every endowment, every sovereign wealth fund on Earth is quietly harvesting the same asymmetry Shiller draws on the board in minute forty-two.

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

The lecture has been on YouTube fourteen years. Free. Seventy-eight minutes. 311,000 views.

Almost none were the ones who needed to watch it.

[Lumen @lumenxbt]

https://t.co/3hWKMIBJcw

[Enzo @enzoxbt]

@kryneeex full kelly is optimal on paper and unliveable in real life, thats the whole gap between theory and account balance

[Enzo @enzoxbt]

@tigerfl0w yeah 1% sounds like nothing until you realize its 1% forever on a base that was supposed to be growing exponentially

[Enzo @enzoxbt]

Fischer Black died in 1995. LTCM blew up in 1998 using his formula.

Wall Street learned nothing.

In 2000 a Chinese actuary named David X. Li wrote one equation that let banks price collateralized debt obligations in seconds instead of weeks.

It was called the Gaussian copula. It assumed that the correlation between two mortgages defaulting could be modeled as a single number. One number. For millions of loans.

Every fixed-income desk on earth adopted it. Ratings agencies used it to stamp AAA on tranches of subprime debt. From 2003 to 2008 it priced $11 trillion of structured credit.

Then 2008 happened.

Correlations that were "supposed to be 0.3" became 1.0 in a week. The formula did not just fail. It failed identically at every bank at the same time, because every bank was using the same formula.

Li quietly moved back to Beijing and stopped answering emails from Western journalists. His paper is still cited. His formula is still in every risk textbook.

The men in the article below already showed us this in 1998.
Wall Street just wrote a bigger check the second time.

[Enzo @enzoxbt]

@cipgerx shared model equals shared blindspot, and shared blindspot equals systemic risk

[Enzo @enzoxbt]

Fischer Black died in 1995. LTCM blew up in 1998 using his formula.

Wall Street learned nothing.

In 2000 a Chinese actuary named David X. Li wrote one equation that let banks price collateralized debt obligations in seconds instead of weeks.

It was called the Gaussian copula. It assumed that the correlation between two mortgages defaulting could be modeled as a single number. One number. For millions of loans.

Every fixed-income desk on earth adopted it. Ratings agencies used it to stamp AAA on tranches of subprime debt. From 2003 to 2008 it priced $11 trillion of structured credit.

Then 2008 happened.

Correlations that were "supposed to be 0.3" became 1.0 in a week. The formula did not just fail. It failed identically at every bank at the same time, because every bank was using the same formula.

Li quietly moved back to Beijing and stopped answering emails from Western journalists. His paper is still cited. His formula is still in every risk textbook.

The men in the article below already showed us this in 1998.
Wall Street just wrote a bigger check the second time.

[Lumen @lumenxbt]

https://t.co/3hWKMIBJcw

[Enzo @enzoxbt]

@Zyron5m because the formula wasnt the crime using it without questioning it was

[Enzo @enzoxbt]

@tigerfl0w this is the real point, the math wasnt wrong, the inputs described a world that didnt exist yet