george

Markets, money & decision-making.

Finance through first principles.

[george @georgeyitb]

https://t.co/j5fOpawn2m

[george @georgeyitb]

@Pixel_Neuron Actually insane when you put it that way

[george @georgeyitb]

You don't need capital, connections, or the ability to read English to out-build almost everyone in your industry.

In 1937, a Russian immigrant named Rose Blumkin gets on a train to Chicago with 500 dollars and can't read a word of English.

She buys 2,000 dollars of furniture on that 500 dollars of equity, terrified the whole way home that she owes more than she has. She names the store after a building she liked the look of: Nebraska Furniture Mart.

Wholesalers tried to cut her off for underselling them. She went to court four times and won every time, by standing up and telling the judge exactly what she paid and exactly what she charged.

She sold the business to Warren Buffett at 89 years old with no audit. His words: "I'd rather have your word than an audit from the big eight."

She kept working past 100. The store she started with 500 dollars now does 325 million a year from one location, in a city of 650,000 people.

None of that scale showed up on a balance sheet she never learned to read. It showed up in how many customers she remembered by name and how many competitors she quietly put out of business.

The talk it comes from is free, an old 2001 campus Q&A. Obviously you already know that part.

There's a companion piece coming on the two different games hiding inside every industry, the one where you're saving and the one where you're already big enough to matter. Her story is what that bridge actually looks like.

[george @georgeyitb]

https://t.co/j5fOpawn2m

[george @georgeyitb]

@Benderxxx7 The chain rule seems simple until you realize how much you can actually do with it

[george @georgeyitb]

You're trying to do two things at once, and that's exactly why neither one is working.

1958, Berkeley. James Simons, a 21-year-old grad student, drives from Berkeley into San Francisco every morning to watch soybean quotes before he's written a single page of his thesis.

The money came from wedding gifts. His broker at Merrill Lynch suggested soybeans. For a few weeks the price went up and he made money, then it went down and he lost some, then he bought one contract again. A few weeks in, early one morning, he reached what he later called the most sensible conclusion of his life: write a thesis or trade soybeans, you can't do both. He closed the position with a small profit and didn't touch soybeans again for years.

Then he wrote the thesis. In it, he solved a problem in holonomy groups that his own advisor told him not to touch, too hard.

Rules worth writing down:

Pick one game at a time. Simons closed his soybean position for a small profit and stayed out of the market for years, because he couldn't write a dissertation and watch the tape every morning.

Let beauty be the filter. This is the third of five principles Simons later named as his own: good mathematics looks beautiful, and a well-run business does too.

Only partner with outstanding people.

The model outranks your mood. At Renaissance this became a rule with no exceptions, even when it looks like the computer is wrong.

"We never override the computer. No one walks in and says the model wants to do this, that's crazy, we're not doing it. You don't do it," Simons said about the one hard rule at his firm.

The lecture is free. You're already seeing it in your feed for nothing, but say it anyway: an hour of footage where a mathematician explains solving the problem he was told to avoid, then built a fortune on that same discipline, is sitting there right now.

The article "Six Laws of Wall Street" ends on the line Simons himself used to sum up his career: "I did a lot of math. I made a lot of money." The six laws in it aren't a recipe to repeat that outcome. They're a check on how many of the six are actually running in your own decisions right now.

[george @georgeyitb]

https://t.co/j5fOpawn2m

[george @georgeyitb]

@lorneseth That’s the real lesson. He didn’t just free up his time. He freed up his attention.

[george @georgeyitb]

@Benderxxx7 Exactly. The edge is often subtraction, not addition

[george @georgeyitb]

@Pixel_Neuron Sad reality

[george @georgeyitb]

https://t.co/j5fOpawn2m

[george @georgeyitb]

@lorneseth Exactly. That’s Law 1 in one sentence

Before the capital base gets large enough, optimizing an extra 2–3% return matters less than increasing the amount you can consistently add to it

[george @georgeyitb]

You are still pricing risk with your own opinion. That is the most expensive habit in finance.

Vasily Strela stands at the whiteboard in his MIT class on quantitative finance and turns the whole room into racetrack bookies for five minutes.

Two horses. You know the real odds: Horse 1 has a 20% chance, Horse 2 has 80%. The public doesn't know that. They bet $50,000 on the favorite and $10,000 on the long shot.

Price your odds off what you know (4 to 1) and there's an 80% chance you end the day $2,500 in the hole.

Price your odds off what the crowd actually bet (5 to 1) and you break even no matter which horse wins.

That five-minute example is the entire logic behind Black-Scholes. Not a metaphor for it. The actual mechanism.

What sticks from the lecture:

Real-world probabilities don't set the price. What the market is willing to bet does.
If you can replicate a payoff exactly with stock and cash, its cost today is the price. No forecasting involved.
No arbitrage means two things with the same payoff cost the same. Always.
A forward contract, an option, a bond: all priced the same way once you see the trick.

Strela's own line on it: "It's what market implies. That's what important."

This is Lecture 21 of MIT's Topics in Mathematics with Applications in Finance, free on YouTube. Obvious, since it's in your feed right now. Still true.

Every insurance premium and every bond desk runs the same replication trick as that whiteboard. That's the next one.

[george @georgeyitb]

@mmoklaaa Good take

[george @georgeyitb]

YOU'VE SPENT YEARS TRYING TO GUESS WHERE THE MARKET GOES. PROFESSIONALS STOPPED GUESSING A LONG TIME AGO.

MID-LECTURE AT MIT, STRELA STOPS AND TELLS THE CLASS: WHAT ACTUALLY HAPPENS TO THE STOCK DOESN'T MATTER FOR THE PRICE OF THE OPTION.

"We don't care about real-world probabilities, and we don't care about how the stock behaves in real life. We just replicated everything."

Three things you can't unlearn after that:

The price of an option doesn't depend on where the stock actually goes. Only on what it costs to replicate its payoff today. Real probability is what you believe. Market probability is what other people are willing to pay for. Only the second one matters for pricing. If a derivative's price doesn't match the value of its replicating portfolio, someone makes a risk-free profit, guaranteed, until the gap gets eaten in seconds. The preferences of market participants don't even enter the formula. Doesn't matter if you're an optimist or a paranoid.
The lecture is free. Course 18.642, MIT OpenCourseWare. Yes, you already know this is the hundredth "free lecture" you've seen in your feed today.

Are you trading your guesses, or the market's prices?

[Zynex @0xzynex]

https://t.co/s7CSVJZhBN

[george @georgeyitb]

YOU WILL NEVER UNDERSTAND WHY SOME BUSINESSES SURVIVE FOR 50 YEARS WHILE OTHERS DISAPPEAR IN FIVE.

1998, University of Florida. Buffett tells students there's only one thing he needs in any business: a moat around the castle. His words: "a great big moat around the castle."

At Geico, that moat is the lowest price in the market. At Kodak, the moat was once just as strong as Coca-Cola's, until Fuji quietly closed the gap, and almost nobody noticed in time.

The article next to this recording says the same thing in numbers. There are only 4 ways to make money: labor, capital, arbitrage, insurance. Geico collects premiums. Those premiums fund Buffett's investments while customers sleep. One loop, run for 50 years, built a $900 billion company.

The lecture is free. Yes, you're already seeing it in your feed, and that doesn't make it any less free.

Simple question: is the moat around your income widening or narrowing right now, and when's the last time you actually checked?

[Superior @andreysuperior]

https://t.co/rUN1cPDY65

[george @georgeyitb]

YOU CAN CALL THE MARKET PERFECTLY AND STILL WALK AWAY WITH NOTHING.

October 1929. Jesse Livermore is short the entire market while Wall Street loses fortunes in a matter of days. In one week he makes roughly $100 million. The analysis is flawless. The direction is exactly right.

Your analysis can be right.
Your position can be right.
Your timing and your bet size can still wipe you out.

Livermore isn't a fictional character. He's the real prototype for the main character in "Reminiscences of a Stock Operator" by Edwin Lefèvre, 1923. The book reads like a novel, but it's close to a documentary account of one man with one brain, the same brain that made him a millionaire and later left him broke.

At 14 he worked as a board boy, chalking up stock quotes, and memorized price patterns faster than the grown brokers around him. By 15 he'd made his first $1,000. Bucket shops banned him one after another because he won too consistently. They called him "the Boy Plunger."

Intelligence was never his problem.

A few years after his 1929 hit, he filed for bankruptcy again. Not for the first time. Over his life it happened at least three times, with the same market instinct that made him a legend.

At MIT, Jake Xia manages a multi-billion dollar portfolio and says it plainly on the lecture recording: "It all comes down to sizing." Not the forecast. Not who's smarter than the market.

Livermore himself wrote about this more honestly than any modern guru: "It never was my thinking that made the big money for me. It always was my sitting."

He knew it. He put it in writing, sharper than any trader with a million followers could today. And he still couldn't obey it himself. A few years after writing that line, he lost everything again, and in 1940 he took his own life, leaving a note that called himself a failure.

That's the actual gap between intellect and discipline. Intellect is being able to state the rule. Discipline is executing it at three in the morning, when the position is moving against you and every cell in your body is screaming to do something else.

Xia's lecture is free on MIT OpenCourseWare. Lefèvre's book has been freely available for almost a century. That sounds obvious, you're already seeing this in your feed. But the only thing that actually costs anything is the discipline nobody sells separately.

[george @georgeyitb]

AN MIT PROFESSOR DODGED ONE QUESTION FOR AN ENTIRE SEMESTER. THEN HE RAN OUT OF ROOM TO DODGE IT

Andrew Lo cuts off the options lecture mid sentence and tells his class straight: it's time to finally answer the question he's been putting off for the first half of the semester. What number do you actually use to put a price on risk.

Here's the answer, stripped down to the core.

Any financial valuation is really just the present value of an expected payoff, discounted at some rate.
The whole question is what that rate is made of.
It has two parts: the risk free rate, plus a risk premium.
Without that premium, the entire stock market would just be a savings account with a better marketing team.

Lo says it plainly. Until you take that mechanism apart, you can't tell whether a market is working correctly or has just gone completely insane.

The lecture is free, sitting on MIT OpenCourseWare and YouTube. The part above happens at 53:05, close to the very end of a 1:06:02 lecture. The first half hour is not filler either, that's where the same pricing model gets built that later turns into Black-Scholes.

Have you ever actually calculated the risk premium baked into your own investments right now?

[Superior @andreysuperior]

https://t.co/rUN1cPDY65

[george @georgeyitb]

GETTING RICH WHEN YOU ALREADY HAVE MONEY IS EASY. YOU WON'T GET RICH UNTIL YOU FIGURE OUT HOW TO DO IT WITH A HUNDRED BUCKS IN YOUR POCKET.

Warren Buffett sits down in front of a camera and says: at 11 years old he had just $114, and that same money would be worth almost $400,000 today if he'd put it into the S&P 500 and reinvested the dividends.

No starting capital. No connections. Just a hundred bucks and 84 years of not doing anything stupid with it.

Here's what that actually means if you genuinely have $100 in your pocket right now:

Money doesn't add. It multiplies. FV = PV × (1 + r)^n. Your total grows by a rate raised to a power, not just by a rate.
With a hundred bucks, you barely have any control over r, the rate. What you fully control is n, time.
The first 10 years of that exponent are barely noticeable. The last 10 years do all the work.

One big loss costs more than ten good years gain you. Lose 50% of your capital and you need plus 100% just to get back to where you were, not plus 50%.

Buffett himself has said something close to "rule one, never lose money, rule two, never forget rule one." That's not caution for its own sake. It's the fact that in a multiplicative process, one zero at the start wipes out everything that comes after it.

This video and this article are both free. Yeah, you know that already, it sounds obvious when it's sitting right there in your feed. That's exactly why 99% of people scroll past it instead of pulling the formula out of it.

Five equations govern how money actually grows, not four, not six. The next piece breaks down the second one: why being right and having an edge are two completely different things.

If you had only $100 right now, what would you do with it?

[Neuro @0xNeuroBlue]

https://t.co/6bJ460527Y