VEXMIND

The hidden history of money. Empires, fortunes, crashes, and the stories behind the cash in your pocket.

[VEXMIND @vexmindhq]

@Emberxbt Neither. I give him what I can afford to never see again and call it a gift. Lending to family is how you lose the money and the brother-in-law.

[VEXMIND @vexmindhq]

@NitePov Same math. In a crowded trade you can be right and still make nothing.

[VEXMIND @vexmindhq]

In the 1980s an MIT statistics professor beat the state lottery. He never tried to guess the winning numbers. He guessed which numbers nobody else would pick.

It's Herman Chernoff. Everyone knows the lottery is a terrible bet. The state keeps half and the winners split the rest.

But people don't pick numbers at random. They pick birthdays and patterns, so thousands of tickets pile up on the same few numbers.

Chernoff bet on the empty ones. Same chance of winning, but when he won he split the prize with nobody.

That's the whole trick. Expected value.

E = sum of (payoff × probability)

Don't ask how likely you are to win. Ask how much you get, on average, every time you play.

In this lecture an MIT professor tells the story at 28:43. Before that he runs a coin game with real money in front of the class. It looks fair. One player loses 50 cents on every $2 bet.

Students pay tens of thousands a year to sit in that room. It's free right here.

The answer is in this video.

[VEXMIND @vexmindhq]

@recketino Exactly. The numbers were random. The people never were.

[VEXMIND @vexmindhq]

@vontrixai Both of them are right about their own game. Munger built something that could never go to zero. Musk built things that only exist because he was willing to

[Klilvi @klilvi]

Michael Burry's own investors called him a liar and tried to pull their money. He locked it up anyway. Two years later he made them $725 million.

In the clip below, Burry explains what he saw in the mortgage bonds that almost nobody on Wall Street bothered to read.

He was a doctor first. He lost his left eye to cancer at two, got his MD, and started a neurology residency at Stanford. At night he posted stock picks on an internet message board.

In November 2000 he quit medicine and opened his own fund, Scion Capital, with an inheritance and loans from his family.

While the dot-com bubble burst, he beat the market three years in a row. By the end of 2004 he was running $600 million and turning new money away.

Then he started reading mortgage bond prospectuses. Line by line.

On May 19, 2005 he bought $60 million of credit default swaps from Deutsche Bank. Insurance that paid only if subprime mortgages blew up. By October he held over $1 billion of them.

Every month he paid premiums. Every month nothing happened.

In 2006 the S&P rose more than 10%. Scion lost 18.4%.

His investors wanted out. He used the fund's rules to lock up the money tied to the bet.

One detail made it even worse.

In January 2006, Joel Greenblatt, his first big backer, went on TV and named Burry as one of his favorite value investors. Ten months later Greenblatt flew across the country to call him a liar and push him to drop the trade.

Burry held.

In 2007 the subprime market collapsed. From November 2000 to June 2008, Scion returned 489% after fees. The S&P 500 did about 2%.

His investors made $725 million. He made about $100 million.

Then he closed the fund.

Was he protecting his investors, or gambling with money that wasn't his?

[VEXMIND @vexmindhq]

@klilvi The hardest part wasn't spotting the bubble. It was paying premiums every month for two years while everyone he respected told him he was wrong.

[VEXMIND @vexmindhq]

@fxlxsxf 12 dead out of 79 in a list that is only a few days old. That says more about crypto tooling than any review could.

[VEXMIND @vexmindhq]

@recketino He lost $70 billion in the dot-com crash and came back. He lost on WeWork and came back. Either this is the bet that finally breaks him or the one that makes all the others look small.

[VEXMIND @vexmindhq]

Honest question. If you play the lottery, do you pick your own numbers or let the machine do it? After this lecture I think it matters.

[VEXMIND @vexmindhq]

In the 1980s an MIT statistics professor beat the state lottery. He never tried to guess the winning numbers. He guessed which numbers nobody else would pick.

It's Herman Chernoff. Everyone knows the lottery is a terrible bet. The state keeps half and the winners split the rest.

But people don't pick numbers at random. They pick birthdays and patterns, so thousands of tickets pile up on the same few numbers.

Chernoff bet on the empty ones. Same chance of winning, but when he won he split the prize with nobody.

That's the whole trick. Expected value.

E = sum of (payoff × probability)

Don't ask how likely you are to win. Ask how much you get, on average, every time you play.

In this lecture an MIT professor tells the story at 28:43. Before that he runs a coin game with real money in front of the class. It looks fair. One player loses 50 cents on every $2 bet.

Students pay tens of thousands a year to sit in that room. It's free right here.

The answer is in this video.

[VEXMIND @vexmindhq]

@NitePov Jeff found out at ten that Mike was not his biological father. He said later it bothered him less than learning he needed glasses.

[VEXMIND @vexmindhq]

a dollar next year is a different currency than a dollar today. this mit lecture shows the exchange rate.

andrew lo taught this at mit, course 15.401, in september 2008

the weekend before, the us government took over fannie mae and freddie mac. he opens the class with it.

then the definition: an asset is just a sequence of cash flows. a company, a patent, the coca-cola formula, all the same thing.

then the trap: you cannot add money from different years. he says it is like adding your weight to your age.

then the fix: treat every year as its own currency and convert everything into today's dollars.

watch the moment he auctions a piece of paper that pays $1 next year, around 54:00. the room sets the price of time.

money has a date on it. most people never look.

[VEXMIND @vexmindhq]

a dollar next year is a different currency than a dollar today. this mit lecture shows the exchange rate.

andrew lo taught this at mit, course 15.401, in september 2008

the weekend before, the us government took over fannie mae and freddie mac. he opens the class with it.

then the definition: an asset is just a sequence of cash flows. a company, a patent, the coca-cola formula, all the same thing.

then the trap: you cannot add money from different years. he says it is like adding your weight to your age.

then the fix: treat every year as its own currency and convert everything into today's dollars.

watch the moment he auctions a piece of paper that pays $1 next year, around 54:00. the room sets the price of time.

money has a date on it. most people never look.

[VEXMIND @vexmindhq]

@NitePov He took this from a 19th century mathematician, Carl Jacobi, who told his students to always invert a problem. Munger just applied it to money.

[VEXMIND @vexmindhq]

@NitePov Alaska has been paying every resident a yearly check from oil money since 1982. The amount changes every year, usually between $1,000 and $2,000.

[VEXMIND @vexmindhq]

a math professor made $1.7 billion in one year. not his net worth, his paycheck.

andrew lo opens his mit finance course with this, 15.401

his whole definition of finance fits in one line: mathematics plus money.

then the proof: james simons, a geometry professor, built the most successful hedge fund in history with 75 phds.

then the opposite: warren buffett got there with balance sheets and high school arithmetic.

then the experiment: he auctions a sealed box to his students for cash. nobody knows what is inside. bidding stops at $45.

watch the moment he opens it, around 33:00.

a price is just what a room full of people agrees on when nobody knows the answer.

[VEXMIND @vexmindhq]

a math professor made $1.7 billion in one year. not his net worth, his paycheck.

andrew lo opens his mit finance course with this, 15.401

his whole definition of finance fits in one line: mathematics plus money.

then the proof: james simons, a geometry professor, built the most successful hedge fund in history with 75 phds.

then the opposite: warren buffett got there with balance sheets and high school arithmetic.

then the experiment: he auctions a sealed box to his students for cash. nobody knows what is inside. bidding stops at $45.

watch the moment he opens it, around 33:00.

a price is just what a room full of people agrees on when nobody knows the answer.

[VEXMIND @vexmindhq]

Roulette gives you a 47% chance to win each bet. Sounds almost fair.

This MIT professor's mother-in-law walks into the casino with $1,000 and leaves as soon as she is up $100. She says she almost always goes home a winner.

He did the math. The chance of that working is about 1 in 37,000.

It gets worse. Bring $10 million, bet $1 at a time, try to win just $10. You are still more likely to lose all of it.

The story starts at 4:30. The number that surprised me most is at 37:34. At 48:47 he explains why a small edge beats you every time.

Would you still play?

[VEXMIND @vexmindhq]

Roulette gives you a 47% chance to win each bet. Sounds almost fair.

This MIT professor's mother-in-law walks into the casino with $1,000 and leaves as soon as she is up $100. She says she almost always goes home a winner.

He did the math. The chance of that working is about 1 in 37,000.

It gets worse. Bring $10 million, bet $1 at a time, try to win just $10. You are still more likely to lose all of it.

The story starts at 4:30. The number that surprised me most is at 37:34. At 48:47 he explains why a small edge beats you every time.

Would you still play?