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Don’t go Down the Rabbit Hole?

“Alice was beginning to get very tired of sitting by her sister on the bank and of having nothing to do…..when suddenly a White Rabbit with pink eyes ran close by her. Alice started to her feet, for it flashed across her mind that she had never before seen a rabbit with either a waistcoat-pocket, or a watch to take out of it, and burning with curiosity, she ran across the field after it, and was just in time to see it pop down a large rabbit-hole under the hedge.
In another moment down went Alice after it, never once considering how in the world she was to get out again.”
Charles Lutwidge 1898, better known by his pen name Lewis Carroll went to Westminster School and Christ Church College Oxford.
And so did I.
When I go back there for dinner in the magnificent “Harry Potter” dining hall I usually make time to stare up at the beautiful “Alice Window”.  What does it mean to “go down the rabbit hole”? According to one source it is to enter into a situation or begin a process or journey that is particularly strange, problematic, difficult, complex, or chaotic, especially one that becomes increasingly so as it develops or unfolds.
That definition is an excellent one.
I simply cannot prevent myself from disappearing down the rabbit hole whenever the opportunity presents itself and nor would I wish to.
One of the great advantages of age (I am 62) is that some of us come to know ourselves. I certainly have. I am not always very pleased with what I have found but at least I have done my best in recent years to lessen my very worst characteristics. I’m not so convinced about the plasticity of the brain but I do my best to act as if it were true.

My interest is in “knowledge”. My particular fascination is in the nature of consciousness and the “meaning” (or otherwise) of reality. It has always been so, although I did not always recognise it.
If it is to be found anywhere the answer lies in science and the philosophy of science.
While the number may not be 42 the “Answer to the Ultimate Question of Life, the Universe, and Everything”, will indeed be calculated by an enormous supercomputer. Except of course “Unfortunately, no one knows what the question is.”
If I had to name a single book I have found most influential in my life it would be Voltaire’s Candide. Followed closely by David Deutsch The Fabric of Reality. I will leave my readers to figure out why or read those books for themselves.
So, let me give a concrete example. I have been trading volatility. I have been using XIV and TMF. It’s fun and the way I trade it is simple. You get a lot of bangs for your buck while the going is good but my suspicion is that the long bond (geared or otherwise) will be a far less useful hedge in the future than it has been in the past if we face a climate of rising interest rates.
I have no spark of originality in my body so it was various discussions on various of the better trading forums which flagged down this particular White Rabbit.
I disappeared down the rabbit hole and am still speaking from an underground labyrinth. The trouble is of course it never really stops. I spent months with Python and Excel creating various VIX trading systems. I spent weeks recreating various volatility Indices and ETFs.
And then I took a dark turn down the options fork somewhere deep, deep down in the rabbit hole.
I bought VIX options data from CBOE. I spent weeks understanding it, cleaning it up and manipulating it into a useable format with Pandas and Python. I spent more weeks designing and testing all manner of options systems on the data. Could I use options to hedge my short volatility position in XIV?
And then the chaos and madness really set in. I decided to try and fabricate “fake” options data from the spot prices of the S&P 500 index. More weeks of intense fun with the wonderful Pandas (thanks Wes McKinney you are one of my heroes). Endless hours of fun playing with Black Scholes, monte carlo, binomial models.
And currently I am wasting my time simulating implied volatility and the volatility smile to add into my fake option data.
But no time is truly wasted unless you really want to make money fast. It has lead me into deep speculation on my favourite topics. As did my endless months experimenting with machine learning.
The small minority of followers who have “followed” this article so far will be wondering where the ramble ends and what is my point.
Well its back to philosophy I fear. And the temple of Appollo at Delphi. Socrates said that the unexamined life is not worth living – a gloss perhaps on “know thyself”.
And here is my punchline:
It’s all very well for a manic old git like me but it is unlikely to make you much money.
The most money I ever made in my vainglorious career came from simplicity and dumbness. Discovering a brain dead area of the market which at the time was a no fail zone and milking it for all it was worth. It was an intellectual desert but it set me up for many years to come and for that I remain grateful.
Looking out at the financial blogosphere I suspect that those who create wealth from it are people who do NOT go down rabbit holes. Or if they do, then people who are sensible (or clever enough) to make the journey pay. And kudos to such people.
Perhaps the biggest problem in the financial blogosphere is that a large percentage of its population is made up of people who would not recognise a rabbit hole if they were to break their leg in one. And such people have no interest in disappearing down it.
There are some very bright people out there who have the people skills to combine their trips down the rabbit hole with energy and salesmanship. They are good communicators as well as clever and knowledgeable. They set up hedge funds and sell the hell out of them. They make billions even if (in many cases) their investors do not.
And then there are the people who are too stupid to get any benefit from going down rabbit holes but have skin like rhinos and a sales ability. The financial blogosphere is full of such types. Knowingly or otherwise they sell snake oil to the gullible or the inexperienced. Sometimes they sell foolish books, sometimes they give pointless seminars (they are “THOUGHT LEADERS”!  They are “EDUCATORS”!) and sometimes they manage money.
And as for me? Well I’m just an aging cynic. I trade a bit, I scribble down a few thoughts. But mostly I disappear down the rabbit hole for months at a time.

3 thoughts on “Don’t go Down the Rabbit Hole?

  1. Thanks, Anthony, I did not realize writing about finance can be poetic. 🙂

  2. Anthony,

    “My interest is in “knowledge”. My particular fascination is in the nature of consciousness and the “meaning” (or otherwise) of reality. “
    This fascinates me too …You’ve written a very inspiring post…

    As for your XIV/TMF strategy, I am sure you’ve already read that AQR publication :

    They demonstrate that we should no fear a slow rise in interest rates….


    1. Just found your june post where you adressed the case of rising interest rates :

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