Russell conjugation

Freedom fighter or terrorist?

Russell conjugation, or emotive conjugation, refers to the ability of different words that effectively describe the same thing to elicit very different emotions.

The concept was described by mathematician Bertrand Russell in 1948 with the following examples:

I am firm, you are obstinate, he is a pig-headed fool.

I am righteously indignant, you are annoyed, he is making a fuss over nothing.

I have reconsidered the matter, you have changed your mind, he has gone back on his word.

The impact of this is immense. The pollster Frank Luntz discovered that people would form their opinions solely on the Russell conjugation and not on the facts themselves. The specific words mattered more than the actual facts.

It’s a technique worth keeping in mind when it comes to any form of persuasion. For example, when consuming news, think about the emotion you’re feeling and the conclusion you’re reaching. No news source is truly objective, so analyze how the platform is using words to convey certain feelings or conclusions. And conversely when persuading consider the specific words you use because different words elicit different emotions, and those words can work towards your goal or against it.

Sources:

• Eric R. Weinstein

• Wikipedia: emotive conjugation

Ideas as Aesthetics

I really liked this tweetstorm from @martin_casado, which nicely articulates something I’ve felt for some time:

1/ Advice on finding “the right idea” is often a variant of the tired painkillers vs. vitamins cliche -- focus on a problem you’ve experienced or others are experiencing yada yada

Yet, many impactful ideas were more akin to aesthetics, how founders felt the world should be.

2/ Take compute virtualization. For decades, VMs were an elegant oddity. The VMware team viewed them as the right way to abstract compute but weren't quite sure the killer use case(s). And yet that led to multiple deca-billion dollar markets.

3/ Many platforms and OSes have followed similar paths. They didn’t address a particular burning need now, but if adopted they would change how we did work and thought about work.

4/ Solving tangible, near-term problems is fine. But it’s not the only way to build a company. And for dreamers, can be tremendously limiting.

5/ Ideas as aesthetics are particularly powerful because the founders with the ideas can draw upon their intuition and impress it on the world rather than manically react to the customers tactical and often blinkered views of "the problem”.

6/ So the next time someone asks if you have a painkiller or a vitamin, tell them neither, you’re too busy creating the red pill.

Noticing

I read a beautiful story recently about Satyajit Ray’s first meeting with Rabindranath Tagore.

Satyajit Ray is considered one of the greatest filmmakers of all time. Akiro Kurosawa said, “Not to have seen the cinema of Ray means existing in the world without seeing the sun or the moon.”

His most famous works are the three films known as The Apu Trilogy:

Rabindranath Tagore was a Bengali writer, poet, composer, painter, and philosopher who won the Nobel Prize for Literature in 1913. Tagore took the money he won from the Nobel Prize and opened a school, Visva-Bharati University (often called Santiniketan for the town in which it was founded). Tagore hated rote learning. His goal with the school was more personalized, integrated learning.

Satyajit Ray attended Santiniketan for his graduate studies, but he first met Tagore, a friend of his late father’s, in 1940, when Ray was just seven years old.

By that time, Tagore was a loved and revered national figure, and the young Ray was quite excited about the meeting. He brought a small notebook with him, in which he hoped Tagore would write him a poem. Tagore took the notebook for a day, and upon returning it, said to Ray’s mother: “Let him keep this, and when he is older he will understand it.”

Here’s the poem he wrote:

Through many years,
At great expense,
Journeying through many countries,
I went to see high mountains,
I went to the oceans.

Only I had not seen at my very doorstep,
The dew drop glistening
On the ear of the corn.

Among the beautiful things about Ray’s films are the small details, such as the rain on a pond, a cat playing, a little girl hiding candy, and so on. I don’t know for sure that the poem influenced him in this way, but both Tagore’s poem and Ray’s films remind me to notice the beauty that’s right in front of me that I might otherwise miss.

Truth

I just finished Logicomix: An epic search for truth and thoroughly enjoyed it.

Logicomix is a graphic novel that does a beautiful job of explaining the generations-long search for the foundations of mathematics through the life of mathematician and philosopher Bertrand Russell.

I picked it up because I’m making my way through Gödel’s Incompleteness Theorem with the help of another wonderful book that’s focused on the theorem itself: Gödel’s Proof by Ernest Nagel and James Newman.

Logicomix places that theorem in context, making it clear just what a breakthrough it was and why its impact was so immense.

What I loved was not only the story itself but how it was told. I was amazed at how much emotion a graphic novel can elicit. I felt I knew Bertrand Russell.

There are many ways to connect with a character, whether in a film, a fiction novel, or a biography, but I found the effect here was different than all of those. I realized it was a unique combination of factors that can only happen in a graphic novel:

1. You’re seeing the character interact with others, and you’re seeing the character’s facial expressions and language. That’s similar to a film.

2. You’re hearing their internal thoughts. That’s similar to a fiction novel.

3. There’s a meta commentary about the characters and concepts. That’s similar to a biography or non-fiction “explainer” book. Logicomix does this through a meta layer: the graphic novel’s creators talk about the novel’s characters and the approach they took to the story. It’s an effective device because it helps explain and add context to tough concepts, adds nuance and ambiguity to a complex story, and makes connections that help connect the narrative through time and concepts.

In other words, it combined the best of film, fiction novels, biographies, and non-fiction explainer books.

***

Briefly, here are the key concepts and characters:

Bertrand Russell is the main character, and we follow the course of his life.

A series of childhood events led Russell to have an unshakable belief in logic and reason. So much so that, as a student at Cambridge University, he challenged his professors, pointing out that mathematics didn’t rest on any foundations—that it’s truth wasn’t proven; rather, it was assumed.

He found himself trapped between mathematics and philosophy and aimed to combine the two worlds—the philosophers’ search for truth with the rigor of mathematics.

But he was frustrated:

Russell’s search for tools with which to establish that foundation led him to Gottleb Frege, a German mathematician, philosopher, and logician. Frege had created a concept script that had promise as a fully logical language.

Russel also built on the ideas of Georg Cantor, who pioneered set theory and more rigorous thinking about infinity.

Set theory pitted two giants of mathematics against each other at the time: Henri Poincaré and David Hilbert. Poincaré believed in the importance of human intuition. Hilbert believed in the rigorous exactness of logical proof.

Hilbert in particular inspired Russell to focus on providing a foundational basis for arithmetic. The ability to know for sure that arithmetic problems, properly defined, can be solved with certainty was inspiring to Russell and others at the time.

Russell started writing The Principles of Mathematics, which he hoped would be a new and greater Euclid, establishing new foundations for mathematics.

But in the process he ended up discovering something that turned logic upside down, breaking the foundations of set theory. Russell’s Paradox, as it came to be known, showed that there’s a paradox in set theory and, therefore, it is flawed. The issue is that set theory breaks down when it becomes self-referential—when you ask the question:

“Does the set of all sets which do not contain themselves contain itself?”

If it does, then it doesn’t. And if it doesn’t, then it does. Paradox.

Other popular forms of this paradox include:

• The statement: I am lying

• The conceptual book: A complete catalog of books that are not self-referential

The paradox destroyed the foundation on which Gottleb Frege had built his life’s work.

Everyone was dejected by the paradox and the setback due to it, including Russell. Bertrand Russell and Alfred North Whitehead decided to team up to build a new foundation for mathematics: Principia Mathematica.

But, by Russell and Whitehead’s own admission, they failed. Principia Mathematica was published, but it was incomplete and controversial.

Here, the graphic novel, already great, takes an even greater, quite beautiful turn.

The authors introduce the Greek tragedy Oresteia by Aeschylus, and the meta story they create adds a beautiful layer to the whole story—the concept of reality versus the map of reality:

Ludwig Wittgenstein makes a very entertaining appearance, questioning Russell with an intensity and passion even greater than that which Russell had brought to Cambridge as a young student.

And Wittgenstein turned all of logic on its head:

And, finally, Kurt Gödel demolished the entire endeavor with his Incompleteness Theorem, which proved that there will always be elements of arithmetic that can be unprovable. In other words, “There will always be unanswerable questions” in arithmetic. Arithmetic is, by necessity, incomplete.

The essence of the story is that the truth is tricky…

Again:

“…if even in Logic and Mathematics, the paragons of certainty, we cannot have perfect assurances of Reason, then even less can this be achieved in the messy business of human affairs—either private, or public.”

***

There is a positive side to all this, of course.

The path continued: Hilbert to John Von Neumann to Alan Turing.

Alan Turing extended the work done by Hilbert and Gödel, tackling Hilbert’s “decision problem,” which had survived Gödel’s analysis.

The decision problem asked: Given a logical system, is there an algorithm for deciding whether a proposition is provable within the system or not?

Turing answered: no.

And to show this, he rigorously defined the notion of an algorithm using a theoretical machine that had a central control and a tape for memory, input, and output.

The key property of this Turing machine was universality—the ability to carry out any computational task, provided it is supplied with an appropriate program for doing so.

The concept of the Turing machine became central to modern computers as well as crypto networks, such as Ethereum.

Tail Hedging

In his book The Dao of Capital, Mark Spitznagel lays out a simple approach to tail hedging. This is the same approach that he uses at his investment firm, Universa Investments. The fund generated a 3,612 percent return in March 2020, when markets dropped dramatically due to coronavirus fears (source).

I’ll quickly lay out why this is important and then describe how to do it.

***

There are many reasons to believe all markets are too richly valued.

Here are three views that show that.

1. MS Index and Tobin’s Q: Spitznagel looks at what he calls the Mises Stationarity Index (MS Index), which is a rough measure of market prices for assets relative to the book value of those assets.

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Source

The MS Index is similar to another metric called Tobin’s Q, and this is what that index has looked like since 1900 (source):

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2. Shiller PE ratio: There’s another metric, the cyclically adjusted price to earnings ratio created by the economist Robert Shiller, that compares the price of equities to cyclically adjusted earnings. Here’s that ratio over time (source):

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3. The Buffett Indicator

Warren Buffett has an indicator he likes to use, which is the ratio of the total value of the US stock market to the US GDP.

Here’s what that looks like as of August 20, 2020 (source):

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***

One of the major drivers of inflated prices is the action of central banks in all major economies. Here’s a view into just how extraordinary their support for markets has been (source):

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***

You buy insurance for your car, your house, and your life. It seems only reasonable that you should buy insurance for your investment portfolio, particularly if you believe there is a heightened risk of dramatic corrections.

Here’s how you can buy that insurance, per Mark Spitznagel:

The portfolio I am testing in this study purchases 2-month 0.5 delta puts on the S&P Composite Index at the start of each strategy period at an assumed 40 percent starting volatility level (which is a historical median pricing level—and, in fact, within a large range, the return outperformance levels reported are surprisingly robust to this pricing level). After every month, the 2-month put options position is rolled (the existing options are sold and new 2-month puts are purchased, which resets the position every month). A historical, conservative interpolated mapping is utilized, which maps monthly index returns into concurrent monthly changes in pricing (or implied volatility) of the 2-month puts (for monthly vega profit and loss), as well as changes in the pricing spread between 1-month and 2-month puts (for monthly rolling). This mapping allows the test to include time periods before data are even available for options markets, thus providing a much greater range of market environments. Each month the portfolio spends one half of one percent on puts, and the remaining 99.5 percent stays invested in the S&P index. No leverage is employed (and, in fact, typically when the market is down by not even 20 percent the entire portfolio is actually net profitable).

More practically, here’s how I executed this:

• I used Robinhood, upgrading my account for basic options trading.

• I calculated how much I need in options: 0.5% x my portfolio. For illustrative purposes, let’s say that’s $10,000.

• I’m going to buy put options on the popular S&P 500 ETF SPY, which at the time of this writing is about $300.

• We want options that are 30 percent out of the money, so that means buying options with a strike price of $210.

• Looking on Robinhood, the closest date two months out is August 21, 2020. The price to buy put options at a $210 strike price for that date is $1.59 per share.

• Each contract is 100 shares. So the price of one contract is $159 ($1.59 x 10).

• So for $10,000 of coverage, you need 63 contracts ($10,000 / $159).

• Buy 63 contracts.

• Set a reminder to roll these every month, meaning: every month, sell the contracts you have at the prevailing price and do the same thing again.

• In the extreme case, you lose 6 percent a year, but more likely, it will be something less than that, as there will be some down months in that year and periods of increased volatility. And there’s some small chance of a very large downturn, in which case the options will pay off by multiples of their value if not tens of multiples, allowing you to reinvest that return into the market at attractive prices.