[VIC – 147] You have got to be kidding me!

Business & Money

When you buy a stock, or take a long position, your maximum downside is your initial investment. So if you buy a share of stock for $10, you can lose a maximum of $10 if it somehow goes to zero.
By contrast, when you sell a stock short, the downside is unlimited. So it’s far more risky to take short positions when compared to taking long positions.
I’ll give you a simple example to demonstrate in case anyone is confused about what it means to sell short. When you sell a stock short, you are borrowing shares in hopes the price will go down.
So let’s use that same $10 share of stock. If I borrow 1 share of stock today from Jack, I can then sell that share to Susan for $10. If the price then goes down to $5 tomorrow, I can buy a share for $5 and return it to Jack. So I sold the stock yesterday for $10, bought it back for $5 today to return it to Jack, and pocketed the $5 difference as my profit (in reality there is also a borrowing fee, essentially interest you are paying on the loan).
But, if the stock instead doubled to $20, I would have lost $10. Or if it tripled, I would lose $20. So the more the stock goes up, the more I stand to lose.
So, due to the risky nature of shorting stocks, and my limited knowledge and experience trading, I have never shorted a stock. (I got pretty close with SnapChat – should have pulled the trigger)
That changed a few weeks ago. Well, I guess you would say it kind of changed, given that I shorted the overall market as opposed to an individual stock. And I did it in a way that I didn’t realize was possible. Specifically, I came across the concept of an inverse ETF. That is, there are inverse exchange-traded funds that seek to provide -100% of the return of the target fund.
So you can buy SPY, which is an ETF that seeks to match the return of the S&P 500. Or you can buy SH, which is an inverse ETF that seeks to provide the inverse return of the S&P 500. (the goal is for SH to go down the same amount that SPY goes up – you can see the 2-year chart of SPY vs SH below)
So you are basically shorting the overall market, but the risk profile is similar to that of a long position given that you can only lose the amount of your initial investment.

Human Progress

If you have minor stomach pain, you might head to WebMD to do a bit of homework before perhaps taking a trip to Rite Aid. If you feel a throbbing pain in your head and blurred vision, you might want to head to the doctor, or better yet a neurologist.
Similarly, if you are establishing an LLC on the side to do a bit of consulting, you might be ok using LegalZoom and TurboTax for your legal and tax requirements. If you are leading a 1,000 person company with offices in 3 countries, you need a group of lawyers, accountants, and a CFO to ensure that all your bases are covered.
In other words, when complexity and the stakes are low, you can handle things yourself with the help of software. When complexity and the stakes are high, you need people, or better yet professionals.
I point this out because I keep getting the same question over and over from lots of different people.
How do you feel about robo-advisors? (automated software to handle passive investing)
If you’re opening up your first brokerage account and want to get your investing feet wet with a couple hundred or a couple thousand dollars, that equals low complexity and low stakes. So sure, tools like WealthFront and Betterment might be great options to “set it and forget it.”
If you have tens or hundreds of thousands of dollars laying around, the stakes are higher. And if you also have considerations like having kids or purchasing property, that adds significant complexity. So it might be time to speak to the professionals (all of which are not created equal).

Philosophy

Perhaps we’ll continue on this same thread as we move into the philosophy section.
Want to know what else is high stakes and high complexity? How about human choice and free will?
I read a fantastic article recently wherein the author had this to say of Google,
The search engine is no longer a model of human knowledge, it is human knowledge. What began as a mapping of human meaning now defines human meaning, and has begun to control, rather than simply catalog or index, human thought. No one is at the controls.
While it’s easy to focus on the internet giants given their massive scale and pervasiveness, the underlying fact is that more and more of our decisions are being made for us, and often when the stakes are high. Spotify wants to decide what we listen to. Seamless and Yelp want to decide where and what we eat. YouTube and Netflix want to decide what we watch. Robo advisors want to decide how we invest.
Perhaps this is just nature’s response to the havoc that humanity has reeked on the planet. Give us the tools we need to build machines that we ultimately lose control over, which eventually leads to some massive shock to the system in order to press reset.

My Latest Discovery

You have got to be kidding me! I know have a total of 4 GREY HAIRS in my beard!!

[VIC 86] Waiting for your pitch. Digital health. Free will. Trouble sleeping.

Business & Money

A few weeks ago I went to a baseball game in Chicago for a friend’s bachelor party. It was a ton of fun.


For whatever reason, I was looking at this picture the other night and started to think about investing in terms of baseball.
In baseball when you step up to bat, there’s this concept of the strike zone. If the pitcher throws the ball within that zone, it’s called a strike. If he throws it outside of the zone it’s called a ball. What makes baseball tough is that you can’t stand around waiting all day for a perfect pitch. If the pitcher throws three strikes (regardless of whether or not you swing), you’re out and you lose your turn at bat.
In some respects, investing is like baseball. Every time you analyze a stock, that’s a pitch barreling down toward home plate. If you decide to make a purchase, that’s analogous to a swing. You might get a single and make a little bit of money, or, you might hit a home run and make a ton of money. You also might whiff and lose money.
The difference with investing, however, is that you’re never forced to swing. There’s no 3 strike rule. You can stand at the plate all day long waiting for that perfect pitch. You can wait day after day, week after week, month after month, even year after year. Only when you see the perfect pitch, and you have a ton of conviction, do you swing.
I’d say that’s one of the hardest things about investing, being patient and waiting for your pitch.

Human Progress

I’m excited to see how digital health will transform our lives.
I already wrote about my Teladoc (TDOC) investment here and why I’m excited about what they’re up to.
I also invested in Care.com (CRCM), which is an online platform that helps people find various types of care (senior care, child care, etc). Seems like another perfect problem to solve with an online marketplace (platform + network effects).
I’m considering an investment in a company that makes surgical robots for spinal procedures. Spinal surgery seems much better suited for the machines. Plus, consumers don’t pay for surgeries, insurers do. Even when out of pocket expenses are huge, you will take out a loan or do what’s necessary if you need serious spine surgery.
Apple is working hard to turn the iPhone into digital health tracking powerhouse.
If you’re at all interested in this space, here’s an awesome newsletter I subscribe to to stay abreast of what’s happening.

Philosophy

I’ve been doing some thinking about free will of late. The question I’m mulling over is “does it really exist?”
On the surface, we all have free will. You can decide where to go for dinner, what clothes to wear to work, and whether or not you treat people with kindness.
But if you think about the concept of free will on a deeper level, even with respect to those simple examples I just provided, things start to fall apart.
Let’s take the “where to eat dinner” example. First, you get hungry, which is simply a physiological and biological reaction to a lack of energy and nutrients. Chemical signals in your brain drive you to eat. The types of food that you like are a product of cultural and social pressures from the environment in which you inhabit. The time at which you eat is based on a schedule that has been arbitrarily defined to meet the needs of humans where ever you live.
You can see how this plays out when you start to peel back the layers for any “decision” you make.
While this line of thinking may seem like a glass-half-empty type of exercise or philosophical circle jerk, there’s also a bright side. When people treat you poorly or things don’t work out, I think it may be easier to deal with if you understand that no one really had a choice to do anything differently. That guy that was rude to you this morning probably had coffee spilled in his lap on the subway. The homeless woman blocking the entrance to your building didn’t choose to be homeless. She’s probably a war veteran who’s seen some really fucked up shit and this country doesn’t do nearly enough to help vets successfully integrate back into civilian life.
No one is out to get you. Life is just one huge chain of cause and effect that doesn’t start or end with you. You’re just one random link in the chain. No reason to be upset about it.

My Latest Discovery

Sometimes I have a little trouble sleeping. Lucky for me, my fiance is super creative with natural solutions to this problem. Two of her ideas that have been a god send have been:
1) Apple cider vinegar tea. It’s simple, delicious, and effective. Just hot water, a tiny bit of raw unfiltered honey (this helps with seasonal allergies as well), and a couple table spoons of apple cider vinegar. It works wonders!
2) Avalon Organics Nourishing Lavender Shampoo. People often use lavender shampoos for babies, but it seems to work well for big people too.