Stock market and me

I’ve always had an affinity to math. So eventually in my life, I had to face a question: if you’re so smart, why are you so poor? Why don’t you fly on your private plane on the first date with your girlfriend? There are two reasons: first, I’m not that brainwashed by consumer’s society to wish for private planes. Second, I don’t have a girlfriend anyway.

Yet we keep getting the cues from culture, from our friends, from gossip, even from our parents! One of my high school classmates became a millionaire five years after graduation. He only used the math skills from probability and statistics 101, his own talent and books that taught him how to play poker. Everybody knows the stories of Bill Gates, Steve Jobs, Marc Zuckerberg. It seems that all they needed was to be tech savvy and smart, and start their companies early. So why am I not starting my company? Why do I keep taking classes and reading books when all I need to earn money I already learned 10 years ago?

Sometimes I get gossip about people who went by that path. Back in Moscow, another classmate was trying to recruit me and my friend for their stock trading startup. They had millisecond trading algorithms, and they talk their way into the room next to Russian Fund Exchange, so that the wires are short and they buy and sell faster than anyone. It was a sure deal, and first millions of investment have already been secured. I dragged my friend out of the room seconds before he was converted. We are theoretical physicists, and our bright minds are meant to process the mathematical beauty of nature in a cozy small university of one of the first world countries. I went to US, and my friend is in France. They pay us pretty well, even after rent and car expenses we managed to save enough money together to buy a little bungalow in a rural France, a small vineyard where we can make our own wine someday.

That’s what we do with our soviet mentality: saving money for a rainy day, preferably in a trustworthy big bank that will survive all the crises and give us virtually no interest rate. But I started meeting people in US who have a different mentality. One was an old creep, another had only one jacket he wore everyday. Both encouraged me to invest early. Even if investment companies didn’t offer significant yearly returns for my 15 grand, it is still worth my time to learn about the market, find the companies that are likely to grow, and give them my money. Reason being, I don’t do it for tiny returns, I do it for experience. I am bound to make mistakes with my first investment. But if it’s just 15 grand, I won’t regret it. What’s more important, I will learn from my mistakes, find more trustworthy investment companies and won’t lose bigger amounts in the future, when my salary is bigger.

I did not believe them, as a theoretical physicist. We in theory assume that all the world is stupid and we can do their job better once we do the calculations. Moreover, a computer can do their investments better. Much as for rebellious teenager, their efforts and knowledge were of no importance to me, I was going to download the price data and see for myself. Conveniently, I had an algorithm from electrical power networks that predicted the daily consumption in Japan. Why don’t I just use it to predict the stock prices?

Obviously, it didn’t work. It took me a week to figure out how to trade stocks, and another week to catch up with tiny interest rates of trustworthy big banks. Now I despised them. I couldn’t guarantee my investors a stable return even after two years! I left it there for a year, until my friend told me of a company Quantiacs that collects encrypted trading systems from people like me, and shows them to investors. One of the students in my year (her name is Teagan) just wrote a code that is currently at the top of the list on their website. I pulled out my old code, checked it in a user-friendly interface of Quantiacs. They traded futures, which were supposed to bring bigger profits. My idea was clear to me, but it wasn’t working so well. I talked to some of the people around, who, unlike me, actually read books on trading. And I found out what was the deal: it’s not my algorithm that was bad – it’s the futures that are bad. Futures were invented to attract more people to the stock market, so they look very attractive for beginners. And the typical beginner on the stock market will not use a kind of sophisticated algorithm that I came up with. So the futures by design are not suited for my algorithm.

With my theory confirmed, I felt satisfied. Even if I can’t win against Teagan’s algorithm on futures, my idea wasn’t crap. I got back to research and stopped thinking about stock market and private planes. Guess I’m a scientist after all.

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