gilch

# Posts

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How I Meditate

I don't do all the ceremony, but my experience of doing the actual meditating when I tried it for a while was similar. Isn't something more interesting supposed to happen though? People I take seriously take meditation seriously, for reasons they seem to have trouble articulating, but seem to think the practice is worth it somehow, for reasons I still don't fully understand, so I tried it. I had hoped to at least get a glimpse of these reasons, but after a month or so of practice, I didn't notice any progress beyond what you're describing and kind of moved on.

What is the VIX?

The behavior of the VIX is a lot more predictable than something like a stock. It tends to hang out at a certain level, and occasionally spike. If you could trade it directly, this suggests a simple strategy: Buy when it's steady, and then sell when it spikes. Even if you can't time the spikes perfectly, you'll make a lot of money.

So can you do this with the futures? No, because someone has to take the other side of the trade, and they know it might spike, so they'll price that in! It's like buying insurance. You have to pay a "risk premium" to the market to hold a long vol position. If you plot a logrithmic chart an ETF that tracks VIX futures, like VIXY, you'll see that there are frequent sharp payouts for the spikes, but over the long term, the trend is pretty steeply negative. Plot that on the same graph as the VIX, and you'll understand why we say you can't trade the VIX. Unless you can predict the spikes pretty well, you'd be better off taking the opposite trade (like SVXY) to collect that premium yourself, though it would have to be leveraged down. During the quiet periods, VIXY will cost you the premium, because it's the wrong side of risk.

What other peptide vaccines might it be useful to make?

There are other coronavirus types that cause the common cold. If this type of peptide vaccine is effective in protecting against the novel coronavirus, it might work for the older types as well, if made with the appropriate peptides, of course.

What should experienced rationalists know?

I'll answer with some of the "rationalist" ideas I've personally learned and consider important. (I expect that I still have important knowledge gaps compared to other experienced rationalists though. I'm working on it.)

Intelligence is not the same thing as rationality. So much of "Epistemic Rationality" comes down to not lying to yourself. Clever people tell themselves clever lies. The Litany of Tarski is the correct attitude for a rationalist.

Raising the Sanity Waterline is a mini-sequence in its own right, if you read its links. The worldviews taught by all major religions are extremely confused at best—including (especially) yours, if you still have one—and if this isn't already blatantly obvious, your epistemology is very broken! People are crazy, the world is mad.

There are No Guardrails. The Universe is crushingly indifferent to human well-being. Everything is allowed to go horribly wrong.

Rationalists Should Win. Or "Instrumental Rationality". This does not mean "Go team!" It means that if you're not winning, then you're doing rationality wrong, and you should correct your errors, regardless of what the "rationalists" or the "great teacher" think. This can make "rationality" hard to pin down, but the principle of correcting one's errors is very important because it catches a lot of failure modes on the path. Then why not just say, "Correct your errors"? Because there are a lot of ways of misidentifying errors, and "not winning" cuts through all that and gets to the heart of what errors are.

You have to be willing to be correct even when that makes you weird. Doing better than normal is, by definition, abnormal. But the goal is correctness, not weirdness. Reversed stupidity is not intelligence.

Understand Social Status.

Value your Slack. Guard it. Spend it only when Worth It. The world is out to get your Slack! If you lose it, fight to get it back!

You Need More Money. I wrote this one, but it's a synthesis of earlier rationalist thought.

The mountains of philosophy are the foothills of AI. Even if you're not planning to become an AI researcher yourself, understanding how to see the world through the lens of AI clarifies many important things.

Google how not to suck at X.

A No-Nonsense Guide to Early Retirement

started off like 5% of my portfolio. Now it is like 70%.

Is that because your portfolio's crypto ratio inflated that much on its own before you started rebalancing, or did you sell other assets to buy that much more in crypto?

A No-Nonsense Guide to Early Retirement

Bitcoin is just a bit over 5% of my portfolio at the moment. I'm using the same dynamic volatility targeting I use for the stock and bond ETFs, but because of its sky-high volatility, that means I have to leverage down. BTC has historically been (mostly) uncorrelated with the stock market, which makes it a powerful portfolio diversifier.

This means that your portfolio's overall volatility can actually be made lower by adding the extremely volatile Bitcoins to the mix, counterintuitive as that may seem, but only by adding them in sufficiently small amounts.

Bitcoin is (by design) very deflationary, which can make it a good investment in the short term, but I fear the risk of total collapse in the long term can't be ignored. But at only about 5% of my portfolio, Bitcoin could drop to zero tomorrow, and I'd still be OK. In the meantime, I'll be pulling out money as the bubble inflates by keeping my volatility exposure to it balanced in my portfolio.

Why aren't we all using Taffix?

Benzalkonium chloride is a surfactant, which might help the hypro form a gel layer, and also an antimicrobial agent. I do not know if it would affect viruses.

From previous discussion, BZK appears to effective against the coronavirus

A No-Nonsense Guide to Early Retirement

Skimming that link, I think it shows backtesting; have you actually beaten the index yourself with real money?

I am not rich yet. I haven't been doing this long enough for my results to be meaningful. Ask me that again in five years. Or ten.

When the hypothesis at hand makes time valuable - when the proposition at hand, conditional on its being true, means there are certain things we should be doing NOW - then you've got to do your best to figure things out with the evidence that we have. — Eliezer Yudkowsky, You're Entitled to Arguments, But Not (That Particular) Proof

[Not an argument from authority; Yudkowsky just explained it well.] In the meantime, to the best of my knowledge, we should be using leverage, and weighting the bonds more heavily than the stocks. I'm confident enough in this that the bulk of my portfolio is leveraged bonds balanced against about half as much in leveraged stocks, and most of my savings are invested in my portfolio.

I agree that it is wise to be skeptical of backtests (as a rule of thumb), but rejecting them categorically is a mistake.

So let's back up a step. Why be skeptical of backtests? Because any monkey can overfit to noise and make a backtest look good, but such a strategy is useless going forward. The more parameters in a backtested strategy, the more suspicious you should be. Wait, that's an oversimplification. There's a one-parameter equation that can exactly fit any scatter plot, but it might take hundreds of thousands of digits to do so, and getting even one of them wrong gives you a completely different plot. That's extreme compared to even a run-of-the-mill overfit backtest. (Occam's razor as typically worded is wrong, but Solomonoff fixed it for us.) So let's say the more fine-tuned the backtest has to be to look good, the less likely it works.

So, how fine-tuned is my strategy? Well, how much can we perturb it before it breaks? (For the one-parameter scatter equation, it's a ridiculously tiny amount.) For a typical overfit backtest, it's bigger, but usually still pretty small. So,

• Does it matter what year it starts? Not really, for the period when we have data.
• Does it work if we scramble the order of the years? Pretty much.
• Does it have to be BND? No. Other long-term bond funds, e.g. TLT also work.
• Does it have to be VTI? No. Other stock market funds, e.g. SPY, IWM, and QQQ also work.
• Does it matter how often we rebalance? Not really. Once per quarter, once per month, or triggered at 10% absolute deviation all work.

Where's the fine tuning? This strategy seems pretty robust. Is it the relative vol weighting? Targeting the same volatility as the stock portfolio alone? The easiest type of backtest would set this with the benefit of hindsight. But volatility is much more predictable than price. So I'm not very concerned. And indeed, a walk-forward backtest that dynamically weights based on a 1-month simple moving average of historical volatility to estimate future volatility also works. But 1-month is arbitrary, right? Maybe I fine-tuned that one. But 3 months works even better. And 2 months also works. And so does an exponential moving average. We can perturb that parameter quite a bit. A fixed 1:2 ratio of stocks to bonds the whole time also works. As does 1:3. No fine-tuning here.

Do we at least have a plausible explanation for why this strategy should work? Yes. Bonds are a "safe haven" asset. When stocks look scary, people look for "safer" investments. That explains the anticorrelation. And yet we expect both asset types to appreciate in value over time. Stocks pay dividends and companies get bought out at above-market prices. Bonds pay interest. They're both pretty good investments in their own right.

Past results are no guarantee of the future, but I think it's valid to use induction here. If we dynamically target vol, then if the anticorellation or relative ratio relationship breaks, we'll still do OK.

1. it's really easy to lose a bunch of money if you use it wrong

Very true, and important. Overbetting is the second-fastest way I know to lose money in the stock market (after overtrading). Don't bet the farm. Don't bet over Kelly. I explained this in my link. But with reasonable precautions, leverage is pretty safe. Not 100% safe. After all, you can die in a car accident before you have a chance to enjoy your early retirement. Big index funds have not historically dropped to zero overnight. You would have had time to make adjustments in a crash. And there are relatively inexpensive ways to hedge against the extreme tail, like far-OTM puts or VIX calls.

But what are the chances that the optimal Kelly bet is exactly 1x leverage? On priors, for the stock market, I'd start with 2x. But you can do better with dynamic vol targeting.

1. I'm not sure there's a reliable way to borrow money at low enough rates to get good results. Most of what I've read about leverage pretends the interest rate is 0, which it's not -- looks like Robinhood offers 2.5%? What's the most reliable interest rate people can get, and does this rate kill results?

Inflation is a drag. Taxes are a drag. And yes, interest rates are a drag when using leverage. Leveraging up is never going to improve your Sharpe ratio by itself, because leverage isn't free. Some brokers are unreasonable here. You can buy a leveraged ETF and not bother with margin loans. These funds have the scale required to get the good rates. This even works in an IRA. It's not as flexible as margin, but you don't need it for this strategy.

For other strategies, you can finance with box spreads to get very good rates, even as a retail investor. These are more dangerous if you don't know exactly what you are doing (and very safe if you do), but the more passive investors can just use the leveraged ETFs.

A No-Nonsense Guide to Early Retirement

Don't discount bonds just because they have lower returns. They also have lower volatility. E.g. BND (Vanguard total bond market) has a Sharpe ratio of about 0.81, while VTI (Vangaurd total stock market) has a Sharpe ratio of about 0.56. That makes BND a better investment overall. If you had borrowed money to leverage BND up to the same volatility as VTI, you would have gotten a better return than from VTI alone.

Buying index funds is a much better plan than not buying assets, or using that money to buy liabilities. But I Can Beat the Index, and it's not that hard.

The key concepts here are diversification and leverage. A portfolio containing both stocks and bonds tends to have lower volatility than either would alone. Both tend to go up over time, but they have a tendency to move in opposite directions (i.e. they are anticorrelated), so a lot of the noise cancels out. That means you can borrow money to buy more assets and get better returns than you could from either while targeting the same amount of volatility exposure as you would get from the portfolio of stocks alone.

And with further diversification of assets one can do even better. They don't have to be anticorrelated. They're helpful even if they're uncorrelated.

Open & Welcome Thread – February 2021

"Not even wrong."
"This sentence is a lie."