Reality-Plus

A Few Unpleasant Truths (That Can Make You a Lot of Money)

In a previous post, I described how I used the superforecasting science that I created to game the stock market and triple my investments in three years. In this post, I’d like to explain the mechanics of my analysis. In other words, how did I know my investments were going to do so well? How could I predict the future so accurately and with such a high degree of confidence that I even wrote a book about superforecasting before I went ahead and made all this money?

Here’s the dirty little secret that most wealth management companies don’t want you to know: it’s actually not that hard for an average retail investor to predict the market. There are a handful of key indicators that correlate pretty directly to whether a stock will do well or not. The issue is that nobody seems to understand what these key indicators are, so instead economists treat everything as if it were significant. The problem with economics is basically the same problem that plagues every scientific field: we are drowning in data and cannot distinguish signal from noise. In the past, data was scarce. This meant that in the past, being a good scientist involved gathering and correlating as much data as possible. The more information you factored into your analysis, the more likely it was to be correct. Today, we live in the opposite type of world. It is easy to gather information on just about anything you want: it’s just that 90% of that information is either useless, or total bullshit. That means in the modern world, the hallmark of a good scientist is distinguishing signal from noise, knowing which pieces of data are relevant and which are irrelevant and need to be disregarded.

The problem is that no scientist is ever incentivized to disregard irrelevant data because doing so would make them look dumb. As I often say, scientists tend to be more oriented around social signalling than actual science. Most of them would rather get the wrong answer by signalling high intelligence than get the right answer by signalling stupidity, because the first option advances your career a lot faster than the second option. If you are a scientist and your lab supervisor asks you “Did you factor the results of this (tangential unrelated) trial into your research?” then the only correct answer is “Yes.” Responding “No, I didn’t because that information is bullshit and only related to this research in the most tangential roundabout way,” will make you sound lazy, hostile, and stupid. Therefore scientists are incentivized to succumb to this data overload and factor every piece of information into an analysis, no matter how irrelevant it is, because it is more important to their careers for them to sound intelligent rather than to obtain correct results. Socially signalling intelligence has become more important to most scientists than actually obtaining correct results, especially in the absence of strong replication testing that would easily be able to filter out bullshit from reality. Economics has exactly the same problem as other sciences, but it is magnified because people’s money is on the line - which makes the social signalling of competence even more important than in other fields. Investors want to know that you examined and factored in every piece of data, even if that data is irrelevant to what you are measuring. In a world full of fake news and data overload, being a good data scientist is less about being able to collect as much data as possible and more about being able to distinguish between good and bad data. Unfortunately, total data overload is very much a recent product of the information age which means that scientific best practices have not yet caught up to the reality we live in. Economists don’t want you to know this, because their careers are based entirely around projecting the illusion of expertise. They want you to think that all their reams of data and pages of mathematical analysis are invaluable and essential because that’s how they convince investors to pay for their financial wizardry. If the average retail investor knew that they could get results as good as any investment fund analyst simply by doing a few calculations on the back of a napkin, then why would anybody ever pay for investment services ever again? The entire industry would go bankrupt. That’s why economists and financial advisors need you to think that every piece of data or investment tool they use (which you don’t have access to, naturally) is extremely important and that you are helpless to make good investment choices without it.

This may not make much sense immediately, so in this post I plan to give you a few examples of specific stocks I picked and why I chose them. As you will see, I didn’t have access to any special tools or data which were off limits to the typical retail investor: all I had was information which was easily accessible online, combined with a little common sense. The main advantage that my analysis has over yours or the fund managers is that I’m equipped with an understanding of reality that most people are not. I like to think of it as “Reality Plus”: mostly the same as an average person’s reality, but incorporating an understanding of several additional secrets that many people aren’t aware of. I’d like to share some of these secrets with you, so that you can improve your investment portfolio like I did.

For example, here is an important investment secret that the wealthiest people in society don’t want you to know: we do not actually live in a democracy, we live in an oligarchy masquerading as a democracy. The reason this is important is because market valuations are based almost entirely around the movement of capital, and capital moves differently in an oligarchy that it does in a true democracy. In a democracy, capital flows in a direction that protects the interests of the majority, but in an oligarchy, capital flows in a direction that protects the interests of the entrenched wealthy elite.

One good example of this was the GameStop short squeeze created by the Reddit forum r/wallstreetbets, which was popularized in the news recently. There has been a lot of online discussion about this, but the quick summary is that a hedge fund named Melvin Capital decided to short GameStop, thinking that it would go out of business. They then attempted to make their prediction come true by having a lot of analysts on their payroll go on TV and publicly trash GameStop. The significant factor here is that Melvin and several other hedge funds got so greedy that they shorted more shares of GameStop than actually existed, in an attempt to make more money off the GameStop collapse that they were strategizing to bring about. (It’s also worth noting that shorting more shares of a stock than exist is illegal.) This was a dangerous maneuver because once the short squeeze began, it was mathematically impossible for Melvin to pay back all the shares that they had borrowed. In an ethical democracy where every participant was forced to play by the same rules of the game, Melvin Capital would have gone bankrupt and the GameStop buyers would have taken everything from them.

Obviously, this is not how things went down, which is why I chose not to participate in the short squeeze. What actually ended up happening is that Melvin Capital’s position was bought out for billions of dollars by another hedge fund, Citadel Capital. Citadel then made a phone call to RobinHood, manufacturers of the app which a lot of Wall Street Bets members were using for their short squeeze. RobinHood subsequently shut down all of its users ability to make GameStop purchases, blunting the effect of the short squeeze enough that Citadel Capital could divest itself of the shorted position that they had bought from Melvin Capital. It’s also notable because RobinHood had significant financial ties to Citadel Capital, making this behavior totally illegal. Of course, the Fed never punished Melvin Capital or RobinHood, because they have a lot more money than the Wall Street Bets users so our criminal justice system is skewed to favor them. That’s what I mean when I say that “capital flows in a different direction” under oligarchy. If you were under the misguided impression that we lived in a democracy where everybody is forced to play by the same rules, you might have done the math and seen that under the existing trading rules and legal guidelines, it was mathematically impossible to lose by participating in the GameStop short squeeze. In fact, many WallStreetBets members did this math and ended up losing a lot of money by buying at the peak of the squeeze. The reason they lost money is because they were under the false impression that we live in an ethical democracy where Melvin Capital would be forced to play by the same rules and obey the same laws as retail investors. Since I was less naive than them, and fully understood that we actually live in a corrupt oligarchy, I knew that the hedge funds would use their influence to find a way to break the rules without any consequence, and that’s why I chose not to participate in the short squeeze despite the math being accurate. The final outcome of the GameStop short squeeze was totally predictable to anybody who understands how oligarchies work. Another more obvious example of how the oligarchy monopolizes capital can be found during the subprime mortgage crisis of 2008, when giant banks were considered “too big to fail” and received massive bailouts to cushion them from their risky behaviors, while many average citizens - whom the bailout was allegedly designed to protect - lost their houses and fell into poverty. It would have been quite easy for Obama to attach conditions to the bailout, protecting the interests of middle-class American citizens. In fact, the banks were in such a state of crisis at the time that he could probably have demanded equity in exchange for the loans, effectively making the banks answerable to the taxpayers from that point on. He did none of those things. The 2008 bailout effectively gave the banks everything that they wanted with no strings attached. It was nothing more than a transfer of money from the poor to the rich. If you mistakenly thought that we live in a democracy, the lack of conditions attached to the 2008 bailout might seem like a shocking or unconscionable oversight to you. But if you understood that we actually live in an oligarchy that is designed to protect the interests of the rich at the expense of the poor, then you would understand that from our government’s perspective, this immoral wealth transfer was actually a feature rather than a bug.

Anyway, now that you know one of my “Reality Plus” secrets, how can you make money off it? Personally, I tend to make money in the stock market using the “What is more likely?” benchmark. Knowing that we live in a corrupt oligarchy where government and media are both designed to protect the interests of the rich, what outcome is most likely to protect the interests of the wealthy elite? Since the oligarchs who run our society will direct an enormous amount of resources towards manifesting that outcome, then 90% of the time, that outcome is what will happen. The future is almost entirely predictable as long as you have an accurate understanding of reality and how global systems interact. The reason that so many people have trouble predicting the future is because most people don’t have an accurate understanding of reality - and they like to ignore or insult anybody who tries to explain it to them, since reality hurts their delicate feelings.

For example, during the peak of Covid, a lot of newspapers and investment analysts were heralding Covid as “the end of cities.” According to this hysterical narrative, everybody was going to start working remotely during the quarantine, and things would never return to normal. People would flee the cities and never look back.

Ignoring the fact that this kind of permanent flight away from urbanization has never happened at any point in time, even during the most fatal pandemic in human history which killed approximately 30% of the population (by contrast, Covid-19 has a <1% death rate), what is the likelihood that the entrenched oligarchy would allow this to happen? Most skyscrapers in urban cities cost billions of dollars to erect. In other words, our oligarchical overlords have more money invested in a single city than the annual gross domestic product of most superpowers. And that is not even counting the amount of money invested in public improvements, such as infrastructure, parks, green spaces, businesses, etc.

So what is more likely?

Is it more likely that these self-centered oligarchs would let their massive investment in urban real estate become totally worthless? That they would just throw up their hands and say “Aw heck, tough break! I guess we have to lose all our money and join the ranks of the middle class now. Oh well, we had a good run!” Is it more likely that people who have donated a combined total of probably a trillion dollars of artifacts to the MET or the Museum of Natural History are going to stand back as the cities crumble into ruins and enterprising looters decide to plunder these institutions of all their valuables, while businesses burn? From the perspective of a ruthless oligarch, does this seem like a wise strategic decision?

Or is it more likely that they would start a massive push to get Covid-19 under control so that they can recoup the massive investments that they have made in urban areas? And that this push would involve a mix of technological and governmental solutions as well as a massive propaganda push in the media to demonstrate the effectiveness of their solutions? In other words, using all the sectors that fall under their financial sway? And that maybe the oligarchs would take advantage of the ignorant masses panicked flight away from the cities to buy real-estate in the cities while prices were temporarily depressed, thus making a fortune?

It seems to me that the second option is much more likely. That’s why during the peak of the Covid crisis, I invested in New York Mortgage Trust, a REIT (Real Estate Investment Trust) that is effectively an investment vehicle to speculate in New York City real estate. That decision proved wildly successful. Notice that this phenomenally profitable investment didn’t require a whole lot of research or any of the fancy analytical tools that most investment advisors claim you need to have in order to understand the markets. I simply used a healthy dose of common sense in addition to a more accurate understanding of reality.

———— A basic understanding of reality turns out to be a solid financial decision ————

Another very profitable stock that I bought into very early (when it first went public, in fact) was Palantir, a data analytics company that specializes in finding patterns in data. While its technology is extremely versatile, Palantir is notable for being the best-in-class solution when it comes to counter-terrorism, because its algorithms can spot subtle patterns of financial transactions or email keywords that are statistically indicative of terrorist activity.

The reason this is important is because we live in a time when the technology to stage sophisticated terrorist attacks has finally propagated to the lower classes. Back in the 80s, terrorists were forced to rely upon sourcebooks such as the Anarchist’s Cookbook for their explosive materials. However, today, much more sophisticated instructions can be downloaded off the internet. Most significantly, any one of these explosives can be easily detonated by stringing a resistor circuit through the material in question. This is not very complex to do at all. The only knowledge needed is how to wire a simple closed loop circuit that can be remotely triggered. Your standard plumber or welder could do it, attaching it to a quadcopter drone quite easily.

This means that for the price of $500 (plus a little hard work) anybody with a grievance and a little knowledge could easily murder anybody else. A crazed stalker could take out a celebrity, live on stage in front of thousands of people. An environmentalist could blow up the industrialist whom she feels is polluting the planet beyond repair. A political extremist could assassinate a political rival… or even the president. Can you imagine the chaos something like that could cause?

So we return to our basic investment analysis question: what is more likely?

Is it more likely that the ruthless billionaire oligarchs who control our society are going to passively let themselves or their famillies be executed by any low-income extremist who has a grudge against them, in a public display that shocks the nation? That they’ll just roll over in defeat and say “Hey, I guess we’re all going to die now. That’s terrible, but it’s just how life works out sometimes. Oh well, we had a good run!”

Or is it more likely that they will direct their connections in our government to invest in whatever technologies and tools allow them to proactively identify terrorist plots before they can be executed upon? That they will use any means necessary to maintain their control over society and ensure their own survival?

I think that the second option is far more likely, and that’s why I invested in Palantir when it first went public, at a price of $9. This also turned out to be a very wise decision, and in less than a year the stock price has already doubled. This is how I became such a successful investor. It’s not through any complicated technical analysis of “support levels” or “resistance points”: in truth, most of those kinds of analysis come from bullshit artists - excuse me, “credentialled experts” - making up complex theories to conceal their own ignorance. I simply hold a realistic perspective of the society that we live in, instead of clinging to the delusional idealized narrative that mainstream media tries to indoctrinate us with. Then I make investment decisions based upon my more nuanced understanding of reality.

As you can see, none of this was particularly complicated. Predicting the future isn’t rocket science! It’s just that the economists and sociologists don’t want you to know this because if you were able to easily outperform them with a few easy tricks, their social status and income would be greatly devalued. Who would ever want to pay the big bucks for a handful of empty-headed “experts” with advanced degrees to give you terrible advice when you could get much better results for free? Our wealthy elites and mainstream media influencers don’t want you to develop a better understanding of reality because the reality is that they don’t deserve any of the respect, money, or power that they currently have. It’s just that simple.