Tom Rudloff and The Antiquarium

Tom Rudloff, who was the owner/operator of The Antiquarium, passed away two days ago. It was long a cultural landmark of Omaha, a used bookstore, art gallery, and gathering place for intellectuals (really, anyone who loved ideas) located in the Old Market until relocating to Brownville, Nebraska ten years ago. I found out from a retrospective linked to from Facebook:

http://aksarbent.blogspot.com/2016/05/antiquariums-tom-rudloff-dead-at-76.html

I wish I had been the one to write the above, but I never could have. I didn't know Tom - I didn't so much as know his name, although had I passed him on the street I would have recognized him in an instant, and I would like to believe that he would have recognized me - at least, a long time ago. If the Antiquarium has been in Brownville for ten years now, then I have spent ten years procrastinating a visit, and that shameful action has cost me the very opportunity to do something that I should have done - something, indeed, that I had no right not to do, for the pull I felt to that place and the neglect I gave it. Of all my character flaws, I suspect I will go to my grave most regretful for my predisposition, under conditions of ambiguity, towards inaction. It has not served me well.

I spent a lot of time in the Old Market once I was old enough to drive, and not yet old enough to get into real trouble. I wandered through the Antiquarium on my fair share of days, and evenings, and nights. The Antiquarium WAS my bookstore, the bookstore I thought of when I thought of the word, the bookstore to which my mind drifted when first I read Borges, the bookstore that I endlessly missed when I worked part time at Barnes and Noble.

I may not have bought more than ten books, total, from the place. I was overwhelmed by it. It modified, in me, the very notion of knowledge. I knew it was there for the taking. Yes, my whole life before the Antiquarium, I had believed that knowledge was scarce and had to be dug up, like gold. After wandering those narrow aisles, I was convinced: no, knowledge was everywhere, and had only to be chosen, to be filtered down to something manageable. So how would I filter it? Dammit, I didn't know what books to buy! One of the shames (among many) of my teenage years is that I filtered it most often by NOT trying, by not touching the books upon the shelves, and then by not entering the store at all. I thought I hadn't failed because I hadn't tried. How complete and tragic a misconception that was.

For posterity's sake, two memories of the place: first, to walk in upon a conversation occurring around the coffee table by the front window, and be welcomed to join. Of course I was - everyone was. I was a stupid high school student but at least I was intellectually honest and my mind was open. I declined to join every time - because I was shy - a disability I still haven't gotten over.

Second, an art exhibit in the high-ceilinged room upstairs - utilizing a motif, among other items, of dolls and prescription drugs. I interpreted many of the pieces as a reaction to the Iraq war, and others to American modernity more broadly. That exhibit imbued me with a potent and vivid notion - modernism as a disease - that I still carry with me - indeed, one that is a core part of my beliefs. It touched me the way few art exhibits have ever done.

If only I had gone there more often - and if only I had lingered to listen to a few conversations, perhaps even opened my mouth a few times.

The lesson of Tom's passing, for me, is the same as all passings - make the most of your time, because it is finite. It is only intensified, for the immensity of the opportunity I have missed. Whatever opportunities you are passing up out of habit - maybe you are passing them up because you've been passing them up, already, for so long - remember that every passing minute is another chance to turn it all around.

Efficient Markets and Deep Learning

I'm going to posit a theory about markets which will be hard to prove or disprove, except, perhaps, in hindsight, which may take many years.

I believe markets may have become substantially more efficient in recent years due to deep learning. Because I am not an expert on either thing (efficient markets, deep learning), and because I am lazy, and because I believe it will thankfully be clearer this way, I am going to keep the theory mercifully brief.

Efficient markets theory ("EMT") states that market prices of securities tend to reflect all known pertinent information about those securities. You can also state it by expressing its opposite, which is that any disregard for information will be 'arbitraged' away by other market participants - this is the magnetizing mechanism by which markets are pulled towards 'efficiency.' People love (or at least, used to love) arguing about how strictly 'efficient' they are. Basically, is it EMT, or EMT, or EMT? But, that is rather beside the point, here.

Deep learning is a form of machine learning, or artificial intelligence, which detects and adapts to patterns in a recursive manner. Experts, please unmercifully assault that definition for being too broad, or too narrow, or whatever.

The stock market is interesting because, if you believe people are motivated by greed (which is to say, money), its feedback loop between effort (security selection) and reward (making money) is shorter than virtually any other feedback loop that delivers money as a reward. Therefore, if you believe people are motivated by greed, it stands to reason they'll prefer this feedback loop to others, all else being equal. That means they'll employ a lot of effort to gain an edge. Or, put another way, they'll employ tactics here, first, at least until it stops working.

I don't think any of the above should be very controversial.

Deep learning is interesting because it seems to solve certain classes of problems better than other methods, and notably, better than human judgment - data search, speech recognition, the game "Go". How can we broadly classify these categories? Well, for one, it seems to work well with so-called "dynamic systems," which tend not to move in straight lines, but bounce between "multiple equilibria," which is to say, behave a certain way until they don't. The stock market is a dynamic system. The stock market is also notoriously irrational - meaning, it is a dynamic system whose equilibria are a function of human judgment, which is notoriously flawed. Importantly, human judgement isn't just flawed - it's flawed in predictable ways, which means that rules-based systems can be expected to identify those patterns, to some degree.

What does it add up to? If I'm right about the above (I might not be!), is deep learning being used in the stock market? Almost certainly. What would the effect be? I suspect it would lead to more efficient markets.

Market efficiency is a function of the marginal buyer. If 99% of the capital is controlled by 'base case' rules, and 1% allocated in some 'better' manner, well, market efficiency might be fairly low. As the 'better' percentage rises, efficiency increases. How soon does the market truly get efficient? As a whole, I'm not sure. For a single security, it gets efficient when the better manner reaches a threshold amount of the trading volume (NOT the overall holding of the security).

I think my argument makes some sort of conceptual sense, but I can't quantify it. And it's true, admittedly, that I may simply be experiencing confirmation bias linked in my head to a convenient fear, during a period of time when value stocks - by most quantitative measures - have underperformed the broad market. This underperformance has happened before. I feel this underperformance because my investment style skews towards value, by those same factors.

For what it's worth (and to skate away from that topic a fair distance), my gut tells me that since I can't quantify the risk, I should be pursuing more private investments, where the market efficiency is more likely to still be low. I could conjure plenty of supporting justification for such a decision, but that seems like a silly and unnecessary thing to do. If I am right, the above theory is all the justification that should be necessary.