1. What do you do for a living?
I’m Jim, and I’m a dataholic.
In all seriousness, I am an MD/PhD candidate in the final years of training and currently seeking a residency position in anatomic and clinical pathology. My scientific interests involves understanding the mechanism of disparate psychiatric disorders through a combination of basic science-oriented approaches looking at neuronal signaling dysregulation and translational approaches looking at animal studies and human pathology. The overarching question being thus: why do some patients appear to improve with certain drugs, but not others? To not get too technical, I’m interested in what signaling pathways are altered in patients with psychiatric disorders, and how that knowledge can be used to design better treatments.
My other interests involve data analysis in general, and applied to all fields. This includes some collaborations with a local university to validate automated image segmentation of microscopy images for feature extraction, bio-statistics for clinical trial data, unsupervised high-dimensional data classification, and storage/accession of such data. All in all, I’m interested in how to transform information into knowledge, and how that method can be applied to as many fields as possible.
2. How do you became a data freak, and crypto involved?
That’s a long story. I took CS classes in Java during high school, which was my first formal introduction into programming, but my entry into data and finance in general began way earlier. In 5th grade, one of my elementary school teachers, Mr. Johnson, had the foresight to see that personal finance was probably something pretty important for the future — so be brought in a parent, who worked in the industry, and brought weekly copies of the Wall Street Journal into class and asked us to “pick our favorite stock”. (This was in the middle of the DotCom boom, so was seen as something “normal” people do). Not knowing better, I picked Dell (the computer brand), and was overjoyed to learn that it was the 1st or 2nd best performing stock in my class. We all got a pizza party in the end though — there were “no losers”.
Fast forward several months, and I found myself staring at the account page of a brand new Ameritrade account, opened with my meager allowance and a bit of help from my parents (go Dad!) Was wondering what to buy, and Dell was a natural choice, along with Lucent, Oracle, JDS Uniphase, and Worldcom, because I discovered the awesome resource that was CNBC and was mesmerized (you see where this is going). A short year later, Worldcom and JDSU were total frauds; the rest was down 90%; I was totally wiped out. Thus was the first and most important lesson: “markets are risky”.
During sometime in the years that followed, I “discovered” MMOs, and with it, life’s most pressing questions: 1. How do I make my character/hero/ship better, and 2. How do I make more money? I didn’t know it at that time, but this was a classic global optimization problem. During various times during my “career”, I managed to work out EVE Online’s stacking penalty, skill scaling in various RPGs, and “most of the math” for Champions Online. I am also active in more modding communities that I can count, and some of that turned out to unexpectedly be, well, “math-heavy”. /nerding over
Crypto specifically though? My first exposure was probably a WIRED article during the Great 2011 Bubble, in which Bitcoin hit, I believe, $32. Saw it crash to $4, and dismissed it as another fad — but during that time, got to know a friend that was a hobbyist miner. “If nothing else, you could pay off your videocards”… that got me interested. Read Satoshi’s whitepaper — still didn’t see what the big deal is. Only when I started using the blockchain for actual transactions, did I realize the first implication — the payment transfer industry might actually be threatened by this whole thing. It’s been a rocky road since, but one filled with great moments and insightful people as well.
Anyways, long story short — crypto is the intersection of math, computers, and finance that I’ve always looked for.
3. How do you come to the decision to enter/exit a trade?
In general, I’m a long-only, concentrated, contrarian investor. I’ve tried other things, but that works the most for me. Crypto has the addition of “mining” which changes the equation a bit, but I’ll let other minds deal with that.
In general, projects I like have a few or many of these fundamental characteristics, some of which are covered in William Thorndike’s The Outsiders: long development trajectories with actual work being done, developers that have VC/compounder-like personalities, extremely lean operational management, and *some sort* of addressable use case, recognizing that as with many exponential phenomena, use cases can develop as the project progresses. On technicals, I basically buy and sell trends, and look at price action; other commentators can provide more detail, but the inception of my technical knowledge began with books such as Alan Farley’s Master Swing Trader and other such books. The other area that I maintain an active interest in is behavior, both from looking at the existing literature (which is probably enough for a separate interview) and looking at how other participants view the market (in the vein of the eponymous @epsilontheory).
4. How many trades or positions do you typically handle simultaneously?
I’m a believer that concentration, when appropriately applied, is a must for superior returns; there is abundant literature for the stock markets that suggests owning more than 30–50 positions does not reduce portfolio volatility — also, the cognitive load of tracking that many positions in an active framework outweighs any benefit for diversification. “I believe I can come up with 4–5 good ideas in a year; I’m not sure how well I’d do if I have to come up with 30”.
5. What do you make of current market situation and what do you foresee 2018 will look like?
2017 has been a banner year for crypto, both in terms of price, adoption, and media attention. At the same time, the proliferation of scams, “too good to be true” themes, and projects with no fundamental basis has never been greater. To decompose this, let’s look at three areas: crypto as a trade, crypto as an ecosystem, and crypto as an asset class.
As a trade, crypto is an asset bubble — but first, allow me to explain what I understand a “bubble” to be. Bubbles are super-exponential changes in prices occurring simultaneously with exponential changes in fundamentals. Translated into English, this means that the rate of change of an asset (first derivative of price) increases as we get closer to a “critical time” (red line in below figure), which occurs at the same time that fundamentals are improving exponentially (green line). At the “critical time”, there is a phase transition where prices move towards a new regime, whether this is a market crash or sideways consolidation. This theory is largely derived from Dr. Didier Sornette’s works on financial systems, and is described by books and publications like this or this. Importantly, it makes no judgments on valuation, which is a whole another topic that I don’t want to touch right now.
Of note, the level of uncertainty of price itself increases exponentially as we get closer to the critical time; as such, predictions of future price in a superexponential regime are mostly useless. What we can analyze is time and structure, and as such, the phase transition has not occurred yet. In plain English: the trend might end soon, but it’s still intact.
As an ecosystem, we’ve seen unparalleled growth in “equity-like assets” (ICOs). Recall in Finance 101 that equity is assets minus liabilities, and as many of these projects are funded by appreciated assets themselves with minimal liabilities, most of the equity held by these ICOs are cryptoassets, sometimes of other ICOs, with varying expectation of future cash flows encoded in the difference. In other words, as with stock markets, ICOs are themselves leveraged claims on future cash flows. The consequence is that a moderate correction in this space may, simply by the nature of leverage, wipe out most of these projects. At the same time, with “mining-oriented” cryptocurrencies aside from bitcoin being ignored for so long, a rotation into these is not out of the question. The overarching theme has been, and remains, participants seeking greater regulatory clarity — everything from tax treatment to security laws to lawsuits against incumbent ICOs, to the point where I state that 2018 may be the year of Litigation. Tread carefully.
Most interesting is crypto as an asset. In 2017, we’ve witnessed the slow return of inflation (real or wage inflation, as opposed to asset-price inflation) as “something that matters” — witness rising input prices for Japanese producers, talk of promoting wage inflation in the White House, and rate policy normalization that central banks around the world are currently discussing, summarized in this recent excellent podcast. With that, the Consumer Price Index (image below) has seen the longest stretch of >2% growth since the early 2010s. At the same time, because of improving liquidity and new regulatory frameworks, we’ve seen the inception of cryptocurrency as a legitimately investable asset class, as discussed by ARK Invest and many others; talk that is very different than in 2015, when it was “blockchain first”. The recent approval of Bitcoin futures is only the highest profile case in a background of developments, starting from the CFTC classification of Bitcoin as a commodity in 2015; as an asset that demonstrates perfect inelasticity, derivatives trading on top of bitcoin is likely to have some … interesting consequences. But even with 2017’s meteoric price rise, fewer than 3 of 100 investment managers have ever invested in a cryptocurrency despite bitcoin being named the “most crowded trade”, according to WSJ. These stats suggest a significant adoption hurdle before cryptoassets become recommended as part of a balanced portfolio alongside stocks, bonds, and real assets … and a source for future captive buyers. In short — the long-term story is intact, and the best analogy I have for what may yet be to come are commodities in the 1970s, a time well before most traders in the market (including yours truly) started.
6. What do you currently hold for the long term? Why?
Everyone needs a basic allocation to Bitcoin for its disproportionate mindshare, role as a unit of basis for the entire market (one of the criteria as a currency), and simply because it IS bitcoin. Beyond that, I’m largely interested in mid to small-caps that have the potential to become legitimately new and improved platforms, backed by development teams with the characteristics I described above: as of this moment, this is Ubiq and its tokens lead by @jyap and his amazing team, the Skycoin project lead by several early-stage Bitcoin and Ethereum developers, and Bismuth lead by the one and only @tezosevangelist. Projects that address fundamental gaps in bitcoin, such as anonymity (Monero, ZCoin, etc), governance (Decred), and use cases (LBRY, Steem) are ones that I pay attention to; other themes such as transaction speeds or energy efficiency may be interesting, but as with any other theme, they are worthless in a vacuum — the people behind the project truly matter. I’m also interested in assets with intrinsically compounding metrics such as APX by @aceofwallstreet and Gambit by @collincrypto, security laws confusion notwithstanding. I may or may not actually own any of these, but there are simply projects that catch my eye.
7. When full time trader/data freak?
Always, and never. I can’t ever imagine trading full time, but can’t imagine never doing it.
8. What tools for data crunching and viz you use aside from Excel?
Excel is great and can surprisingly be cajoled in doing things you wouldn’t otherwise imagine, as well as Google Sheets (a database … *shudders*). Moving up the scale, most all of statistics has moved to R, featuring much better modules and packages, better handling of huge (GB) data sets, and in general is Excel-to-the-N … at a significant cost in usability, which is narrowed by RStudio. I really like GraphPad Prism for anything that needs professional-grade visualization — for instance, a research paper or a slidedeck for your next VC presentation. Beyond that lies the Big Guns of Matlab, SPSS, etc, which I have varied experience with, but by then I’d be asking you the questions. Like everyone else, I finalize stuff in Adobe Illustrator.
9. Most satisfactory data you have sorted out and what conclusions you came out with, what was the real final outcome, were you right?
Recent example: emerging markets in 2015. From 2011–2015, emerging markets had languished, especially commodity-rich Brazil and Russia, and gotten in general very cheap. At the start of 2015, I decided to take a position in both — right as oil began collapsing and the bear market turned into the worst recession in Brazil in a century. Fortunately, I did learn something from my 2000 debacle — I didn’t go “all-in”, and had some reserves left. As oil went into utter capitulation in early 2016 with energy spreads blowing up (picture), I went in early February — which through sheer luck turned out to be the day after the bottom. Through proper risk management, that year turned out to be the most profitable on my trading account thus far… but you should’ve seen my face when I put on that trade. *laughs*
10. In the present, if you could Tweet to yourself back 5 years what would it be?
It’s not all about the money. Sometimes, it’s about family, and health, and all the other things in life that matter. Or it’s about being proven right. But the money certainly helps.
I can not add more to what Jim responded without sounding stupid, simply “Jim the Wiz”. We need more Jim’s out here in crypto to make sense of what happened, and what will happen in crypto. Greatly delighted to share with you Jim’s Q&A.