Category Archives: Markets

From High Frequency Trading to Silicon Valley

In 2012 I was on my noncompete (a paid vacation common in trading), and everyone expected me to go back into HFT after the year was up. When I started a tech company instead, people were surprised. The common response was, “Wait, your company’s not trading related at all?”

I traded in my East Village apartment, with its ambitious but empty yard where I never got around to having barbecues, for a Palo Alto Eichler, where we had many barbecues. My Ralph Lauren and Burberry dresses were replaced by Lululemon, so at any moment I could break into a jog or a 7 minute workout. My Stella McCartney vegan bags decayed at my dad’s house while I got my first car (electric) and started rock climbing. Instead of trading scandals on Squawk Box, I followed Elon Musk on Twitter.

High frequency trading is an exotic, shadowed land within the gated world of finance, and is the strangest place you can be, except for Silicon Valley. I was entering a complex tribe with unspoken castes and rites of passage – but I am from another secret tribe, with its own inscrutable numerology and hieroglyphics.

Silicon Valley surprised me:

1) Everyone is open.

Algorithmic trading works through intense secrecy. When an interviewer tries to evaluate you, they fully expect vague responses:

“How do your models work?”
“We capture edge using signals.”
“Do you add or remove liquidity?”
“It depends.”

After a few hours, they say, “Thanks for talking with us. We love what we learned about your approach,” and they mean it. You know that they know that you know the first rule of fight club. The best trading companies never let anyone know what they do, trade, or think – an algorithm sufficiently secret is indistinguishable from magic.

In contrast, everyone in the valley is amazingly open and helpful. People email me to ask for advice or intro’s, and we’ll talk about everything. Because two companies are rarely in direct competition, and the advantage your circle gains by sharing trumps whatever you could gain by hiding, Silicon Valley has developed an amazing culture of paying it forward. Everybody’s trying to conquer the same markets, and knows roughly what the space of ideas looks like, so sharing helps everyone. Around here, it’s execution over IP.

2) Valuation math is not intuitive.

When my friend asked me to invest, I asked, “What’s your company worth, like $100K?”
“No, it’s $6M.”
“Can’t I pay 3 developers $50K to make your product in a month?”
“That’s not how it works…”

I could build Snapchat in a week, but if I did, I would not have the user base of Snapchat. Same with WhatsApp – it’s worth an enormous multiple of what the app and architecture cost to build.

3) Money != success.

In trading, life was simple: PNL was all we talked about. Increasing this number was the goal. If we saw PNL underperforming, or the money eroding from a model that used to be our bread and butter, we knew we had to step it up to survive. In startups, the metrics for success are less clear, which makes it hazier to tell the difference between success and failure. One month, a startup has Hint in the refrigerator, dogs in the halls, and Friday hot tub parties. The next month, it’s selling all its Aeron chairs on Craigslist. Did the company suddenly tank? In HFT, yes- it would mean they were making money but then suddenly lost a ton of money in a few minutes due to a bug in its software. In SV, no- it probably means someone finally realized the company had died a year ago.

Lessons from algorithmic trading that have helped me in building Apptimize:

 1) Today’s future is not yesterday’s future.

While I was in trading from May 2007 to Jan 2012, several events happened that had never happened before: the collapse of the housing market, the financial crisis, the Fed’s repeated rounds of QE, etc. How are you going to backtest that? You know you’re in a scary regime that’s never been seen, which means there’s incredible opportunity, and the models have to handle it. Stuff changes under your feet and you have to run like the red queen just to stay put. You stay up at night adapting the models, because otherwise they’ll lose money in the morning. Predicting the future correctly is the first step to success; the next is making the right bet on your predictions.

Startups are the same way. Technology changes so fast that you have to work every advantage to its limit to compete. Innovate as fast as possible, invent things others believe to be impossible, and think what others haven’t thought of yet, because you’ll be swallowed by the current the moment it catches up.

2) Accept reality.

In trading, if the market tells you you’re wrong, you listen. No matter how smart you are, you can’t argue your way to victory: the market will take your money. If you’re underperforming, sometimes it means your connections are slow, but usually it means your models suck and you need to make new ones. You can lie to yourself, but you can’t lie to the market. All you can do is accept reality, and update your models to match.

 For startups, it’s human to invent excuses for everything. Even the most literal people suddenly get creative when confronted by unpleasant realities:

  • “Our users need our product; they’re not just doing it because they’re our friends.”

  • “We can’t show live demos, not because our demo is jury-rigged to work only on our special setup, but because we want to show a build of our SDK we haven’t released yet but will soon.”

  • “We’re going to beat the competition despite { an inferior product; an unimpressive team; a lack of funding; having no user base } because { we’ll out-execute on something else; we’re differentiated; the market is huge }.

This is not accepting reality. In order to win, you have to be honest and ruthless in admitting every weakness, because you can only correct the flaws you know you have.

3) Make your own bets.

Never believe what people say without examining it, especially if it’s about the future. People are wrong all the time. The ones who are right are too busy succeeding to tell you what to do. By the time the world knows where the market’s going, the money’s gone.

 Nobody knows exactly where the prize is, but if you have a good idea, you need to make big bets, and you need to obsess about the future – the future’s where everything happens. If you copy the people who have already done the legwork for you, you’ll always be eating their scraps. You can’t afford to follow. Ask questions. Bet your beliefs. Test your hypotheses. Rely on yourself.

There’s one thing that holds true across HFT and tech startups: it’s all about the talent. At Apptimize, our investors have often remarked we have one of the strongest teams they’ve ever seen. That lets me be confident no matter what: in trading or tech, NYC or SV, it’s about betting on the right people, and I’m all in on us.




Thanks to Lucas Baker for editing this and vetoing the boring post I was considering publishing instead.

The and My Future

“Why are you taking the 101? Can’t you see your iPhone 5 is lying to you? Its map was wrong in Santa Clara and it’s wrong here.”
“The 101 is the 280’s uglier sister. Clearly Steve jobs wanted us to take this route. Anyway now we can have a nice talk where you advise me on my finances.”
It’s funny how I’m the financial expert amongst my non-trading friends even though my opinions are almost certainly things no financial advisor would recommend to anyone.

When I first joined GETCO, I introduced myself to a new employee saying, “GETCO is my first job after MIT,” and the closest person I had to a boss interjected, “And your last.” At the time I sincerely believed and hoped that this would be true. In 2007, the company had 30 traders across 4 offices. Each trader did whatever they decided was optimal in a market that bloomed with opportunity: it was like the wild wild west- so much fertile terrain waiting to be conquered by a few explorers, populated only by some occasionally annoying but generally innocuous natives. I loved it. I never had someone telling me what to do, or really even anyone questioning what I was working on. I didn’t think about the future after GETCO because who would ever want to leave? The business was exploding, we were at the forefront of technology, and if you hesitated to size up your coworkers would make increasingly loud chicken sounds.

4.5 years later, after Singapore I went straight to my NYC desk to clean it out, then to Chicago to resign. I and everyone assumed I was going to stay in HFT because I’m a “world class expert in HFT,” plus headhunters were busy setting up lunches with billionaires with ambitions regarding their nonexistent/proto/growing/declining HFT operations. I was advised not to sign anything till the noncompete was up so I participated in some fantastic handshakes and told everyone I’d see them after my noncompete was over.

I’m not good at vacation so I viewed this year as a rumspringa world tour- I just got back from New Zealand and am writing this while jetlagged, thinking about how my paid vacation will be up in 2.5 weeks. This year I zoomed my head out of focus to see what everyone else is looking at. Let me tell you: Other People are looking at some pretty crazy stuff. I met Verner Vinge and Ray Kurzweil at the Singularity Summit. Compared to these impassioned singularity people, I feel like an ape for mentally shrugging when they bring up existential risk and AI. Nevertheless, my main impression is it’s cool these people are contemplating and perhaps helping decide a vision of mankind as a species. Most people never think about that kind of thing, as individuals or as a species. What is the destiny of mankind? Who even asks this question? Shouldn’t we wander blindly towards our fates like all other species? Aren’t we just dominant, blessed by god to be gods among animals? Anyway, the Singularity Summit led me to go to Rationality camp. This post was originally about Rationality Camp but I guess I’ll write about that some other time (sorry to leave you as irrational as ever, although I can tell you that I made $280+ from poker, won a prize despite not being the most rational (Dilip had the most points in the whole camp but somehow lost his prize to me. Yes! Plus I beat him at some kind of augmented reality game, which victories are documented photographically)).

This year has been upside down: I’ve been paid to not work, spent more time in CA than NYC, and I realized I’m old- I think I’ve aged relative to my non-finance peers. I’m 27 and I’ve started finding younger people annoying. Those fools have no idea how lucky they are. At my age, people are suddenly so hard to impress. If I were starting a company at age 17 people would say, “Awesome.” Now everyone’s like, “Whatever.” Too old to be effortlessly impressive, too young to shove offending kids off my subway seat, I’m at an age when I don’t really notice anyone else’s age unless they bring it up, whereas for years I was conscious of even a year’s difference. Looking back at my childhood, the hours reading in the grass, the biking with friends, my main impression is that an idyllic childhood is a colossal waste of time. Yes, even the priceless hours bonding with family had diminishing returns, and no one really needs to read the collected works of anybody- very few writers have anything to say after their first real book.

Sometimes I see flashes of myself 10 years in the future, so clear it’s almost a memory. This year I started seeing what future Nancy would be if I kept going down the trading path, and I didn’t feel excited. In fact I felt bored. Because it’s basically the same as always, except I’d need increasingly larger sums to get the same level of stimulation. For someone who lives so much in the future, I hadn’t really thought about what I’d think about the future after (if) it already happened. When I’m 40 will I see my 20’s and 30’s the way I currently see my childhood- objectively successful by most measures but privately viewed by myself as largely a waste of time?

I feel ennui regarding the kind of stuff people are supposed to do in their late 20’s, early 30s: the house and marriage stuff. My mom was in constant turmoil over the fact that she was too sick to see me “settled” in my NYC apartment. Prior to NYC, she had “settled” me into all apartments I’d ever lived in. Perhaps out of a desire to do what I thought she’d want me to do, I went out and bought my first furniture since she forced me to buy my mattress 5 years ago when I first moved to Chicago and needed a non dorm issued mattress. I ended up buying a $5000 coffee table made from a single solid cross section of a gigantic tree. Maybe I thought my mom would rest assured in my competence if I showed her this coffee table and other furnitures, that I was a grown up and finally handling this kind of stuff. I think I even bought a house plant of some kind, which never would have occurred to me to do in my youth. Mom just wanted me to be happy, which might not be what I want for myself. Now that I know what it’s like to have the perfect set of plates, I never want to own plates again. That stuff is all at my dad’s house now, completely out of place with his ornate, plasticky furniture.

I think I might’ve reassessed my trajectory sooner if it weren’t for the parents’ cancers. Cancer put me in a mental state of martial law where I was single-mindedly attacking obstacles without considering the problems of philosophy- who cares about higher ambitions when it’s life or death?

Now I feel like there’s more pressure. Maybe this is true for us as a species too- just as we’re most successful, there’s the most danger. Humans have accomplished a lot relative to other animals so the universe is ours to lose, plus we have to decide the extent of our future ambition. Similarly, as a kid the difference between working a little and a lot was the difference between an A- and an A+, whereas now there’s so much at stake- it’s now the difference between losing money and making money.

I’m acutely aware of being the writer of not only my writing but also of my own life. It’s exciting and scary and writer’s block-inducing to decide the next act. But from my life there’s just one thing I ask: don’t tell me how it ends.

European PIGS Tour, Evaporative Cooling

A few years ago my coworkers scoffed when I said Europe was doomed and going to become third world. I was really short Europe without knowing too many details, mainly short socialism. Recently we went to do a quick tour of the PIGS countries because I had a big bet on- Portugal, Ireland, Greece, and Spain.

Similarities: Really expensive gas, like 8-9 USD a gallon. People stay up really late (except maybe Ireland). For example we would walk into “the best tapas place in Barcelona” after 1AM. Many restaurants don’t even open till after 8:30pm.

Differences: In order of cheapness, the countries were Portugal, Greece, Ireland, Spain. Lisbon seemed worst off. I didn’t see as many young people and it was like an older, hilly, less polished version of Barcelona. Spain surprisingly seemed to be doing amazingly, though we were in Madrid and Barcelona which might not be super representative. Barcelona was really beautiful. It was extremely clean and livable, filled with drunk tourists.

And now I feel sad Europe is doomed and wish they wouldn’t collapse. Now I feel like they can do some things in the next year or so to stave off doom for a while longer. It’s such a waste- Europe is so old and cool! But things like this happen all the time. Civilizations, countries, companies- everything ages, fails to adapt, and evaporative cooling always happens: high energy people leave, however you define high energy.

I was thinking about Eliezer’s evaporative cooling idea for human groups since learning Eduardo Saverin gave up his US citizenship. Anyone who gives up their US citizenship is no joke one way or another- politically, ideologically, financially… But almost no one leaves the USA forever. Europe, however- educated Europeans are leaving their countries. And anyone who disagrees sufficiently with policy also leaves. So what remains are people who don’t have the resources to leave, or who really agree with the policies, so that the remaining group becomes increasingly entrenched ideologically. Does anyone return after the policy changes? Do refugees eventually return to their countries?

Ways to stave off group cooling:
1) Be picky about who you let in initially, maybe continuously raising the average bar.
2) Don’t force outliers out (maybe make it easy for them to form subgroups within the original group?).
3) Do something to heat up the group once in a while?

We’re going to Iceland and some other places soon. Let me know if you’re going to be there too!

Citizen of Facebook

After disappearing from the internet for the past few years for my post-college all-consuming job, upon emerging I used Facebook to reconnect and figure out everything that I’d missed (who knew non-traders have their own form of colocation except they call it peering?). I put up my new website and integrated it with Facebook, which turned out to be awesome because everyone can share and comment on posts using their Facebook identities.

During my years invisible to the internet, I considered myself elevated above those who were on Facebook hours a day (I have never owned a television and went years without internet in my Chicago apartments because

1) I was too lazy to get it installed and rationalized the diminishing returns of getting it installed because I would be moving to a new apartment in x days anyway (I moved every year). I use this rationale to get out of many annoying tasks, but incidentally used the same rationale to persuade (other) people to do tasks ASAP. Weird, huh?

2) I was always at work and hooked into the internet anyway, but not browsing for anything unrelated to work obviously. During my no-tv no-internet lifestyle, I mainly read my kindle constantly and used my phone for email, but it was a really old phone so I couldn’t download most apps onto it.

3) My computer was really old so I couldn’t download most things (like Chrome) onto it and my trader workstation had spoiled me for any inferior setup: I needed my ergonomic keyboard, my wireless ergonomic mouse, and eventually my gamer keypad controller. Interfacing with a flat laptop keyboard became intolerably suboptimal).

During those post-college work years, I viewed Facebook as a time sink and smugly considered myself superior for using it rarely, but now I think it’s a tool that makes it easy to connect with your friends, to share information and form groups. A lot of the tech innovations are like ways to waste time, but some of them also fundamentally have real value and we shouldn’t be afraid to admit that, which is part of why I started trying twitter etc.

When I got back to the world, I asked my friends to tell me everything I’d missed on the internet, and it turns out some stuff had happened without me noticing- for example, social games. I tried my first ipad/iphone social game DrawSomething at Yinmeng’s recommendation and played it a lot for 2 weeks before getting tired of the same words while moving on to sketch club as an outlet for my drawing needs instead.

After visiting Zynga I decided I did need to check out what this whole Facebook app thing was about considering it’s a bazillion dollar industry (this is the same reason if it’s ever revealed I’ve looked at porn or done anything otherwise questionable- purely for research and educational purposes), so in addition to testing some games I read The Facebook Effect, the contents of which are the topic of the rest of the post. Apparently while I was invisible online, Zuck was off executing on his vision of Facebook as a platform, an ambition that impresses me because he had this idea back in the day when few companies had that vision.

Although it’s possible that hindsight and the human instinct for narrative spins lucky randomness into deliberate strategic decisions, Zuck certainly talks and acts like a visionary, confident leader. He says, “We can make the world a more open place… Let’s build something that has lasting cultural value and try to take over the world.” Repeatedly refusing to sell the company, first for tens of millions, later for billions and tens of billions, Zuck comes off as passionate about the project, really believing his ideology, not caring about money, and thinking extremely long term.

Unlike some “serial entrepreneurs” whose goals are to create a company with the intent of getting acquired, Zuckerberg, an idealist (one anecdote that shocked me was that Zuck was found crying during a dinner with VC’s because he felt so guilty about considering their superior offer after giving his word to another VC- when was the last time you cried out of guilt? When was the last time anyone cried out of guilt regarding a business decision? Did he react like this because he was so young, such a crybaby, or such a dreamer? I think it’s got to be because he’s so idealistic, which is sort of unbelievable but somehow to me the most believable possibility), really does not want to sell and took time to conceive of a principled business philosophy and worldview. For example, he said he “wanted outside apps to help keep Facebook honest by forcing it to make its own remaining applications good enough to compete successfully.” Welcoming competition seems like a really big picture, long term, global-optima seeking view that I don’t hear many other CEOs talk about. Is it a necessary cognitive bias for a successful leader to be sure he’s working on something fundamentally good and world changing, or is a strong ideology what makes a leader successful in the first place?

Zuck also expressed insights into the tech industry and its interplay with human psychology. He says [Facebook] is about people; Google is about data; Facebook is “a technology company. Myspace is a media company.” Insisting Facebook is a utility, “Zuckerberg… realized that Facebook wasn’t a tool for keeping track of news made somewhere else. It was a tool for making news.” Young men are always the revolutionaries- I’m very curious to see what happens as time passes and Facebook has even more success.

While “The Social Network” dwells on interpersonal dramas, The Facebook Effect doesn’t really talk about that, instead explaining some of the conditions and strategy surrounding Facebook’s success:
-“Facebook’s ultimate success owes a lot to the fact that it began at college. That’s where people’s social networks are densest and where they generally socialize more vigorously than at any other time in their lives.”
-“The Harvard connection makes a product less suspect.”
-Immediate popularity because “Harvard students are preternaturally status-conscious.”
-They were able to roll out iteratively and incrementally bc each college was its own network, allowing them to wait to make sure they had enough servers etc before rolling out to another school and taking on more users, thus assisting in avoiding getting Friendster-ed.
-They employed a peer pressure “surround strategy:” “if another social network had begun to take root…. thefacebook would open not only there but at as many other campuses as possible in the immediate vicinity.”
-To ensure demand, “When the number on the waiting list passed 20 percent of so of the student body, thefacebook would turn that school on.”

Because this book was published in 2010- forever ago in internet years, it doesn’t include some of the more recent developments, and a lot of questions remain to be answered. While “a trusted referral is the holy grail of advertising,” I want to learn more about how Facebook will revolutionize advertising beyond engagement ads. The tagline is that Adwords “fulfill demand,” whereas Facebook “generates demand,” so will the people who generate the demand (the other users) get incorporated into and paid by the model in a new way? What developments have occurred since 2010 that the book doesn’t cover?

Another question arises on accessing content. As more and more content becomes user generated with privacy settings, how will Google access, search, and distribute this information? Will Google integrate with Facebook and show different search results depending on which friends’ content is accessible? (Also, how can Facebook help resurrect Microsoft from obsolescence? I don’t dare short Microsoft while Facebook is on its team.)

Much of the author’s info comes from interviews, as evidenced by his erroneously calling a drug “Provisual” instead of “Provigil”- a mistake that would most likely occur from confusing the spoken word (Don’t ask how I know about Provigil, a drug I would not recommend to anyone since you still feel sleepy- you just can’t fall asleep, so it’s worse than useless for keeping your brain functional for higher order tasks). All of the remarks were positive about Facebook, so the book may be somewhat biased.

Nevertheless, you leave the work feeling impressed by the success of the company, acknowledging that it has already changed society and social interaction, and wondering what will happen next. Will Facebook’s currency take over? Will Facebook be the new basis for society and government? It also raises philosophical questions, like do you think it’s true that “a more transparent world create a better-governed world and a fairer world?”

Zuck says, “You have one identity… the days of you having a different image for your work friends or coworkers … are probably coming to an end.” While Facebook does allow you to only share info with people you friend, etc, Facebook does push transparency as a core value. Should transparency be a value? Is openness really optimal? Do people only have one identity? Demand for Linked-in would suggest people want to have multiple identities, but is that an outdated cultural idea, along with privacy? Will the single profile enter our collective consciousness and cause us to view work as just another attribute of our unified identities?

The internet is changing human relationships, intelligence, society, government, culture, and Facebook is determined to be a driver of that change. On the internet, we are all created equal (more so than offline at least), and if the most popular website Facebook has taken over the internet, then are we all citizens of Facebook? Has Facebook already allowed us to unify as a species and become truly global and we (I?) just haven’t realized it yet? Facebook started as a model of real life social relationships, and quickly evolved into a real world where social relationships are created and lived. I cannot wait for this Facebook IPO!