It looks like every symptom on Google search leads to cancer.

So, when you have a symptom that Google screams CANCER, should you be afraid?

Before I answer that for you, let's talk about Occam's Razor and how you can use it to simplify your life.

Let's dive in. 👇👇👇
1/ In the early 1900s, two physicists studied space and time and arrived at a similar conclusion: things tend to go a little bonkers within the space-time continuum.

Ex: The closer we get to moving at the speed of light, the more we slow down.
2/ Both the scientists arrived at the same results through their equations & derivations. But both had different explanations.

One suggested that the phenomenon was due to the changes that took place within "the ether". Another didn't refer to the ether at all.
3/ The latter won the Nobel prize and the world reveres him as a genius.

The former was the physicist named Lorentz.

The latter was Einstein.

This was the Einstein-Lorentz Relativity priority dispute that we are talking about.
4/ Lorentz's explanation wasn't given preference because according to science, the ether doesn't exist. When that's introduced into the equation, it makes things complicated.

Einstein used no references to the ether, and his simpler explanation rooted in scientific method won.
5/ This is classic Occam's Razor at play.

Occam's Razor is a philosophical tool, a mental model used in problem solving.

What does it say?

"Entities should not be multiplied without necessity"

In other words,

"The simplest explanation is usually the right one".
6/ Why is it called a "Razor"?

It helps shave off unnecessary, unlikely explanations and factors from explanations.

Whenever you have a hypothesis with two competing explanations, the simpler explanation is the most likely to be the valid one.
7/ Now, how do you deal with seeing Cancer in search results of your symptoms?

A version of Occam's Razor, "The Zebra" suggests you reject an exotic medical diagnosis when a more commonplace explanation is more likely.

"When you hear hoofbeats, think of horses not zebras"
8/ So, the next time you search for a symptom, let's say a headache, and Google would say it's a brain tumor.

A simpler explanation might say it's common cold or dehydration.

Which one is more likely to be valid? The simpler one.
9/ How can you use the knowledge of this law/razor in your trading and investing?

Let's first understand the two principles that constitute the razor.

i) Plurality should not be posited without necessity

ii)It is pointless to do with more what is done with less
10/ Together, these two principles form the Razor we use to shave off unnecessary factors in explanations.

You wouldn't use 3 men to do a one man's job. It's a waste of resources.

You wouldn't have 2 jobs, if you get a job that pays the equivalent of two.
11/ In trading, you apply Occam's razor by simplifying the trading process itself.

- You clean up your desk.
- No need for 5 monitors. One or two would do.
- You reduce your inputs for trading (news, media, TV, online forums).
12/ People perceive trading and investing to be difficult endeavors.

Because of this, you're often drawn to complex answers/solutions to succeed in them.

That's why complicated systems, indicators, workshops are all popular.

Very few believe simple things work.
13/ If you're a systematic trader, you're probably trying to cram as many rules as possible. You add more parameters, do more optimizing.

While this might get you a better backtest result, it will often result in the system not working in real time.
14/ As you add more parameters to your system, you're adding more complexity to your system.

The more the optimization, the more curve fitted the system to data.

Complex systems are usually fragile.

As the number of parameters grow linearly, complexity grows exponentially.
15/ On the contrary, it's possible to generalize some predictability into a trading strategy with fewer parameters and rules.

Simpler concepts and simpler rules based on fundamental market principles work.

They are also less likely to change in future.
16/ If you're a discretionary trader, you're likely following

- Twitter chatter, trends
- NSE announcements page
- Bloomberg, CNBC, Moneycontrol

and many other sources while trading.

Sometimes with these sources providing conflicting information, you can't even trade.
17/ This is called "analysis paralysis due to information overload".

You get all the information you need from the charts itself.

At worst, you'd need only one good news source to take your decisions.
18/ "More is better" is a wrong notion, especially in trading.

More knowledge won't bring more success beyond a point.

In fact, it's highly correlated to detrimental returns.
19/ This is where the law of diminishing returns come into picture.

Your returns increase proportional to effort/time/resources invested up to a certain point.

Beyond that, the returns diminish.

We see this phenomenon everywhere.
20/ Smartphones above a certain price point don't offer proportional value.

Above a certain net-worth number (say $100M), life doesn't get any better in proportion to extra money.

Likewise, doing more doesn't mean achieving more in proportion, beyond a certain point.
21/ So, when it comes to trading, try the following:

- Fewer/no indicators (naked charts)
- Less tweaking in backtests
- Maximum one or two instruments traded
- Cut off news, twitter, TV during trading hours.
22/ How to use the razor for investing?

Owning 5-6 mutual funds, you end up having overlapping stocks across funds.

You end up owning over 200 stocks, getting returns that are worse than the index.

Either go for one or two multicap/hybrid funds, or do passive index investing.
23/ Don't hire 3-4 advisors / research advisories, who all tell you different things.

One may want you to move to cash.

Another may tell you to invest more.

Another would tell you to liquidate and put everything into gold/real estate.

Which one do you listen to?
24/ So, simplify.

Find one financial advisor who understands your risk metrics, your financial goals, and tailors a plan for you.

That is more often enough to go after your financial goals in the most sustainable manner.
25/ Similarly, if you're into independent stock analysis, it may be tempting to use multiple models at the same time for valuation.

That doesn't make the process any better, only more complicated.

Keeping it simple and sticking to optimal number of inputs is important.
26/ All that said, "simple" ≠ "easy". Simple only means uncomplicated.

A simple process or system is not easy to develop.

It takes effort, probably years to develop a simple process that's robust enough to use consistently.
27/ Once you develop a simple plan, it requires discipline to execute. And, discipline doesn't come easy either.

There will be certain amount of complexity required to solve any problem, be it in anything.

We call this "intrinsic complexity".
28/ Anything that doesn't contribute to solving the problem is "accidental complexity".

So, the focus should be to avoid accidental complexity.

You must work with only the intrinsic complexity underlying any problem at hand. Avoid introducing accidental complexities.
29/ The next time you face a problem, or you want to improve in something,

- try simplifying the process
- try choosing fewer inputs.

That will improve most decisions you make.
30/ If you enjoyed this thread, smash the follow button on my profile to be notified every time I publish a thread.

Also, what are the things you feel are too complicated in your life right now? Comment below. Let's discuss a simpler approach to it.

• • •

Missing some Tweet in this thread? You can try to force a refresh

Keep Current with Shravan Venkataraman 🔥🚀💰

Shravan Venkataraman 🔥🚀💰 Profile picture

Stay in touch and get notified when new unrolls are available from this author!

Read all threads

This Thread may be Removed Anytime!


Twitter may remove this content at anytime! Save it as PDF for later use!

Try unrolling a thread yourself!

how to unroll video
  1. Follow @ThreadReaderApp to mention us!

  2. From a Twitter thread mention us with a keyword "unroll"
@threadreaderapp unroll

Practice here first or read more on our help page!

More from @theBuoyantMan

16 Jan
You see so many people on Twitter saying

"Infosys ADR is up 5% today."

"ICICI Bank and HDFC Bank ADR ended highly positive today. Good move coming up for Banknifty."

Have you ever wondered what is ADR? You're not alone.

Time for a thread. 👇👇👇 Image
1/ Back in the early 1900s, people were buying shares in foreign countries in the respective country's exchanges (many still do).

There are few issues with that:

- Complexity of the purchase
- Currency conversion issues
- Difficulty in transactions

and so on.
2/ JP Morgan saw this, and thought

"what if people could trade foreign companies

- in our country
- in our currency
- but without the companies having to list themselves here?"

ADR was born.
Read 22 tweets
15 Jan
Do you keep your gold assets in bank locker? You are probably paying some fees every year for your lockers.

Instead, what if you could get a locker for free?

What if I said banks would pay you to keep your gold assets safe?

Time for a thread. 👇👇👇 Image
1/ The major issue with having gold in bank lockers is

- You pay hefty fees on an annual basis to the bank.
- The lockers aren't insured
- There's no real safety/security in case of theft or an unfortunate event.

Is there a work around?


Enter "Gold Monetisation Scheme".
2/ GOI introduced the Gold Monetisation Scheme in 2015. The main objective was to cut down India's gold imports.

How it works:

You deposit your gold in bank.
They keep it safe for a fixed number of years.
You get it back as physical gold or cash on maturity.
Read 13 tweets
13 Jan
Stories like these are why most people start a business.

And they are all wrought with survivorship bias.

Be very careful while getting inspired by such stories. Always ask, "how many edu-businesses started with Aakash and failed?" before you consider starting one of your own.
I am not discouraging you from starting a business.

By all means, start a business. That's one of the ways to the promised land of wealth.

But don't start a business because you're inspired by the success stories on media.
No founder comes up to media to discuss failure.

Failure stories also don't work that well commercially and don't provide enough fodder for media ratings.

Nobody discusses failure publicly. Very few are transparent enough to do that.

So, what you see is filtered information.
Read 25 tweets
13 Jan
If you're not able to guide people in the right path, and encourage them to take the right steps, better to QUIT talking. It's my humble submission.

Discouraging people has never been so easy. But, showing them the right way, helping them acquire skills, is very very tough.
Also, if you're reading this, understand this first.

Trading and Investing should NEVER be undertaken as a "for a living" kind of a full time profession unless you have a steady inflow of cash through other means.

Have a job. Keep building skills and learning.
Holding on to a day job or other businesses that bring in money frees you from the pressure of making money in the markets - which is the NUMBER 1 source of stress that leads to making impulsive decisions.

Such decisions usually lead to huge losses.
Read 6 tweets
12 Jan
When you break down the lives of extremely successful people, you find that their success didn't come from an earth shattering break-through.

Rather, it came from obsessing about a simple idea, fanatically.

Time for a thread about one such idea. 👇👇👇
1/ During world war II, a eleven year old kid checks out a book from the nearest library. The book's title was "1000 ways to make 1000 dollars".

After he reads that book, he makes a statement that by the time he was 35 years old, he'd be a millionaire.
2/ By the age of 35, his net worth was roughly 7-8 million dollars. The library was Omaha public library. That kid was Warren Buffett.

How he got there is an interesting story.

As soon as he reads that book, he decides he should have 1000 dollars before he finishes school.
Read 23 tweets
11 Jan
To avoid this, do a monte carlo analysis and find out the probabilities of range of drawdowns and work with leverage on your system accordingly.

For ex: a system I trade currently, has a historical maxDD of 4.76% and recently it hit a maxDD of about 5.5%.
On conducting monte carlo analysis of the system, I understood that the probability of maxDD to be below 5% is only ~3%.

There was about 61% probability of the maxDD to be between 5-10%

and ~2% probability that it could be around 20-40%.

You need to be aware of these.
Once you know the odds of a certain range of maxDD happening, then you can confidently deploy your strategy.

You'd also face drawdowns that lie within your comfortable range instead of being misled by just the historical maxDD as it happened in the series of trades historically.
Read 4 tweets

Did Thread Reader help you today?

Support us! We are indie developers!

This site is made by just two indie developers on a laptop doing marketing, support and development! Read more about the story.

Become a Premium Member ($3/month or $30/year) and get exclusive features!

Become Premium

Too expensive? Make a small donation by buying us coffee ($5) or help with server cost ($10)

Donate via Paypal Become our Patreon

Thank you for your support!

Follow Us on Twitter!