The Epsilon Theory Archive

“History doesn’t repeat itself, but it often rhymes.” Mark Twain said that, or Abraham Lincoln depending on what corner of the internet you find yourself on any given day. Likewise, there are common themes, topics and subjects that run throughout the Epsilon Theory archive. All of our writing is categorized, tagged and organized to be easily accessible, but beware: your search for truth on one matter may very well lead you down any number of rabbit holes (and we hope that it does).

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Most investors think that fundamentals are sound. Most investors think that other investors think that last week's correction was about vol-selling, vol-targeting and algos run amok. But neither of those is the real story. The real story is that everybody knows that everybody knows that inflation will change the way portfolios are built and managed. Read more »

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The inevitable result of financial innovation gone awry, which it ALWAYS does, is that it ALWAYS ends up empowering the State. When too clever by half people misplay the meta-game, that’s all the excuse the State needs to come swooping in and crush them, just as they are with Bitcoin today they did with Bear and Lehman in 2008. Read more »

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Everyone reading this note has, at one time or another, gotten scared about markets and decided to hedge their professional portfolio or personal account. I think that long-only institutional investors are now abandoning their portfolio hedges, because they can no longer easily afford the psychic benefits of these expensive adult talismans. That's not a bad thing, but it is a big thing. The Game of Markets is changing. But should we be scared? Read more »

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We’ve had a heckuva busy year at Epsilon Theory, so to ring out 2017 I thought it might be helpful to distribute a master list of our publications over the past 12 months. We’re long essay writers trying to make our way in a TLDR world, so even the most avid follower may well need a map! Read more »

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In a two-body market, the interactions of fundamental data and prices are generally predictable. In a three-body market, the epsilon — investor behaviors in response to narratives — exerts a powerful gravitational force which must be considered when building a portfolio. Read more »

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What if I told you that the dominant strategies for human investing are, without exception, algorithms and derivatives? I don't mean computer-driven investing, I mean good old-fashioned human investing ... stock-picking and the like. And what if I told you that these algorithms and derivatives might all be broken today? You might want to sit down for this one. Read more »

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Costs in investing are one of the big Things That Matter, but the decisions you make about risk, diversification and behavior are all going to impact your portfolio more than the expenses you are paying on funds or to your financial advisor. Read more »

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The pecking order is a social system designed to preserve economic inequality: inequality of food for chickens, inequality of wealth for humans. We are trained and told by Team Elite that the pecking order is not a real and brutal thing in the human species, but this is a lie. It is an intentional lie, formed by two powerful Narratives: trickle-down monetary policy and massive student debt financing. Read more »

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As we strive to truly be somebody in the world, we find ourselves forced into a Competitive Game that kills our ability to have a dialogue with one another. Rusty explains what keeps us there. Read more »

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The public unmasking of Harvey Weinstein as a serial rapist (that’s the word, people) is an archetypical play of the Common Knowledge Game. How does private knowledge become – not public knowledge – but common knowledge? Common knowledge is something that we all believe everyone else believes. Read more »

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