Interesting article! I have a couple of questions:
How is Zeitgeist Farming different from Factor analysis? Or is A a subset of B?
On my newsletter, I have been writing about investment strategies which I called "alternative" for the lack of a better word, but many of them would fit into the framework of Zeitgeist farming - For example, you suggested in this article that investing in all tech IPOs at inception might be a good idea, and I actually wrote an article analyzing whether you could make money off of buying IPOs (https://marketsentiment.substack.com/p/can-you-make-money-from-ipos - The results weren't as favorable as you might think!). Other ideas of mine included "an automated trading strategy for crypto" and "investing in the most reputable brands in the world" which correlated with some ideas here. Would be interesting to know your thoughts on how you distinguish between an arbitrary factor and a "zeitgeist" factor.
My issue here is, as George pointed out earlier, that a) It's hard to identify the wave when you're in it, and b) It's hard to predict how long the opportunity will last. (Though my analyses are based on years of data, past returns are no indicator of future performance possibilities and figuring out how to account for that is a problem I'm grappling with. Any thoughts on this appreciated!)
Thanks! And lovely article on the IPO purchase analysis.
Something I struggle with is that illegible strategies remain illegible precisely because they don't easily lend themselves to analysis. This is similar. You're right in looking at IPOs in general and concluding what you did, but to me this became apparent as a strategy (as with invest in saas if they have decent metrics) in like 2015/16. Partly because clouds dominance was unquestionably established but cloud co dominance wasn't.
Same for investing in late stage Pvt cos then by hype - you'd have hit every single large outcome, and maybe lost in We and Theranos, but would've been a coup. That's the Tiger strategy too fwiw.
So to me it has to have a very clear macro egregore that seems to be strengthening but not yet taken over the world. They only come around occasionally, but they sure do once in a while ...
I know this isn't immediately actionable insofar as we can code up something to run the strategy, which is also why there's some alpha left in it I feel.
Yes, totally agree about the illegibility of such strategies... It seems counter-intuitive to write about them as they might just get assimilated into the market, but there's always that window where a few investors can take advantage of it I suppose. Another hope I have is that while exploring such strategies it unearths a framework or a way of thinking or an underlying principle that transcends individual strategies - The Zeitgeist farming framework excited me precisely because it does this in a sense.
Still going through your other issues, your newsletter was a great find.
In principle I agree on this, but in practice I think it's much harder.
There's the situation where in 2016 you buy BTC and it jumps and you are happy.
But there's also the situation in which you buy in 2017 and you have to wait until now to make your money back 3x, if you actually manage to sell at the peak, or loss a lot if you panic, and you loss on the upside of just having bought an index in 2017 which by now would have been 1.5-5x, with the maximum downside having been maybe 0.6-0.7x (outside of a global-war situation, in which case money starts working differently anyway)
Or there's the one situation in which you just buy "Long Blockchain Corp" in 2017 instead and now you've just lost a whole lot of money.
The interesting thing with longevity companies, for example, is that the funders are the same but they like company hoping. I think anyone in their right mind knows right now that rapalogs or some form of NR/NMN are going to be big, like 1000x big compared to today. But if the business model of the companies selling is to go public when they are sensing immediate loss, and if there are 1000x companies trying to do rapalogs, you might well still lose on the one insider-traded company that makes it and just get losses from buying all the IPOed failures.
The problem with zeitgeist farming, in other words, is that you might be overfiting on the winners and forgetting how the zeitgeist "felt like" back when the winners were on the market for cheap.
Which is not to say in principle I don't agree, but it doesn't seem easy.
One anecdote: I have a significant (20%) chunk of my savings into tobacco comapnies. Why? Because I've seen how vapes sell on school yards around the world, and I've tried them myself and monitored what happens and they are as damn side-effect-free as it gets given how good they are. Am I zeitgesit farming or being insane? Is my read of highschoolers good here? What about regulatory action that could kill the whole industry or at least place it under government monopoly? Maybe I am reading this correctly but vape-focused business models won't be enough to replace the revenue from tobacco once cheaper models hit the market. Maybe an addictive drug replace nicotine entirely.
Another framing: Silicon Valley style software is amazing right up until the point where NLP models can write good software and someone with enough compute open-sources alternatives to every single piece of proprietary software. This is precisely the kind of action nobody can predict that can entirely de-value the tech segment to 0 (while making the world better, so we are not in a "don't invest in worlds you wouldn't want to live in" type scenario) -- And there's totally a zeitgeist among AI researchers where that will happen, and we should be banking on that world instead.
But I digress,
On the whole I'm bookmarking the article as a memento, I think it's a great idea and very well put.
Yeah, survivor bias is a problem for sure. Though its also a problem with a ton of investing advice, including Mr Buffett's. One thing I find coutnerintuitive is that this is dismissed seemingly out of hand for moralistic reasons. And also why my epistemic status is simplified but kind of true ...
Interesting article! I have a couple of questions:
How is Zeitgeist Farming different from Factor analysis? Or is A a subset of B?
On my newsletter, I have been writing about investment strategies which I called "alternative" for the lack of a better word, but many of them would fit into the framework of Zeitgeist farming - For example, you suggested in this article that investing in all tech IPOs at inception might be a good idea, and I actually wrote an article analyzing whether you could make money off of buying IPOs (https://marketsentiment.substack.com/p/can-you-make-money-from-ipos - The results weren't as favorable as you might think!). Other ideas of mine included "an automated trading strategy for crypto" and "investing in the most reputable brands in the world" which correlated with some ideas here. Would be interesting to know your thoughts on how you distinguish between an arbitrary factor and a "zeitgeist" factor.
My issue here is, as George pointed out earlier, that a) It's hard to identify the wave when you're in it, and b) It's hard to predict how long the opportunity will last. (Though my analyses are based on years of data, past returns are no indicator of future performance possibilities and figuring out how to account for that is a problem I'm grappling with. Any thoughts on this appreciated!)
Thanks! And lovely article on the IPO purchase analysis.
Something I struggle with is that illegible strategies remain illegible precisely because they don't easily lend themselves to analysis. This is similar. You're right in looking at IPOs in general and concluding what you did, but to me this became apparent as a strategy (as with invest in saas if they have decent metrics) in like 2015/16. Partly because clouds dominance was unquestionably established but cloud co dominance wasn't.
Same for investing in late stage Pvt cos then by hype - you'd have hit every single large outcome, and maybe lost in We and Theranos, but would've been a coup. That's the Tiger strategy too fwiw.
So to me it has to have a very clear macro egregore that seems to be strengthening but not yet taken over the world. They only come around occasionally, but they sure do once in a while ...
I know this isn't immediately actionable insofar as we can code up something to run the strategy, which is also why there's some alpha left in it I feel.
Yes, totally agree about the illegibility of such strategies... It seems counter-intuitive to write about them as they might just get assimilated into the market, but there's always that window where a few investors can take advantage of it I suppose. Another hope I have is that while exploring such strategies it unearths a framework or a way of thinking or an underlying principle that transcends individual strategies - The Zeitgeist farming framework excited me precisely because it does this in a sense.
Still going through your other issues, your newsletter was a great find.
P.S. I had to Google "egregore" :p
In principle I agree on this, but in practice I think it's much harder.
There's the situation where in 2016 you buy BTC and it jumps and you are happy.
But there's also the situation in which you buy in 2017 and you have to wait until now to make your money back 3x, if you actually manage to sell at the peak, or loss a lot if you panic, and you loss on the upside of just having bought an index in 2017 which by now would have been 1.5-5x, with the maximum downside having been maybe 0.6-0.7x (outside of a global-war situation, in which case money starts working differently anyway)
Or there's the one situation in which you just buy "Long Blockchain Corp" in 2017 instead and now you've just lost a whole lot of money.
The interesting thing with longevity companies, for example, is that the funders are the same but they like company hoping. I think anyone in their right mind knows right now that rapalogs or some form of NR/NMN are going to be big, like 1000x big compared to today. But if the business model of the companies selling is to go public when they are sensing immediate loss, and if there are 1000x companies trying to do rapalogs, you might well still lose on the one insider-traded company that makes it and just get losses from buying all the IPOed failures.
The problem with zeitgeist farming, in other words, is that you might be overfiting on the winners and forgetting how the zeitgeist "felt like" back when the winners were on the market for cheap.
Which is not to say in principle I don't agree, but it doesn't seem easy.
One anecdote: I have a significant (20%) chunk of my savings into tobacco comapnies. Why? Because I've seen how vapes sell on school yards around the world, and I've tried them myself and monitored what happens and they are as damn side-effect-free as it gets given how good they are. Am I zeitgesit farming or being insane? Is my read of highschoolers good here? What about regulatory action that could kill the whole industry or at least place it under government monopoly? Maybe I am reading this correctly but vape-focused business models won't be enough to replace the revenue from tobacco once cheaper models hit the market. Maybe an addictive drug replace nicotine entirely.
Another framing: Silicon Valley style software is amazing right up until the point where NLP models can write good software and someone with enough compute open-sources alternatives to every single piece of proprietary software. This is precisely the kind of action nobody can predict that can entirely de-value the tech segment to 0 (while making the world better, so we are not in a "don't invest in worlds you wouldn't want to live in" type scenario) -- And there's totally a zeitgeist among AI researchers where that will happen, and we should be banking on that world instead.
But I digress,
On the whole I'm bookmarking the article as a memento, I think it's a great idea and very well put.
Yeah, survivor bias is a problem for sure. Though its also a problem with a ton of investing advice, including Mr Buffett's. One thing I find coutnerintuitive is that this is dismissed seemingly out of hand for moralistic reasons. And also why my epistemic status is simplified but kind of true ...