summarize this video please? as a Quant and anyone who works in
finance you know that people don't price
things correctly in the market in
general and that's why you make money
because you price things better than
them so you know when to buy and when to
sell but I want to apply this to life
and in life right people don't price
things correctly so like a lot of people
are afraid of flying and so they'll be
like saying prayers at the airport and
like thinking they're going to die but
like the drive to the airport you're
like a thous times more likely to die
there than on the flight itself like
there's a lot of data on
this so that's just like an obvious
example of how people don't price risk
correctly and um in prop trading and
Hench funds we're basically exploding
that that flaw in human nature but in
financial markets but that's like a
topic for another time I want to talk
about how people are always triple long
and they don't seem to realize it so
triple what do I mean by that you know
there are like triple long ETFs like S&P
500 Triple long ETFs you can look this
stuff up but it's basically like it's as
if you're like three times as long that
position and um people are generally
triple long in their life and they don't
realize it what do I mean by that um
they're long their job they're long
their stock or Equity within the company
or rsus and they're long their their
home their real estate
so it can go your way and it can go
against you in Silicon Valley right A
lot of my friends ended up there around
2010 and a lot of them are just like
average smart guys but they got into
some big Tech firm and they have more
money than me because they bought a home
there and they got into this big Tech
firm and they have Equity at their firm
so their Equity shot up like
500% or more and their home shot up like
500% or more and times are good so their
salary just keeps going up and you know
promotions are handed out and so on and
so you know when times are good times
are good but when you're trip along what
happens when times are bad so I have a
friend who worked as an engineer at
Exxon Mobile and she was at the plant
outside of Chicago and
Illinois and Exxon Mobile had a pretty
big contraction at one point this might
have been like 5 years ago 10 years ago
anyways they they they basically closed
that plant outside of Chicago and so
they laid off everyone at that plant or
they gave them the opportunity to
relocate to their Houston
headquarters and so a lot of people have
their families there and their kids in
the school districts and they weren't
willing to do that so they just got laid
off and
what happened is they lost their job
when these announcements came out that
Exxon Mobile is like closing
factories the stock sold off by like 50%
or something and you get you have a lot
of equity in your own firm usually
because you you get to like buy into
them at a like discounted rate or
whatever so they all their equity and
Exxon lost 50% and then their homes lost
50% because they closed that plant and
that plant was the major thing driving
the local economy so a large percentage
of the of the employees like lived in
those neighborhoods outside of that that
factory so that's an example of when
you're triple long how you can get
steamrolled and I think a lot of these
people didn't realize that especially
with like mortgages you're inherently
leveraged because well I'm sure you guys
know how mortgages work so you can be
underwater after that right you when
you're home loses 50% you're you're most
likely underwater in fact so yeah my
friend was lucky because she was doing
like a reverse commute from Chicago so
she just bought a condo in South Loop
which kind of held its value South Loop
didn't really go up that much but at
least it like went sideways but all of
her peers who bought in the suburbs
closer to that Exon Mobile Factory their
homes lost
50% so that's that's sort of the expl
that's sort of the point I'm trying to
make you you know you think you're
managing your risk correctly but you're
not you're exposed to Triple long risk
you're exposed to Career risk Equity
risk and real estate risk and no one
tells you this
because all the people involved in these
industries want you to continue putting
your money in them so it's sort of like
a I wouldn't say a cartel but it's like
people are colluding together different
different parties are all colluding
together to keep you in the dark about
your inherent risk and and this is a
large risk and I just want people to
know that the reason I chose prop
trading as an industry is because prop
trading is inherently counter cyclical
so what I mean by that is that it does
the opposite so when the market is
grinding up bonuses are small because
markets are calm and there's nothing to
trade because prop trading firms make
money off of price inefficiency and
panic and when the markets are crashing
and the economy is you know really not
doing well prop trading firms make their
biggest money prop trading firms are
feast or famine in that way
and it's actually quite beneficial to be
in a counter cyclical industry because
you get your biggest bonus when the
markets are crashing so like the guys at
Geto who made their biggest bonus in
0809 during the financial crash like
Traders there made like like first year
Traders there made Millions bonuses like
you can look this up and they got their
bonuses in like January and the market
bottomed out around February or March
2009 like around spoo 666 so imagine you
get your million dollar bonus there and
you sock it into the market there it's
up almost 10x from there and that's just
stocks right if you if if real estate is
more your taste you know people's home
prices haved or worse and and they're
losing their jobs and they need to panic
cell and I mean it's predatory but you
can put in a low lowball bid and just
you know say Hey you sure you know you
want to sell this to me like you don't
want a default right it's bad for your
credit and then people will just puke
out of their homes and sell like 10%
lower than midm market and you
know fed's lowering interest rates
because the markets are are crashing and
he's they're trying to stabilize the
market so you can get like a 30-y year
fixed rate mortgage at like
2% and lowball put in a lowball bid and
scoop up some like
great real estate huge discounts so
those are the hidden benefits of working
for a counter cyclical industry you you
have money when other people don't have
money and that's actually like wildly
important and
um it's like when everyone's on the same
side of the canoe and it tips over like
you don't ever want to be in that
situation you want to be doing the
reverse commute right so when everyone's
in in traffic stuck on the other side
you're just flying down the highway
going 80 there's like a a huge hidden
benefit benefit
to to being like in a counter cyclical
industry prop trading is the best
example of a counter cyclical industry I
can think of but the media is another
example right like they com they
complain about Trump when like oh no
Trump's president but they were actually
like salivating because like viewership
and CNN and all those mainstream news
channels went up like crazy because
everyone's like oh no is the world going
to end and they made a lot of money from
that and um and another counters local
industry I can think of as like
Pharmaceuticals during the pandemic um
I'm sure there are others but prop
trading is is is the cleanest example I
can think of I'm not triple long right
my my net worth might be in the S&P or
real estate and when the market crashes
my happiness is hedged because I know
that my net worth is Contracting but I'm
going to get one of my biggest bonuses
that year and I'm going to be able to
put take my bonus money and put it in
the market somewhere near the lows and
so my my wealth is hedged and my
happiness is hedged as well um and then
on the flip side if you you know if it's
just like the markets are dead and quiet
and just quietly drifting up for a
couple years in a row they might have
layoffs at prop trading firms because
there's nothing to trade but jobs are
plentiful elsewhere because the economy
is roaring so you can easily pivot into
like being a data scientist in big Tech
or something so you're hedged in that
way too you're you know it's easy for
quants to kind of like jump from like
Quant Finance Elite Finance to Big Tech
from like Quant to like data scientist
or something people do it all the time
like Citadel quants jump over to be like
uber data scientist and they do it the
other way as well it's kind of like the
uh the the the high paying Industries
the smart people at the high paying
Industries just bounce between them
depending on like which sector is doing
well so yeah I I I would encourage you
to
consider that aspect of how you manage
the risk in your own life sorry one
final Point wealthy people understand
that normal people are triple long and
they don't want to be triple long so
what they do is they invest in hedge
funds and so why is it called a hedge
fund because they're hedging your risk
there's a well-known bet that Warren
Buffett made where he said oh I bet the
S&P will I'll perform these hedge funds
yeah buddy like we know that we know
that we're taking 30% as a cut so
there's that but two
um we're not investing in correlated
asset classes as as you know the S&P
Real Estate you know most people don't
know this but even flight to safety
asset classes like bonds and gold they
all crash when the market is panicking
because
there's deleveraging happening and so
you're really not safe anywhere and so
where do wealthy people put their money
to diversify they put them in hedge
funds because hedge funds use unique
strategies
that are actually not correlated with
all of the all of the known investment
classes like go look at the price of
gold bonds um like during major crashes
they all sell off but with certain hedge
funds they won't they'll go up cuz hedge
funds are
inherently uncorrelated with major
products they'll they'll short right
there's that movie with Seth Rogan where
his hedge fund was picking individual
Equity names and shorting them that's
that's that's the kind of thing a hedge
fund does because that's uncorrelated
with performance of the broad
market and so yes you're going to give
up a little bit of performance by you
know because it's hard to find
an asset class it's hard to find some
kind of investment vehicle that is
uncorrelated with the broad Market the
broad Market is the easiest way to
generate returns because you're
basically investing in the the labor of
intelligent people who are trying to
grow their The Firm they work at for
their shareholders and you know
basically all the smart kids in your
high school are now running companies
and you want you know you're basically
betting on those horses like you know
would you bet on them to get an A on
their school project of course you would
they're the smart kids well those smart
kids are now you know running these
companies and they're whole they're
they're using all of their intelligence
to try to grow these companies and make
them more profitable so being long the
market is just doing that you're just
betting on all the smart people who run
the Fortune 500 companies to continue to
grow them and use things like
technology to you know increased profits
and you know lower expenses so any
that's a tangent but like yeah I I just
wanted to drive that point home about
hedge funds hedge funds are called hedge
funds because they hedge against the
mainstream risk that you have by putting
your money in all the all the well-known
places real estate and stocks and
wealthy people know that they they know
they know that you're triple long and
they think you're a sucker but they
don't they're not triple long they own
real estate and they own stocks but they
also put a large percentage of their
wealth in hedge funds so when the
Market's crashing their wealth is just
kind of going sideways you know they're
Diversified and it's very useful to
always have
bullets you know it's very useful to
have money when other people don't have
money it's very predatory but you can
snipe off really good deals when other
people have to panic sell and they were
overextended and they need to unload
proper properties they need to unload
their their their businesses and you can
scoop them up at a big discount wealthy
people know this that's why they invest
in hedge funds all right see you next
time