The Goal

I bite my nails.

Every day I thank my atheist deities (Darwin & Feynman RIP) that I never found smoking a necessity.

But I bite my nails.

So instead of exposing myself cancer I am boosting my immune system with a non-stop flow of weird and wonderful bacteria and viruses.

I don't know why people smoke, but I know why I bite my nails.

It's all about order. My nails are a disordered system, little pieces of flesh and nails get nicked, and I bite off those little pieces in order to achieve some subliminal order.

Of course the more you bite and tease nail and skin off your fingers the more likely more nicks appear and the cycle continues.

Until you bite off a large chunk of skin or nail and the subliminal is immediately squashed by a dash of pain.

In any case, biting your nails is a lot like Tetris, non-stop blocks to sort. That's why I am addicted.

Making money is really just the same thing.

Successful investment strategies make sense out of the world, earning money is just trivial side effect.

The venerable Sharpe Ratio for any strategy is calculated thus,

Average Net Return / Volatility

(See more here)

Returns grab all the headlines, but it's really just the trivial part of this equation.

If you have a strategy that returns 6% per annum, the 6% really just tells us about the beginning and end of the journey.

God knows what god awful things happened between the beginning and end of the backtest period; leverage can boost that top line return figure in a snap and turn your investment into a lottery; and a short with the same return could even nix it from the equation completely!

Volatility on the other hand tells you the story in between the beginning and end of the backtest period; and in practice you can never nix it.

Volatility is analogous to disorder, and just like Tetris blocks it never stops coming.

Investment strategies are all about reducing portfolio volatility and not much else. Decent returns are actually a trivial sideshow which can be dealt with once your volatility's been sufficiently tamed.

As an example, when testing trading ideas every so often I see massive negative Sharpe ratios, which however unexpected are actually super interesting - the sign can often be overcome.

You also see this again and again with quant strategies utilising super-sized leverage. In fact most quants live in a no-arbitrage-risk-neutral-world most of the time.

So as well as being able to liken your disgusting nail biting habit to disorder, thermodynamics and making sense out of the universe - you can include crass money-making too.