Entropy’s Investment Philosophy


Chain of Minds

I’m chief investment officer at Entropy Fund where our job is to understand the objective reality and to bet against the imaginary realities. In this letter I want to invite readers to explore our firm’s investment philosophy — https://bit.ly/2xygt8N.

The investment analysis is fundamentally a mental process and only the one’s with the strongest mental models can sort through, make sense of, and get the most out of the available ambiguous and conflicting information. Therefore, our team has spent a long laborious working days of past two years just to develop the unique mental conception of this world.

Our fundamental thesis stands on belief that capitalism, with its all inherited strengths or paradoxes, is the reflection of human mind. That’s why our study starts with analysis of two grand stimulants ‘pleasure and pain’ which moves mind’s all voluntary thoughts or actions. It is followed by the observation on memory structure, cognitive function and mental shortcuts mind uses to construct the subjective reality.

From here we develop the discussion outside of one’s consciousness where the objective reality stands between one’s state of wants and one’s state of actual pleasure/pain. This led us to develop major principles about the relationship between the mind and objective reality, which are eventually translated into our understanding of fundamental notions of ‘value’ and ‘imaginary value’.

Micro perspective is expended to macro views by observing how individual’s choices and social relations form the ‘chain of minds’, where you are the input for all but all is the input of yours. These types of networks create the entirely abstract social theories and belief systems, however our intention was to stay focused on financial markets by analyzing major inputs influencing investor’s ‘expectation equation’ and how decisions of thousands mesh into one meta convention — MetaMind.

Depth of research allowed us to explain the notions of risk, market efficiency, volatility and asset allocation more from the philosophical perspective rather than accepting conventional technical explanations which unless questioned creates the optical delusions for the majority of market participants.

Eventually our immensely bottom up analysis helped us to explain the totality of capitalist system. To fundamentally understand economics, one first needs to understand the nature of ‘gift economy’, where social relations are part of broader non-enumerated mental ledgers, not of its objective representations in registers and contracts.

In our analysis, we put ‘law of interdependence’ in the center of gravity within the economic network. Up here, my incentive to produce the pleasure for you is the output of what you will produce for me. Therefore, the pleasure seeking forms the incentive structure of economy, where expected pleasure unites the network participants and expected pain works like the negative gravity which dissolves relationships and isolates minds from each other.

Since the actual pleasure exchange is almost never part of spot transactions, it means that economy is full of intermediate states of pleasure where one holds the promise against the debt owed by others. The objective representation of these types of relationships are money and credit.

These observations on simple transactions led us to discover the interlocking and intertemporal structure of value chains, where the promise goes through different stages of metamorphosis from trust to money, labor work, means of production, merchandise until the value is finally realized in a consumer’s pleasure or pain.

The size and speed of metamorphosis within the value chain depends on the aggregate expectations about the future income. This itself is the subject of wild fluctuations because of the sensitivity of producers’ and consumers’ subjective degrees of belief. We believe that today’s expectations outputs tomorrow’s man-made objective reality and therefore it outputs the total aggregate supply and demand.

Finally, our study is summarized in the ‘shape we believe’, which also reflects firm’s investment strategy. Economy is not the Keynesian circle, nor it is the Hayekian triangle, it is the spiral shifting with subjective expectations. Up here everything turns, rotates, spins, circles, loops, pulsates, resonates and repeats.

In my last remarks I would like to address to cypherpunks, the one’s who truly believe in decentralized economy. Morally and philosophically I find myself in agreement with you. I see the future where all promises around are anchored in new types of horizontal organizational structures. It will obviously lead us to have better value distribution, incentive structure and coordination system within our economic network. However, the greatest barrier I see in this fight is ourselves. If we are going to change this world collectively into more human configurations, then we must try to understand it far better than it is now the case. Of course, it is easy to trash the government but these flawed narratives often detach us from seeing the fundamental problems of capitalist system which I believe lies in the flawed mental conceptions of understanding the objective reality we live in. I intent to start more academic discussions over time around the value circulation, capital formation, gift economy etc.

Today after sharing my investment philosophy I opened up my mental model to everyone. As you will see from the link I shared, my writing format is a bit unusual. I use the power point to manifest bold interconnected ideas without the extra storytelling and emotions. The reason I do it is to make reader think about the each word I type and it also helps me to establish the mosaic picture of totality. The one can write separate essays about ideas presented on single slide, however if I did that then I would lose interconnections between the ideas from the completely different spheres of knowledge.

Please also observe the footnotes of each slide where I list minds who sparked that particular idea, Entropy’s investment philosophy stands on shoulders of Gerolamo Cardano, John Maynard Keynes, William Stanley Jevons, Friedrich Hayek, Ludwig von Mises, Carl Menger, Daniel Kahneman, Richards Heuer, George Soros, David Graeber, Eugen von Böhm-Bawerk, David Harvey, Karl Marx, Warren Buffet, Charlie Munger, Howard Marks and Peter Lynch.