#159 – Richard Craib: WallStreetBets, Numerai, and the Future of Stock Trading

Richard Craib is the founder of Numerai, a crowd-sourced, AI-run stock trading system. Please support this podcast by checking out our sponsors: – Audible: https://audible.com/lex to get $9.95 a month for 6 months – Tryolabs: https://tryolabs.com/lex – Blinkist: https://blinkist.com/lex and use code LEX to get 25% off premium – Athletic Greens: https://athleticgreens.com/lex and use code LEX to get 1 month of fish oil EPISODE LINKS: Richard’s Twitter: https://twitter.com/richardcraib Numerai’s Twitter: https://twitter.com/numerai Numerai’s Website: https://numer.ai PODCAST INFO: Podcast website: https://lexfridman.com/podcast Apple Podcasts: https://apple.co/2lwqZIr Spotify: https://spoti.fi/2nEwCF8 RSS: https://lexfridman.com/feed/podcast/ YouTube Full Episodes: https://youtube.com/lexfridman YouTube Clips: https://youtube.com/lexclips SUPPORT & CONNECT: – Check out the sponsors above, it’s the best way to support this podcast – Support on Patreon: https://www.patreon.com/lexfridman – Twitter: https://twitter.com/lexfridman – Instagram: https://www.instagram.com/lexfridman – LinkedIn: https://www.linkedin.com/in/lexfridman – Facebook: https://www.facebook.com/LexFridmanPage – Medium: https://medium.com/@lexfridman OUTLINE: Here’s the timestamps for the episode. On some podcast players you should be able to click the timestamp to jump to that time. (00:00) – Introduction (08:12) – WallStreetBets and GameStop saga (22:25) – Evil shorting and chill shorting (24:31) – Hedge funds (30:04) – Vlad (37:00) – Numerai (1:04:16) – Futre of AI in stock trading (1:09:55) – Numerai data (1:13:37) – Is stock trading gambling or investing? (1:17:32) – What is money? (1:20:49) – Cryptocurrency (1:24:06) – Dogecoin (1:28:36) – Advice for startups (1:44:27) – Book recommendations (1:46:29) – Advice for young people (1:50:30) – Meaning of life

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:00Lex Fridman?

  The following is a conversation with Richard Crap, founder of Numerai, which is a crowdsourced hedge fund, very much in the spirit of Wall Street Bets, but where the trading is done not directly by humans, but by artificial intelligence systems submitted by those humans. It's a fascinating and extremely difficult machine learning competition, where the incentives of everybody is aligned. The code is kept and owned by the people who develop it. The data, anonymized data, is very well organized and made freely available. I think this kind of idea has a chance to change the nature of stock trading and even just money management in general

• 0:42Lex Fridman?

  by empowering people who are interested in trading stocks with the modern and quickly advancing tools of machine learning. Quick mention of our sponsors. Audible audiobooks, Trial Labs, machine learning company, Blinkist app that summarizes books, and Athletic Greens, all in one nutrition drink. Click the sponsor links to get a discount and to support this podcast. As a side note, let me say that this whole set of events around GameStop and Wall Street Bets has been really inspiring to me as a demonstration that a distributed system, a large number of regular people are able to coordinate and collaborate

• 1:26Lex Fridman?

  in taking on the elite centralized power structures, especially when those elites are misbehaving. I believe that power, in as many cases as possible, should be distributed. And in this case, the internet, as it is for many cases, is the fundamental enabler of that power. And at the core, what the internet and its distributed nature represents is freedom. Of course, the thing about freedom is it enables chaos or progress, or sometimes both. And that's kind of the point of the thing. Freedom is empowering, but ultimately unpredictable. And I think in the end, freedom wins.

• 2:12Lex Fridman?

  If you enjoy this podcast, subscribe on YouTube, review it on Apple Podcasts, follow on Spotify, support on Patreon, or connect with me on Twitter at Lex Fridman. As usual, I'll do a few minutes of ads now and no ads in the middle. I try to make these interesting, but I give you timestamps. So if you skip, please still check out the sponsors by clicking the links in the description. It's the best way to support this podcast. This episode is brought to you by Audible, an audiobook service that has given me hundreds, if not thousands of hours of education through listening to audiobooks. Many of the books I mentioned on this very podcast were ones I've listened to with Audible, which feels like cheating, but it's not. It's the same book.

• 2:57Lex Fridman?

  Examples include American Cosmic, which is about UFOs. Surely You're Joking, Mr. Feynman by the man himself, Richard Feynman. The Ascent of Money by Neil Ferguson, which is a great history about money. Your Inner Fish by Neil Shubin, which is one of my favorite books on evolution. The New Tsar by Stephen Lee Myers, which I think is the best, most objective work on Vladimir Putin that I've read to date. I've read quite a lot of biographies about him. And of course, the book that I've mentioned way too many times, The Rise and Fall of the Third Reich by William Shire. I think it's over 50 hours long and one hell of a crazy ride through the darkest moments

• 3:41Lex Fridman?

  of human history. Next two weeks, Audible is doing a special offer for listeners of this podcast. Only $10.995 a month for your first six months. If you visit audible.com/lex or text Lex to 500-500. I don't even know how that works or why you'd want to do that. Just go to audible.com/lex. That's way better, I think. But I might be clueless. If you like texting, I guess go ahead and text. They have thousands of titles to choose from, so visit audible.com/lex now. They're considering supporting this podcast, so you know what to do if you want to help out. It's audible.com/lex.

• 4:26Lex Fridman?

  This episode is also brought to you by Trial Labs, a company that helps build AI-based solutions for businesses of all sizes. I love these guys, especially after talking to them on the phone and checking out a bunch of their demos and blog posts. If you're a business or just curious about machine learning, check them out at triallabs.com/lex. They're working on price optimization, early detection of machine failures, and all kinds of applications of computer vision. Their price automation and optimization work is probably their most impressive in terms of helping businesses make money. Also, they release open source code on GitHub, like a computer vision tracker, for example.

• 5:09Lex Fridman?

  Tracking, to me, is a fascinating problem. It very much remains unsolved, especially in the application of deep learning to this problem, but we've seen a lot of progress in the past five years. Anyway, Trial Labs is legit. If you own a business and want to see how AI can help you, check them out at triallabs.com/lex. This episode is also supported by Blinkist, my favorite app for learning new things. Blinkist takes the key ideas from thousands of nonfiction books and condenses them down into just 15 minutes that you can read or listen to. As part of that, I use Blinkist to try out a book that I may otherwise never have a chance to read. And in general, it's a great way to broaden your view

• 5:54Lex Fridman?

  of the idea landscape out there and find books that you may want to read more deeply. With Blinkist, you get unlimited access to read or listen to a massive library of condensed nonfiction books. I also use Blinkist Shortcast to quickly catch up on podcast episodes I've missed. Right now, Blinkist has a special offer just for the listeners of this podcast. Go to blinkist.com/lex to start your free seven-day trial and get 25% off of a Blinkist Premium Membership. That's blinkist.com/lex. They want me to spell out Blinkist, but I'm sorry, folks. If you don't know how to spell Blinkist, you're on your own in this world.

• 6:39Lex Fridman?

  The show is also sponsored by Athletic Greens, the all-in-one daily drink to support better health and peak performance. It replaced the multivitamin for me and went far beyond that with 75 vitamins and minerals. I do intermittent fasting of 16 to 24 hours every day and always break my fast with Athletic Greens. I honestly can't say enough good things about these guys. It's really one of my favorite products in this world. It helps me not worry whether I'm getting all the nutrients I need, especially since they keep iterating on their formula, constantly improving it. I love that kind of obsessive pursuit of perfection. Also, I'm a huge fan of fish oil.

• 7:21Lex Fridman?

  I've taken it every day for many years now. And Athletic Greens finally is now offering fish oil. And they're going to give listeners of this podcast free one month's supply of Wild Caught Omega 3 Fish Oil when you go to athleticgreens.com/lex to claim the special offer. That's athleticgreens.com for the drink and the fish oil. Trust me, it's worth it. You will love it. And now here's my conversation with Richard Crabe.

• 8:12Lex Fridman?

  From your perspective, can you summarize the important events around this amazing saga that we've been living through of Wall Street Bets, the subreddit and GameStop? And in general, just what are your thoughts about it from a technical to the philosophical level?

• 8:26Speaker 01

  I think it's amazing. It's like my favorite story ever. Like when I was reading about it, I was like, this is the best. And it's it's also, you know, connected with my company, which we can talk about. But what I liked about it is like, I like decentralized coordination and looking at the mechanisms that these are Wall Street Bets users use to hype each other up, to get excited, to prove that that they bought the stock and they're holding.

• 8:56Speaker 01

  And and then also to see that how big of an impact that that decentralized coordination had.

• 9:03Speaker 01

  It really was a big deal.

• 9:05Lex Fridman?

  Were you impressed by the distributed coordination, the collaboration amongst like, I don't know what the numbers are. I know numerized looking at the data. After all of this is over and done, it'd be interesting to see like from a large scale distributed system perspective to see how everything played out. But just from your current perspective, what we know, is it obvious to you that such incredible level of coordination could happen where a lot of people come together in a distributed sense, there's an emergent behavior that happens after that?

• 9:38Speaker 01

  No, it's not at all obvious. And one of the reasons is the lack of kind of like credibility. To coordinate with someone, you need to kind of make credible contracts or credible claims. So if you have a username on our Wall Street Bets, like some of them are, like deep fucking value is one of them.

• 9:59Lex Fridman?

  That's an actual username. By the way, we're talking about, there's a website called Reddit and there's subreddits on it and a lot of people, mostly anonymous, I think for the most part anonymous, can create user accounts and then can then just talk on forum like style boards. You should know what Reddit is. If you don't know what Reddit is, check it out. If you don't know what Reddit is, maybe go to. The ah subreddit first, A W W with cute pictures of cats and dogs. That's my recommendation. Anyway.

• 10:28Speaker 01

  Yeah, that would be a good start to Reddit. When you, when you get into it more, go to our Wall Street bets.

• 10:32Lex Fridman?

  It gets dark quickly. We'll probably talk about that too. So, so yeah, so there's these users and it's, there's no contracts, like you were saying.

• 10:42Speaker 01

  There's no contracts, the, the, the users are anonymous, but there are little things that, that do help. So for example, if you've posted a really good investment idea in the past, that exists on Reddit as well. And it might have lots of upvotes and that's also kind of like giving credibility to your next, to your next thing. And then they are also putting up screenshots, like this, this is the, these, I, I, I, here's the trades I've made and here's a screenshot. Now you could fake the screenshot, but, um, but, but still it seems like if you've got a lot of karma and you've had a good performance on the, on the community, it somehow becomes credible enough for other people to be like, you know what? He actually probably did put a million dollars into this.

• 11:27Speaker 01

  And you know what? I can, I can follow that trade easily.

• 11:30Lex Fridman?

  And there's a bunch of people like that. So you're kind of integrating all that information together yourself to see like, huh, there's something happening here. And then you jump it onto this little boat of like behavior, like we should buy the stock or sell the stock. And then another person jumps on, another person jumps on. And all of a sudden you have just a huge number of people behaving in the same direction. It's like flock of whatever birds.

• 11:54Speaker 01

  Exactly. What was strange with this one, it wasn't just, let's all buy Tesla. We love Elon, we love Tesla, let's, let's all buy Tesla because that we've heard before, right? Everybody likes Tesla. Well, now, now they do.

• 12:10Speaker 01

  So what they did with this, in this case, they're buying a stock that was bad. They're buying it because it was bad. And that's really weird because that's a little bit too galaxy brain for, for a decentralized community. How did they come up with it? How did they know that was the right one? And the reason they liked it is because it had really, really high short interest. It had been shorted more than its own float, I believe. And so they figured out that if they all bought this bad stock. They could short squeeze some hedge funds and those hedge funds would have to capitulate and buy the stock at really, really high prices.

• 12:52Lex Fridman?

  And we should say that shorted means that these are a bunch of people, when you short a stock, you're betting on the, on the, you're predicting that the stock is going to go down and then you will make money if it does. And then, uh, what's a short squeeze?

• 13:06Speaker 01

  It's really that if you, if you are a hedge fund and you take a big short position in a, in a company, um, there's a certain level at which you can't sustain holding that position. Uh, there's no limit to how high a stock can go, but there is a limit to how low it can go. Right? So if you short something, you have infinite loss potential. And if the stock doubles overnight, like GameStop did, um, you're putting a lot of stress on that hedge fund and that hedge fund manager might have to say, you know what? I have to get out of the trade and the only way to get out is to buy the bad stock that they don't want, like they believe will go down. Uh, so it's an interesting situation, particularly because

• 13:51Speaker 01

  it's not zero sum. If you say, let's make, let's all get together and make a bubble in watermelons. You buy a bunch of watermelons, the price goes up, it comes down again. It's a, it's a, it's a zero sum game. If someone's already shorted a stock and you can make them short squeeze, it's actually a positive sum game. So yes, some redditors will make a lot of money, some will lose a lot, but actually the whole group will make money. And that's really, uh, that's really why it's, it was such a clever thing for them to, to do.

• 14:22Lex Fridman?

  And coupled with the fact that shorting, I mean, maybe you can push back, but to me always from an outsider's perspective seemed, I hope I'm not using too strong of a word, but it seemed almost unethical. Maybe not unethical. Maybe it's just a asshole thing to do. It's, okay, I'm speaking not from an economics or financial perspective. I'm speaking from just somebody who loves, I'm a fan of a lot of people. I love celebrating the success of a lot of people. And this is like the stock market equivalent of like haters.

• 14:57Lex Fridman?

  I know that's not what it is. I know that there's efficient, you want to have in the economy efficient mechanism for punishing sort of overhyped, overvalued things. That's what shorting is designed for. But it just always felt like these people are just, because they're not just betting on the loss of the company. It feels like they're also using their leverage and power to manipulate media, or just to write articles, or just to hate on you on social media. And you get to see that with Elon Musk and so on. So, so this is like, the man, the people like hedge funds that were shorting are like the, the sort

• 15:39Lex Fridman?

  of embodiment of the evil, or just the bad guy, the over powerful that's misusing their power. And here's the crowd, the people that are standing up and rising up. So it's not just that they were able to collaborate on Wall Street bets to sort of effectively make money for themselves. It's also that this is like, a symbol of the people getting together and fighting the centralized elites, the powerful. And that, you know, I don't know what your thoughts are about that in general. At this stage, it feels like that's really exciting that people have power, just like regular people have power. At the same

• 16:22Lex Fridman?

  time, it's scary a little bit, because, you know, just studying history, people can be manipulated by charismatic leaders. And so like, just like Elon right now is like manipulating, encouraging people to buy Dogecoin or whatever, the, like, there can be good charismatic leaders, and there can be bad charismatic leaders. And so it's nerve wracking. It's a little bit scary how much power subreddit can have. To destroy somebody because right now we're celebrating they might be attacking or destroying somebody that everybody doesn't like. But what if they attack somebody that is actually good for this world?

• 17:05Lex Fridman?

  So that and that's kind of the the awesomeness and the price of freedom. It's like it could destroy the world or it can save the world. But at this stage, it feels like, I don't know. Overall, when you sit back, do you think this was just a positive wave of emergent behavior? Is there something negative about what happened?

• 17:27Speaker 01

  Well, yeah, the the cool thing is the they weren't doing anything. The the Reddit people weren't doing anything exotic. It was in it was a creative trade, but it wasn't exotic. It wasn't it was just buying the stock. Okay, maybe they bought some options too. But it was the hedge fund that was doing the exotic thing. So I like that. It was it's hard to say, well, you know, we've got together and we've put all pooled all our money together and now there's a company out there that's worth more. What's wrong with that?

• 18:01Lex Fridman?

  Yeah.

• 18:01Speaker 01

  Right? But it doesn't talk about, you know, the motivations, which is and then we destroyed some hedge funds in the process.

• 18:08Lex Fridman?

  Is there something to be said about the the humor and the? I don't know, the edginess, sometimes viciousness of that subreddit? I haven't looked at it too much, but it feels like people can be quite aggressive on there. So is there? What is that? Is that what is that what freedom looks like?

• 18:31Speaker 01

  I think it does. Yeah, you definitely need to let people the one of the things that people have compared it to is Occupy Wall Street.

• 18:40Lex Fridman?

  Right.

• 18:40Speaker 01

  Which is, let's say, you know, some very sincere liberals, like twenty three years old, whatever, and they go out with signs and they they have some kind of case to make. But this isn't sincere, really. It's like a little bit more nihilistic, a little bit more YOLO. And therefore a little bit more scary because who's scared of the who's scared of the Wall Street Occupy Wall Street people with the signs?

• 19:07Lex Fridman?

  Right.

• 19:07Speaker 01

  Nobody. But these hedge funds really are scared. I was scared of the of the Wall Street Bats people. I'm still scared of them.

• 19:15Lex Fridman?

  Yeah, the anonymity is a bit terrifying and exciting.

• 19:20Speaker 01

  Yeah.

• 19:21Lex Fridman?

  I mean, yeah, I don't know what to do with it. You know, I've been following events in Russia, for example. It's like there's a struggle between centralized power and the distributed. I mean, that's the struggle of the history of human civilization, right? But this on the internet, just that you can multiply people, like some of them don't have to be real, like you can probably create bots, like it starts getting me, me as a programmer, I start to think like, hmm, me as one person, how much chaos can can I create by writing some bots?

• 19:56Speaker 01

  Yeah.

• 19:57Lex Fridman?

  And I'm sure I'm not the only one thinking that. There's, I'm sure there's hundreds, thousands of good developers out there listening to this, thinking the same thing. And then as that develops further and further in the next like decade or two, what impact does that have on financial markets, on just destruction of reputations of just, or politics? You know, the the bickering of left and right political discourse, the dynamics of that being manipulated by, you know, the people talk about like Russian bots or whatever. We're probably in the very early stage of that, right?

• 20:36Speaker 01

  Exactly.

• 20:37Lex Fridman?

  And this is a good example. So do you have, do you have a sense that most of Wall Street Bets folks are actually individual people, right? That that's the feeling I have, is there's just individual, maybe young investors, just doing a little bit of an investment, but just on a large scale?

• 20:54Speaker 01

  Yeah, exactly. The reason I found out, I've known about Wall Street Bets for a while, but the reason I found out about GameStop was this, just I met somebody at a party who told me about it. And he was like 21 years old. And he's like, it's going to go up 100% in the next one day.

• 21:07Lex Fridman?

  Are we talking about in last year?

• 21:10Speaker 01

  This was probably, no, this was, yeah, a few days ago. Yeah, it was like, maybe, maybe two weeks ago or something. So it was, it was already high GameStop. But it was just strange to me that there was someone telling me at a party. How to trade stocks, who was like 21 years old. And and I started, yeah, started to look into it. And yeah, he and he did make, he made, yeah, he made 140% in one day. He was right. And now he's, you know, supercharged. He's a little bit wealthier and now he's gonna look, wait for the next thing. And this decentralized entity is just gonna get bigger and bigger.

• 21:48Lex Fridman?

  And they're gonna together search for the next thing. So there's thousands of folks like him and they're going to probably search for the next thing to attack. People that have power in this world that sit there with power right now in government and in finance, in any kind of position are probably a little bit scared right now. And honestly, that's probably a little bit good. It's dangerous, but it's good.

• 22:12Speaker 01

  Yeah, it certainly makes you think twice about shorting. It certainly makes you think twice about putting a lot of money into a short. Like, these funds put a lot into one, one or two names. And so it was very, very badly risk managed.

• 22:25Lex Fridman?

  Do you think shorting is, can you speak at a high level, just for your own as a person? Is it good for the world? Is it good for markets?

• 22:36Speaker 01

  I do think that the two kinds of shorting, evil shorting

• 22:42Speaker 01

  and chill shorting. Evil shorting is what Melbourne Capital was doing. And it's like you put a huge position down, you get all your buddies to also short it, and you start making press and and trying to bring this company down.

• 22:59Lex Fridman?

  Yeah.

• 23:00Speaker 01

  And I don't think, in some cases, you go out after like fraudulent companies, say, this company is a fraud. Maybe that's okay, like some, but but this, they weren't even saying games up, they're just saying, it's a bad company and we're gonna bring it to the ground, bring it to its knees.

• 23:17Speaker 01

  A quant fund like Numerai, we always have lots of positions and we never have a position that's like more than 1% of our fund. So we actually have right now 250 shorts. I don't know any of them, except for one, because it was one of the meme stocks.

• 23:39Speaker 01

  But

• 23:40Lex Fridman?

  Yeah.

• 23:42Speaker 01

  But it, we shorting them not to make them go, we don't even want them to go down necessarily.

• 23:48Lex Fridman?

  Yeah.

• 23:48Speaker 01

  That doesn't, that sounds a bit strange that I say that, but we just want them to. To not go up as much as our longs.

• 23:55Lex Fridman?

  Right.

• 23:56Speaker 01

  So by shorting a little bit, we can actually go long more in the things we do believe in. So when we were going long in Tesla, we could do it with more money than we had because we would borrow from banks who would lend us money because we had longs and shorts, because we didn't have market exposure, didn't have market risk. And so I think that's a good thing because that means, you know, we can short the oil companies and go long Tesla and make the future come forward faster. And I do think that's not a bad thing.

• 24:31Lex Fridman?

  So we talked about this incredible distributed system created by Wall Street Bets. And then there's a platform, which is Robinhood, which allows investors to efficiently, as far you can correct me if I'm wrong, but you know, there's those and there's others and this numerai that allow you to make it accessible for people to invest. But that said, Robinhood was, in a centralized way, applied its power to restrict trading on the stock that we're referring to. Do you have a thought on actually like the things that happened? I don't know how much you were paying attention to sort of the shadiness around the whole thing.

• 25:14Lex Fridman?

  Do you think it was forced to do it? Or was there something shady going on? What are your thoughts in general?

• 25:20Speaker 01

  Well, I think I want to see the alternate history. Like, I want to see the counterfactual history of them not doing that.

• 25:28Lex Fridman?

  Not doing it.

• 25:28Speaker 01

  How bad would it have gotten for hedge funds? How much more damage could have been done if the momentum of these short squeezes could continue? What happens when there are short squeezes, even if they're in a few stocks, they affect kind of all the other shorts too. And suddenly brokers are saying things like, you need to put up more collateral. So we had a short.

• 25:55Speaker 01

  It wasn't GameStop, luckily, it was BlackBerry. And it went up like a hundred percent in a day. It was one of these meme stocks, super bad company. The AIs don't like it, okay? They always think it's going down.

• 26:06Lex Fridman?

  What's a meme stock?

• 26:07Speaker 01

  A meme stock is kind of a new term for these stocks that catch memetic momentum on Reddit.

• 26:16Lex Fridman?

  Yeah.

• 26:17Speaker 01

  And so the meme stocks were GameStop, the biggest one, Gamestonk, as Elon calls it, AMC.

• 26:27Speaker 01

  And BlackBerry was one, Nokia was one. So these are high short interest stocks as well. So these are targeted stocks. Some people say, oh, isn't it adorable that these these people are investing money in these companies that are, you know, nostalgic? It's like you're going to the AMC movie theater. It's like nostalgic. It's like, no, it's not why they're doing it. It's that they had a lot of short interest. That was the main thing. And so they were high chance of short squeeze.

• 26:56Lex Fridman?

  In saying, I would love to see an alternate history. Do you have a sense that that?

• 27:02Lex Fridman?

  What is your prediction of what that history would have looked like?

• 27:04Speaker 01

  Well, you wouldn't have needed very many more days of that kind of chaos to hurt hedge funds. I think it's underrated how damaging it could have been. Because when your shorts go up, your collateral requirements for them go up. Similar to Robinhood, like we have a prime broker that says, said to us, you need to put up, you know, like forty dollars per hundred dollars of short exposure. And then the next day, they said, actually, you have to put up, you know, all of it, a hundred percent. And we were like, what?

• 27:43Speaker 01

  But if that happens, that if that happens to all the short, all the commonly held hedge fund shorts, because they're all kind of holding the same things. If that happens, not only do you have to cover the short. Which means you're buying the bad companies. You need to sell your good companies in order to cover the short.

• 28:06Lex Fridman?

  Right.

• 28:06Speaker 01

  So suddenly, like, all the good companies, all the ones that hedge funds like are coming down. And all the, all the ones that the hedge funds hate are going up. In a cascading way. So I believe that if you could have had a few more days of game stock doubling, AMC doubling, you would have had more and more hedge fund deleveraging.

• 28:29Lex Fridman?

  But so hedge funds, I mean, they get a lot of shit, but they, do you have a sense that they do some good for the world? I mean, ultimately, so, okay, first of all, Wall Street Bets itself is a kind of distributed hedge fund. Numerai is a kind of hedge fund. So I got, hedge fund is a very broad category. I mean, like, if some of those were destroyed, would that be good for the world? Or is it, would there be coupled with the, the destroying the evil shorting? Would there be just a lot of pain in terms of investment in good companies?

• 29:02Speaker 01

  Yeah. A thing I like to tell people, if they hate hedge funds, is I don't think you want to rerun American economic history without hedge funds.

• 29:13Lex Fridman?

  So, so on mass, they're, they're, they're, yeah, they're good.

• 29:17Speaker 01

  Yeah, you really wouldn't want to. Because hedge funds are kind of like picking up, they're making liquidity, right, in stocks? And so if you, if you love venture capitalists, they're investing in new technology, it's so good. You have to also kind of like hedge funds. Because they're the reason venture capitalists exist. Because their companies can have a liquidity event when they go to the public markets. So it's kind of essential that we have them. There are many different kinds of them. I believe we could maybe get away with only having an AI. Hedge fund. Um, but we don't necessarily need these evil billions type hedge funds that make the

• 30:00Speaker 01

  media and try to kill companies, but we definitely need hedge funds.

• 30:04Lex Fridman?

  Maybe from your perspective, because you run such an organization and Vlad, the CEO of Robinhood, sort of had to make decisions really quickly, probably had to wake up in the middle of the night kind of thing, uh, you know, and he also had a conversation with Elon Musk on Clubhouse, which I just signed up for. It was, it was a fascinating, one of the great journalistic performances of our time with Elon Musk.

• 30:33Speaker 01

  Pulitzer Prize for Elon.

• 30:35Lex Fridman?

  How hilarious would it be if he gets a Pulitzer Prize? Uh, and then his Wikipedia would be like journalist and a part-time entrepreneur.

• 30:44Speaker 01

  Business magnate.

• 30:45Lex Fridman?

  Business magnate. Uh, you know, I don't know if you can comment on any aspects of that, but like, if you were Vlad, how would you do things differently? What are your just thoughts about his interaction with Elon? How he should have played it differently? Like, I guess there's a lot of aspects to this interaction. One is about transparency. Like, how, how much do you want to tell people about really what went down? There's NDAs potentially involved. Uh, how much on, in private, do you want to push back and say, no, fuck you to centralize power? Whatever the phone calls you're getting, which I'm sure he was getting some kind of phone calls that might not be contractual, like it's

• 31:27Lex Fridman?

  not contracts that are forcing him, but he was being, uh, what do you call it? Like pressured to behave in certain kinds of ways from all kinds of directions. Like what, uh, what do you take from, uh, this whole situation?

• 31:40Speaker 01

  I was very excited to see Vlad's response. I mean, it's pretty cool to have him talk to Elon. And one of the things that like struck me in the first like few seconds of Vlad speaking was like, I was like,

• 31:53Speaker 01

  Is Vlad like a boomer? Like, but here we are, like, he seemed like a 55 year old man talking to a 20 year old.

• 32:02Lex Fridman?

  Yeah.

• 32:02Speaker 01

  Elon was like the 20 year old.

• 32:03Lex Fridman?

  Yeah.

• 32:04Speaker 01

  And he's like the 55 year old man. You can see why Citadel are NMR buddies, right? Like, you can. You can see why it's like, this is a, this is a nice, it's not a bad thing. It's like, he's, it's like, he's got a respectable, professional attitude.

• 32:19Lex Fridman?

  Well, he, he also tried to do like a jokey thing, like, no, we're not being ageist here, boomer, uh, but like, like, uh, like a 60 year old CEO of Bank of America would try to make a joke for the kids. That's what Vlad's.

• 32:33Speaker 01

  Yeah.

• 32:34Lex Fridman?

  Yeah.

• 32:34Speaker 01

  I was like, what is this? This guy's like, what is he, 30?

• 32:37Lex Fridman?

  Yeah.

• 32:39Speaker 01

  And I'm like, this is weird.

• 32:40Lex Fridman?

  Yeah.

• 32:42Speaker 01

  But I think, and maybe that's also what I like about Elon's kind of influence on American business. It's like, he's super like anti the professional. Like, why, why say, why say, you know, a hundred words about nothing? Uh, and so I liked how he was cutting in and saying, Vlad, what do you mean? Spill the beans, bro.

• 33:01Lex Fridman?

  Yeah. So you, you don't have to be courteous. It's like the first principles thinking. It's like, what the hell happened?

• 33:07Speaker 01

  Yes.

• 33:07Lex Fridman?

  And let's just talk like normal people. The problem, of course, is, uh, you know, for Elon, uh, it's cost them, what is it? Tens of millions of dollars is tweeting like that. But perhaps it's a worthy price to pay because ultimately there's something magical about just being real and honest and just going off the cuff and making the mistakes and paying for them, but just being real. And then moments like this, that was an opportunity for Vlad to be that. And it felt like he wasn't. Do you think there, do you think we'll ever find out what really went down? If there was something shady underneath it all?

• 33:49Speaker 01

  Yeah, I mean, it, it would be sad if nothing shady happened.

• 33:53Lex Fridman?

  Right.

• 33:53Speaker 01

  But his presence made it shady.

• 33:56Lex Fridman?

  Sometimes I feel like that would mark Zuckerberg, the CEO of Facebook. Sometimes I feel like, yeah, there's a lot of shitty things that Facebook is doing. But sometimes I think he makes it look worse by the way he presents himself about those things. Like, I honestly think that a large amount of people at Facebook just have a huge, unstable, chaotic system, and they're all, not all, but en masse are trying to do good with this chaotic system. But the presentation is like, it sounds like there's a lot of backroom conversations that are trying to manipulate people. And there's, there's something about the realness that Elon has that it feels like CEOs should have. And Vlad had that opportunity.

• 34:41Speaker 01

  I think Mark Zuckerberg had that too, when he was younger.

• 34:43Lex Fridman?

  Younger?

• 34:44Speaker 01

  And somebody said, you gotta be more professional, man. You can't say, you know, lol to an interview. And then suddenly he became like this distant person that was hot. I'd like, you'd rather have him make mistakes, but be honest than be like professional and never make mistakes.

• 35:01Lex Fridman?

  Yeah. One of the difficult hires, I think, is like, marketing people or like PR people. Is you have to hire people that get the fact that you can say lol on an interview. Or, like, you know, take risks as opposed to what the PR, I've talked to quite a few big CEOs and

• 35:25Lex Fridman?

  the people around them are trying to constantly minimize the risk of like, what if he says the wrong thing? What if she says the wrong thing? It's like, what? Be careful. It's constantly like, ooh, like, I don't know. And there's this nervous energy that builds up over time with larger, larger teams where the whole thing, like, I've visited YouTube, for example. Everybody I've talked to at YouTube, incredible engineering and incredible system, but everybody's scared.

• 35:52Lex Fridman?

  Like, let's be, uh, let's be honest about this like madness that we have going on of huge amounts of video that we can't possibly ever handle. There's a bunch of hate on YouTube. There's this chaos of comments, a bunch of conspiracy theories, some of which might be true. And then, and just like this mess that we're dealing with, and it's exciting, it's beautiful. It's a place where like democratizes education, all that kind of stuff. And instead, they're all like, sitting in like, trying to be very polite and saying like, well, we're just want to improve the health of our platform. Like, it's like this guy, disgusting, like, all right, man, let's just be real. Let's, let's, let's both advertise how amazing this frigging thing is. But also to say like, we don't know what we're doing.

• 36:37Lex Fridman?

  We have all these Nazis posting videos on YouTube. We don't, we don't know how to like, handle it. And just being real like that, because I suppose that's just a skill. Maybe it can't be taught, but over time, the, whatever the dynamics of the company is, it does seem like Zuckerberg and others get worn down. They just get tired.

• 36:54Speaker 01

  Yeah.

• 36:55Lex Fridman?

  They get tired of

• 36:56Speaker 01

  Not being real.

• 36:57Lex Fridman?

  Of not being real, which is sad. So let's talk about Numerai, which is an incredible company, uh, system, idea, I think. But good place to start. What is Numerai and how does it work?

• 37:14Speaker 01

  So Numerai is the first hedge fund that gives away all of its data. So this is like, probably the last thing a hedge fund would do, right? Why would we give away a data? It's like giving away your edge. But the reason we do it is because we're looking for people to model our data. And the way we do it is by obfuscating the data. So when you get, when you look at numerized data that you can download for free, it just looks like, like a million rows and of numbers between zero and one. And you have no idea what the columns mean. But you do know that if you're good at machine learning or have done regressions before,

• 37:55Speaker 01

  you know that I can still find patents on, in this data, even though I don't know, I don't know what the features mean.

• 38:01Lex Fridman?

  And, and the data itself is time series data and Even though it's obfuscated, anonymized, what is the source data? Like approximately, what are we talking about?

• 38:11Speaker 01

  So we are buying data from lots of different data vendors. And they would also never want us to share that data. So we have strict contracts with them. So we only, we only can, but it, but it's the kind of data you could never buy yourself unless you had maybe a million dollars a year of budget to buy data. So what's happened with the hedge fund industry is you have a lot of talented people who used to be able to trade and still can trade. But now they have such a data disadvantage, it would never make sense for them to, to, to, to trade themselves. But Numerai, by giving away this obfuscated data, we can give them a really, really high quality data set.

• 38:56Speaker 01

  That's, that would otherwise be very expensive. And they can use whatever new machine learning technique they want to find patents in that data that we can use in our hedge fund.

• 39:07Lex Fridman?

  And so how much variety is there in underlying data? We're talking about, I apologize if I'm using the wrong terms, but there's, one is just like the stock price. The other, there's like options and all that kind of stuff, like the, what are they called? Order books or whatever. Like, is, is there maybe other totally unrelated to directly to the stock market data? Like, like natural language as well, all that kind of stuff?

• 39:35Speaker 01

  Yeah, we were really focused on stock data that's specific to stocks. So things like you can have like a P, every stock has like a P E ratio. For some stocks, it's not as meaningful, but every stock has that. Every stock has one year momentum, how much they went up in the last year. But those are very common factors. But we try to get lots and lots of those factors that we have for many, many years, like 15, 20 years history. And, and then. The setup of the problem is commonly in quant called like cross-sectional global equity. You're not really trying to say, I want, I believe this stock will go up.

• 40:15Speaker 01

  You're trying to say the like relative position of this stock in feature space makes it not a bad buy in a, in a portfolio.

• 40:25Lex Fridman?

  So it captures some period of time and you're trying to find the patterns, the dynamics captured by the data of that period of time in order to make short-term predictions about what's going to happen.

• 40:37Speaker 01

  Yeah. So our prediction is also not that short. We're not really caring about things like order books and tech data, not high frequency at all. We're actually holding things for quite a bit longer. So our prediction time horizon is about one month. We end up holding stocks for maybe like three or four months. So I kind of believe that's a little bit more like investing than, than kind of plumbing. Like to go long a stock that's mispriced on one exchange and short on another exchange, that's just arbitrage. But what we're trying to do is really know, know, know something more about the longer term future of the stock.

• 41:15Lex Fridman?

  Yeah. So from the patterns, from these like periods of time series data, you're trying to understand something fundamental about the stock, not like about deep value, about like as big in the context of the market is it underpriced, overpriced, all that kind of stuff. So like this is about investing. It's not about like, just like you said, high frequency trading, which I think is a fascinating, open question for a machine learning perspective, but just to like sort of build on that. So you've anonymized the data and now you're giving away the data. And then now anyone can try to build algorithms that make investing decisions on top of that data or predictions in the top of that data.

• 42:00Speaker 01

  Exactly.

• 42:01Lex Fridman?

  And so that, that's. What is it? So what does that look like? What's the goal of that? What are the underlying principles of that?

• 42:08Speaker 01

  So the first thing is, you know, we could obviously model that data in-house, right? We can make an XGBoost model on the data. And that would be quite good, too. But what we're trying to do is by by opening it up and letting anybody participate,

• 42:27Speaker 01

  we can do quite a lot better than if we modeled it ourselves. And a lot better on the stock market. Doesn't need to be very much. Like, it really matters the difference between if you can make 10 and 12% in an equity market neutral hedge fund. Because the whole, usually you're charging 2% fees. So if you can do 2% better, that's like all your fees, it's worth it. So we're trying to make sure that we always have the best possible model. As new machine learning libraries come out, new techniques come out, they get automatically synthesized. Like, if there's a great paper on supervised learning, someone on Numerai will figure out how to use it on Numerai's data.

• 43:07Lex Fridman?

  And is there an ensemble of models going on? Or is it always, or is it more towards kind of like one or two or three, like best performing models?

• 43:19Speaker 01

  So the way we decide on how to weight all of the predictions together is by how much the users are staking on them. How much of the cryptocurrency that they're putting behind their models? So they're saying, I believe in my model. You can trust me because I'm going to put skin in the game. And so we can take the stake-weighted predictions from all our users, add those together, average those together, and that's a much better model than any one model in the in the sum. Because ensembling a lot of models together is kind of the key thing you need to do in investing to.

• 43:56Lex Fridman?

  Yeah, so you're putting, there's a kind of duality from the user, from the perspective of a machine learning engineer. Where you're, it's both a competition, just a really interesting, difficult machine learning problem. And it's a way to invest algorithmically. So like, and but the, the way to invest algorithmically also is a way to put skin in the game that communicates to you that you're, the, the quality of the algorithm and also forces you to really be serious about the models that you build. So it's like, everything just works nicely together. Like, I guess one way to say that is the interests are aligned.

• 44:42Lex Fridman?

  Okay, so it's just like poker is not, not fun when it's like for very low stakes. The higher the stakes, the more the dynamics of the system starts playing out correctly. Like, as a small side note, is there something you can say about which kind, looking at the big, broad view of machine learning today or AI, what kind of algorithms seem to do good in these kinds of competitions at this time? Is there some universal thing you can say, like neural networks suck? Recurrent neural networks suck, transformers suck, or they're awesome? Like, old school, sort of more basic kind of classifiers are better? All the, is there, is there some kind of conclusion so far that you can say?

• 45:28Speaker 01

  There is, there definitely is something pretty nice about tree models, like, like XGBoost. And they just seem to work pretty nicely on this type of data. So out of the box, if you're trying to come a hundredth in the competition, in the tournament, maybe you would try, use that.

• 45:48Speaker 01

  But what's, what's particularly interesting about the, the problem that not many people understand? If you're familiar with machine learning, this typically will surprise you when you model our data. So one of the things that you, you look at in finance is you don't want to be too exposed to any one risk. Like, even if the best sector in the world to invest in over the last 10 years was tech.

• 46:21Speaker 01

  You would not, does not mean you should put all of your money into tech.

• 46:24Lex Fridman?

  Right.

• 46:24Speaker 01

  So the, if you train a model, it would say, put all your money into tech. It's super good. But what you want to do is actually be very careful of how much of this exposure you have to certain features. So on Numerai, what a lot of people figure out is actually if you train a model on this kind of data, you want to somehow neutralize or minimize your exposure to these, to certain features, which is unusual because if, if you did train a stoplight or stop street detection on computer vision,

• 47:01Speaker 01

  the, your, your favorite feature, let's say you could, and you have an auto encoder and it's figuring out, okay, it's going to be red and it's going to be white. That's the last thing you want to be, you want to reduce your exposure to. Why would you reduce your exposure to the thing that's helping you, your model the most? And that's actually this counterintuitive thing you have to do with machine learning on financial data.

• 47:22Lex Fridman?

  So reducing, it's, reducing your exposure would help you generalize the things that are, so basically financial data has a large amount of patterns that appeared in the past and also a large amount of patterns that have not appeared in the past. And so like in that sense, you have to reduce the exposure to red lights, to, to the color red. That's interesting, but how much of this is art and how much of it is science from your perspective so far?

• 47:53Lex Fridman?

  In terms of as you start to climb from the 100th position to the 95th in, in the competition?

• 47:59Speaker 01

  Yeah, well, if you do, you make yourself super exposed to one or two features, you can have a lot of volatility when you're playing Numerai. You could maybe very rapidly rise to be high if you were getting lucky.

• 48:17Lex Fridman?

  Yes.

• 48:18Speaker 01

  And that's a bit like the stock market. Sure, take on massive risk exposure, put all your money into one stock, and you might make a hundred percent. But it doesn't, in the long run, work out very well. And so the best users are trying to stay high for as long as possible, and not necessarily try to be first for a little bit.

• 48:44Lex Fridman?

  So for me, a developer, machine learning researcher, how do I, Lex Fridman, participate in this competition? And how do others, which I'm sure there'll be a lot of others, interested in participating in this competition? What are, let's see, there's like a million questions, but like, first one is, how do I get started?

• 49:03Speaker 01

  Well, you can go to numer.ai, sign up, download the data. And on, the data is pretty small. In the data pack you download, there's like an example script, Python script, that just builds a XGBoost model very quickly from the data. And so in a very short time, you can have an example model.

• 49:30Lex Fridman?

  Is it a particular structure? Like, what, is this model then submitted somewhere? So there's, needs to be some kind of structure that communicates with some kind of API? Like, how does the whole?

• 49:39Speaker 01

  Yeah.

• 49:40Lex Fridman?

  How does your model, once you've built it, wants to create a little baby Frankenstein? How does it then live in its?

• 49:46Speaker 01

  Yeah, well, we want you to keep your baby Frankenstein at home and take care of it. We don't want it.

• 49:51Lex Fridman?

  Okay.

• 49:51Speaker 01

  So you never upload your model to us. You always only giving us predictions. So we never see the code that wrote your model, which is pretty cool.

• 50:01Lex Fridman?

  Yeah.

• 50:02Speaker 01

  That our whole hedge fund is built from models where we've never, ever seen the code. But it's important for the users because it's their IP. They want to give it to us.

• 50:11Lex Fridman?

  That's brilliant.

• 50:12Speaker 01

  So they've got it themselves, but they can basically, almost like license the predictions from that model to us.

• 50:20Lex Fridman?

  License the prediction, yeah.

• 50:22Speaker 01

  So.

• 50:23Lex Fridman?

  Think about it.

• 50:24Speaker 01

  What some users do is they set up a compute server, and we call it Numerai Compute. It's like a little AWS kind of image. And you can automate this process. So we can ping you, we can be like, we need more predictions now, and then you send it to us.

• 50:39Lex Fridman?

  Okay, cool. So that's, is that described somewhere like what the preferred is the AWS? Or whether another cloud platform is there? I mean, is there sort of specific technical things you want to say that comes to mind that is a good path for getting started? So download the data, maybe play around, see if you can modify the basic algorithm provided in the example. And then you what set up a little server on the AWS that then runs this model and takes pings and then makes predictions. And so how does your own

• 51:19Lex Fridman?

  money actually come into play doing the stake of cryptocurrency?

• 51:25Speaker 01

  Yeah, so you don't have to stake. You can start without staking and many users might try for months without staking anything at all to see if their model works on the real life data, right? And is not overfit. But then you can get numerare many different ways. You can buy it on, you can buy some on Coinbase, you can buy some on Uniswap, you can buy some on Binance.

• 51:51Lex Fridman?

  So what did you say? This is, how do you pronounce it? So this is the numerai cryptocurrency?

• 51:58Speaker 01

  Yeah, NMR.

• 52:00Lex Fridman?

  NMR. What's, did you just say NMR?

• 52:03Speaker 01

  It is, it is technically called numerare.

• 52:05Lex Fridman?

  Numerai? I like it.

• 52:07Speaker 01

  Yeah, but NMR is simple.

• 52:09Lex Fridman?

  NMR numerare. Okay, so and you could buy it, you know, basically anywhere?

• 52:15Speaker 01

  Yeah, so it's a bit strange because sometimes people are like, is this like pay to play?

• 52:19Lex Fridman?

  Right.

• 52:20Speaker 01

  And it's like, sure, it's like, yeah, you need to put some money down to show us you believe in your model. But weirdly, we're not selling you the, like, you can't buy the cryptocurrency from us.

• 52:32Lex Fridman?

  Right.

• 52:32Speaker 01

  It's like, it's also, we never, if you're, if you do badly, we destroy your cryptocurrency.

• 52:41Speaker 01

  Okay, that's not good, right? You don't want it to be destroyed. But what's good about it is it's also not coming to us.

• 52:47Lex Fridman?

  Right.

• 52:47Speaker 01

  So it's not like we win when you lose or something like we're the house. Like, we're definitely on the same team.

• 52:54Lex Fridman?

  Yes.

• 52:54Speaker 01

  You're helping us make a hedge fund that's never been done before.

• 52:58Lex Fridman?

  Yeah. So again, interests are aligned. There's no, uh, there's no tension there at all, which is really fascinating. You're giving away everything and then the IP is owned by the code. You never share the code. That's fascinating. Um, so since I have you here and you said hundreds, I didn't ask out of how many, so we'll just. But if I, if I then, once you get started and you find this interesting,

• 53:25Lex Fridman?

  how do you then win or do well? But also, how do you potentially try to win if this is something you want to take on seriously? From the machine learning perspective, not from a financial perspective.

• 53:37Speaker 01

  Yeah, I think, um, the first of all, you want to talk to the community. People are pretty open. Uh, we give out really interesting scripts and ideas for things you might want to try. Um, and, uh, but you're also going to need a lot of compute, probably. And so some of the best users are, are, you know, actually, the very first time someone won on Numerai, I would, I wrote them a personal email. It's like, you know, you've won some money. We're so excited to give you $300. And then they said, I spend way more on the compute.

• 54:10Speaker 01

  But.

• 54:10Lex Fridman?

  So this is fundamentally a machine learning problem first, I think. Is this is one of the exciting things. I don't know if we'll, in how many ways you can approach this, but really this is less about kind of, no offense, but like finance people, finance minded people, they're also, I'm sure, great people. But it feels like from the community that I've experienced, these are people who see finances are fascinating.

• 54:39Lex Fridman?

  Problem space, the source of data, but ultimately they're machine learning people or AI people, which is a very different kind of flavor of community. And I mean, I should say to that, I'd love to participate in this and I will participate in this. And I'd love to hear from other people. If you're listening to this, if you're a machine learning person, you should participate and tell me, give me some hints, how I can do well at this thing. Because this boomer, I'm not sure I still got it, but because some of it is, it's like Kaggle competitions, like some of it is certainly ideas, like research ideas, like fundamental innovation.

• 55:20Lex Fridman?

  But I'm sure some of it is like deeply understanding, getting like an intuition about the data. And then like, a lot of it will be like figuring out like what works, like tricks. I mean, you could argue most of deep learning research is just tricks on top of tricks. But there's, some of it is just the art of getting to know how to work in a really difficult machine learning problem.

• 55:44Speaker 01

  And I think what's important, the important difference with something like a Kaggle competition, where they'll set up this kind of toy problem. And then there will be an out of sample test, like, hey, you did well, out of sample. And this is like, okay, cool. But what's cool with Nimri is you're, you're, the out of sample is the real life stock market. We, we don't even know, like, we don't know the answer to the problem. We don't, like, you'll have to find out live. And so we've had users who've, who've like submitted every week for, for like four years. Because it's kind of, we say it's the hardest data science problem on the planet, right? And it sounds, maybe sounds like maybe a bit too much for

• 56:28Speaker 01

  like a marketing thing, but it's the hardest because it's the stock market. It's like, literally, there are like billions of dollars at stake. And like, no one's like letting it be inefficient on purpose. So if you can find something that works on Nimri, you really have something that, that is like working on the real stock market.

• 56:47Lex Fridman?

  Yeah, because there's like humans involved in the stock market. I mean, that's, you know, you could argue there might be harder data sets like maybe predicting the weather, all those kinds of things. But the fundamental statement here is, which I like, I was thinking like, is this really the hardest data science problem? And you start thinking about that, but ultimately it also boils down to a problem where the data is accessible, it's made accessible, made really easy and efficient at like submitting algorithms. So it's not just, you know, it's not about the data being out there like the weather. It's about making the data super accessible, making the ability of community around it. Like this is what ImageNet did.

• 57:28Speaker 01

  Exactly.

• 57:29Lex Fridman?

  Like, it's not just, there's always images. The point is you aggregate them together, you give it a little title, this is community. And that, that was one of the hardest, right, for a time and most important data science problems in the world because it was accessible, because it was made sort of like there was mechanisms by which like standards and mechanisms by which to judge your performance, all those kinds of things. And numerize, I actually step up from that. Is there something more you can say about why, from your perspective, it's the hardest problem in the world? I mean, you said it's connected to the market.

• 58:10Lex Fridman?

  So if you could find a pattern in the market, that's a really difficult thing to do because a lot of people are trying to do it.

• 58:17Speaker 01

  Exactly. But there's also the, the biggest one is it's, it's non-stationary time series. We've tried to regularize the data so you can find patterns by, by doing certain things to the features and the targets. But ultimately, you're in a space where you don't, there's no guarantees that the out of sample distributions will conform to any of the training data. And, and every single era, which we call on the website, like every single era in the data, which is like sort of showing you the order of the time. It's, it's even the training data is, has the same, same dislocations.

• 59:00Speaker 01

  And so, yeah, it's, and then there's, yeah, there's so many things that might.

• 59:08Speaker 01

  You might want to try this, this like, there's unlimited possible number of models, right? And so by, by having it be open, we can at least search that space.

• 59:24Lex Fridman?

  Zooming back out to the philosophical, you said that Numerai is very much like Wall Street Bets. Is there, I think it'd be interesting to dig in why you think so. I think you're speaking to the distributed nature of the two and the power of the people nature of the two. So maybe can you speak to the similarities and the differences and in which ways Numerai more powerful? In which way is Wall Street Bets more powerful?

• 59:53Speaker 01

  Yeah, this is why the Wall Street Bets story is so interesting to me because it's like, feels like we're connected.

• 59:58Lex Fridman?

  Yeah.

• 59:59Speaker 01

  And looking at how, just looking at the forum of Wall Street Bets, it's, I was talking earlier about how, how can you make credible claims? You're anonymous, okay, well, maybe you can take a screenshot. How, or maybe you can upvote someone, maybe you can have karma on Reddit. And those kinds of things make this emerging thing possible. Numerai, it didn't work at all when we started. It didn't work at all. Why? People made multiple accounts, they made really random models and hoped they would get lucky, and some of them did.

• 1:00:32Lex Fridman?

  Yes.

• 1:00:33Speaker 01

  Staking was our like, solution to, could we, could we make it so that we could trust, we could know which model people believed in the most? And we could weight models that had high stake more and effectively coordinate this group of people to be like, well, actually, there's no incentive to creating bot accounts anymore. Either I stake my accounts, in which case I should believe in them because I could lose my stake, or I don't. And that's a very powerful thing, that having a negative incentive and a positive incentive can make, can make things a lot better. And staking is like this, is this really nice, like, key thing about blockchain.

• 1:01:15Speaker 01

  It's like something special you can do where they're not even trusting us with their stake in some ways. They're trusting the blockchain, right? So the incentives, like you say, it's about making these perfect incentives so that you can have coordination to solve one problem. And nowadays, I, I sleep easy.

• 1:01:36Speaker 01

  Because I have less money in my own hedge fund than our users are staking on their models.

• 1:01:44Lex Fridman?

  That's powerful. In some sense, from a human psychology perspective, it's fascinating that the Wall Street Bets worked at all, right? Amidst that chaos, emerging behavior, like behavior that made sense emerged. It would be fascinating to think if Numerai's style staking could then be transferred to places like Reddit, you know, and not necessarily for financial investments, but like I wish sometimes people would, you know, would have to stake something in the comments they make on the internet.

• 1:02:20Speaker 01

  Yeah.

• 1:02:21Lex Fridman?

  Like, that's, that's the problem with anonymity is like anonymity is freedom and power that you don't have to, you can speak your mind, but it's too easy to just be shitty.

• 1:02:32Speaker 01

  Exactly.

• 1:02:33Lex Fridman?

  So this, I mean, you're making me realize from like a profoundly philosophical aspect, Numerai's staking is a really clean way to solve this problem. It's a really beautiful way. Of course, it only with Numerai currently works for a very particular problem, right? Not for human interaction on the internet, but that's fascinating.

• 1:02:55Speaker 01

  Yeah, there's nothing for to stop people. In fact, we've open sourced like the code we use for staking in a protocol we call Erasure. And any, if Reddit wanted to, they could even use that code to do, have, have enabled staking on our Wall Street Bets. And they're actually researching now. They've had some Ethereum grants on how could they have more crypto stuff in there in Ethereum? Because wouldn't that be interesting? Like, imagine you could, instead of seeing a screenshot, like, guys, I promise I will not sell my GameStop. We're just gonna go huge. We're not gonna sell at all.

• 1:03:37Speaker 01

  And here is a smart contract, which no one in the world, including me, can undo. That says my, I have staked millions against this claim.

• 1:03:52Lex Fridman?

  That's powerful.

• 1:03:53Speaker 01

  And then what could you do?

• 1:03:55Lex Fridman?

  And of course, it doesn't have to be millions. It could be just a very small amount, but then just a huge number of users doing that kind of stake.

• 1:04:01Speaker 01

  Exactly.

• 1:04:03Lex Fridman?

  That you know, that could change the internet.

• 1:04:05Speaker 01

  It would change and the land Wall Street. It would they would not, they would never have been able to, they would still be short squeezing. One day after the next, every single hedge fund collapsing.

• 1:04:16Lex Fridman?

  If we look into the future, do you think it's possible that new MRI? Style infrastructure where AI systems backed by humans are doing the trading is what the entirety of the? The stock market is or the entirety of the economy is run by basically this army of AI systems with? High level human supervision.

• 1:04:41Speaker 01

  Yeah, the thing is that some of them could be could be bad actors.

• 1:04:46Lex Fridman?

  Some of the humans?

• 1:04:47Speaker 01

  No, well, in these systems could be tricky. So actually, I once met a hedge fund manager. This is kind of interesting. He said, very famous one, and he said, um. We can see, sometimes we can see things in the market where we know we can make money, but it will mess shit up.

• 1:05:06Lex Fridman?

  Yeah.

• 1:05:06Speaker 01

  We know we can make money, but it will mess things up and we choose not to do those things. And on the one hand, maybe this is like, oh, you're being super arrogant, like, you know, of course you couldn't. You can't do this, but maybe he can. And maybe he really isn't doing things he knows he could do, but would men change, you know, be pretty bad. Would the Reddit army have that kind of uh morality or concern? Uh, for what they're doing, probably not based on what we've seen.

• 1:05:39Lex Fridman?

  The madness of crowds, there'll be like one person that says, hey, maybe. And then they get trampled over. Uh, that's, that's the terrifying thing, actually, this uh. Like, a lot of people have written about this is somehow that like little voice that's? Human morality gets silenced when we get into groups and start chanting.

• 1:06:00Speaker 01

  Yeah.

• 1:06:01Lex Fridman?

  And that's terrifying, but like, I think maybe I misunderstood. I thought that um you're saying AI systems can be dangerous, but you just described how humans can be dangerous. So which is safer?

• 1:06:14Speaker 01

  So I mean, one thing is uh. Numerai, yeah, so Wall Street Bets, these kinds of like, these kinds of attacks, like, it's not possible to to model numerized data and then come up with the idea from the model, let's short squeeze GameStop.

• 1:06:30Lex Fridman?

  Right.

• 1:06:30Speaker 01

  It's not even framed in that way. It's not like possible to have that idea. So, but it is possible for like, kind of a bunch of humans. So I think this, it's, Numerai could get very powerful without it being dangerous. But Wall Street Bets needs to get a little bit more powerful and it'll be pretty dangerous.

• 1:06:52Lex Fridman?

  Yeah, well, I mean, this is a good place to kind of think about numerai data today, and numerai signals, and what that looks like in 10, 20, 30, 50, 100 years. You know, like, right now, I guess, maybe you can correct me, but the data that we're working with is like a window. It's a, you know, anonymized, obfuscated window into a particular aspect, time period of the market. And, you know, you can expand that more and more and more and more, potentially. You can imagine in different dimensions to where it encapsulates all the things that, where you could include kind of human-to-human communication

• 1:07:36Lex Fridman?

  that was available for, like, to buy GameStop, for example, on on Wall Street Bets. So maybe as a step back, can you speak to what is numerai signals? And what are the different data sets that are involved?

• 1:07:51Speaker 01

  So with numerai signals, you're still providing predictions to us, but you can do it from your own data sets. So numerai, it's all, you have to model our data to come up with predictions. Numerai signals is whatever data you can find out there, you can turn it into a signal and give it to us. So it's a way for us to import signals on data we don't yet have. And, and that's why it's particularly valuable, because it's gonna be signals, you're only rewarded for signals that are orthogonal to our core signal. So

• 1:08:31Speaker 01

  you have to be doing something uncorrelated. And so strange alternative data tends to have that property. There isn't too many other signals that are correlated with.

• 1:08:43Speaker 01

  With, you know, what's happening on Wall Street Bets. That's not going to be like correlated with the price to earnings ratio, right? And we have some users as of recently, as of like a week ago. There was a user that created, I think he's in India. He created a signal that is scraped from Wall Street Bets. And now we have that signal as one of our signals in thousands that we use at Numerai.

• 1:09:12Lex Fridman?

  And the structure of the signal is similar, so it's just numbers and time series data?

• 1:09:17Speaker 01

  It's exactly, and it's just like, it's kind of a, you're providing a ranking of stocks. So you just say, give it a one means you like the stock. Zero means you don't like the stock and you provide that for 5,000 stocks in the world.

• 1:09:30Lex Fridman?

  And they somehow converted the, the natural language that's in the Wall Street.

• 1:09:34Speaker 01

  Exactly. So they've come, exactly. So there's, then they made, they open sourced this collab notebook. You can go see it and look at, and so yeah, it's taking that, making a sentiment score and then turning it into a rank of stocks.

• 1:09:45Lex Fridman?

  Sentiment score?

• 1:09:47Speaker 01

  Yeah.

• 1:09:47Lex Fridman?

  Uh, like this stock sucks, so this stock is awesome. And then converting, that's, that's fascinating. Just even looking at that data would be fascinating. So on the signal side, what's the vision? It's long term, what do you see that becoming?

• 1:10:02Speaker 01

  So we want to manage all the money in the world. That's Numerai's mission. And to get that, we need to have all the data and have all of the talent. Like there's no way, first principles, if you had really good modeling and really good data, that you would lose, right? It's just a question of how much do you need to get, to get really good. So Numerai already has some really nice data that we give out. This year, we are 10 X-ing that. And I actually think we'll 10 X the amount of data we have on Numerai every year for at least the next 10 years.

• 1:10:39Lex Fridman?

  Wow.

• 1:10:39Speaker 01

  So it's going to get very big, the data we give out. And signals is more data.

• 1:10:47Speaker 01

  People with any other random data set can turn that into a signal and give it to us.

• 1:10:53Lex Fridman?

  And in some sense, that kind of data is the edge cases, the weirdness is the, so you're focused on like the bulk.

• 1:10:58Speaker 01

  Yeah.

• 1:10:59Lex Fridman?

  The main data. And then there's just like weirdness from all over the place that just can enter through this backdoor.

• 1:11:06Speaker 01

  Exactly. And it's, it's also a little bit shorter term. So the signals are about a seven day time horizon. And on Numerai, it's like a 30 day. So it's often for faster situations.

• 1:11:22Lex Fridman?

  You've written about a master plan and you've mentioned, which I love, in a similar sort of style of big self-thinking, you would like Numerai to manage all of the world's money.

• 1:11:36Lex Fridman?

  So how do we get there from, from yesterday to several years from now? Like what's, what is the plan?

• 1:11:46Speaker 01

  So.

• 1:11:47Lex Fridman?

  You've already started to allure to it to get all the data and get it.

• 1:11:50Speaker 01

  Yeah.

• 1:11:51Lex Fridman?

  All the talent.

• 1:11:54Speaker 01

  Yeah.

• 1:11:54Lex Fridman?

  Humans, models.

• 1:11:55Speaker 01

  Exactly. I mean, the important thing to note there is what would that mean? Right? And I, I think the biggest thing it means is like, if there was one hedge fund, you would have not so much talent wasted on all the other hedge funds. Like it's super weird how the industry works. It's like one hedge fund gets a data source and hires a PhD. And another hedge fund has to buy the same data source and hire a PhD. And suddenly a third of American PhDs are working at hedge funds. And we're not even on Mars. And like, so in some ways, Numerai, it's all about freeing up people who work at hedge funds to go work for Elon.

• 1:12:36Lex Fridman?

  Yeah. And, and also the people who are working on Numerai problem. It feels like a lot of the knowledge there is also transferable to other domains.

• 1:12:46Speaker 01

  Exactly. It's our top, one of our top users is, he works at NASA Jet Propulsion Lab.

• 1:12:51Lex Fridman?

  Yeah.

• 1:12:52Speaker 01

  And he's, he's like amazing. I went to go visit him there. And it's like, he's got like Numerai posters and he's like, it's, it's like, it looks like, you know, the movies, like it looks like Apollo 11 or whatever. Yeah. The, the point is he didn't quit his job to join full time.

• 1:13:10Speaker 01

  He's working on getting us to Jupiter's moon. That's his mission, the Europa Clipper mission.

• 1:13:15Lex Fridman?

  Actually, literally what you're saying.

• 1:13:17Speaker 01

  Literally. We, he's smart enough that we really want his intelligence to reach the stock market. Cause the stock market's a good thing. Hedge funds are a good thing. All kinds of hedge funds especially. But we don't want him to quit his job. So he can just do Numerai on the weekends. And that's what he does. He just made a model and it just automatically submits to us. And he's like one of our best users.

• 1:13:37Lex Fridman?

  You mentioned briefly that stock markets are good. From my sort of outsider perspective, is there a sense? Do you think trading stocks is closer to gambling? Or is it closer to investing? Sometimes it feels like it's gambling as opposed to betting on companies to succeed. And this is maybe connected to our discussion of shorting in general. But like from your sense, the way you think about it, is it fundamentally still investing?

• 1:14:07Speaker 01

  I do think, I mean, it's a good question. I, it's, I've, I've also seen lately, like people say, this is like speculation. Is there too much speculation in the market? And it's like, but all the trades are speculative. Like all the trades have a horizon, like people want them to work. So I, I, I would say that, and there's certainly a lot of aspects of gambling math that applies to investing.

• 1:14:38Lex Fridman?

  Okay.

• 1:14:38Speaker 01

  Like one thing you don't do in gambling is put all your money in one bet. You have bankroll management and it's a key part of it. And small alterations to your bankroll management might be better than improvements to your skill. So there, and then there are things we care about in our fund. Like we want to make a lot of independent bets. We talk about it like we're, we want to make a lot of independent bets because that's going to be a higher sharp than if you have a lot of bets that depend on each other, like all in one sector.

• 1:15:13Speaker 01

  But but yeah, I mean, the point, the the point is that you want the prices of the stocks to be to be reflective of of how of their value.

• 1:15:24Lex Fridman?

  Of the underlying value.

• 1:15:25Speaker 01

  Yeah, like, yeah, you shouldn't have there be like a hedge fund that's able to say, well, I've looked at some data and all of this stuff's super mispriced. Like, that's super bad for society if it's if it looks like that to someone.

• 1:15:40Lex Fridman?

  I guess the the underlying question then is, do you see that the market often like drifts away from the underlying value of companies and it becomes a game in itself? Like, would these,

• 1:15:54Lex Fridman?

  whatever they're called, like derivatives, like the option, like, you know,

• 1:15:59Lex Fridman?

  options and shorting and all that kind of stuff? It's like layers of game on top of the actual, like, what you said, which is like the basic thing that Wall Street Bets was doing, which is like just buying stocks.

• 1:16:13Speaker 01

  Yeah, there are a lot of games that people play that are in the derivatives market. And I think a lot of the stuff people dislike when they look at the history of of what's happened, they hate like credit default swaps or collateralized debt obligations. Like, these are the these are the kind of like enemies of 2008. And then the long term capital management thing, it was like, it was like that 30 times leverage or something, just that no one, like, you could just go to a gas station and ask anybody at the gas station, is it a good idea to have 30 times leverage? And they just say, no. It's like common sense just like went out the window.

• 1:16:56Speaker 01

  So the, I, yeah, I don't, I don't, I don't respect long term capital management.

• 1:17:04Speaker 01

  Okay, but Nimrri doesn't actually use any derivatives unless you call shorting derivative. We just, we do put money into companies. We, and that does help the companies we're investing in. It's just in little ways. We, we really did buy Tesla and it, and it did, and we were, you know, we were not, we played some role in, in that's its success. Super small, make no mistake. But still, I think that's important.

• 1:17:32Lex Fridman?

  Can I ask you a, a pothead question, which is, what is money, man? So if we just kind of zoom out and look at, because let's talk to you about cryptocurrency, which perhaps could be the future of money. In general, how do you think about money? You said, Nimrri, the, the vision, the goal is to, to run, to manage the world's money. What is money in your view?

• 1:18:03Speaker 01

  I don't have a, a good answer to that, but it's definitely in my personal life, it's become more and more warped. And you start to care about the real thing. Like what's really going on here? Elon has, talks about things like this, like what's, what is a company really? It's like, it's a bunch of people who like kind of show up to work together and like they, they solve a problem and there might not be a stock out there that, that, that's trading that represents that what they're doing, but it's, it's not the real thing. And being involved in crypto, like I, I was early, I put in crowd sale of Ethereum and, and

• 1:18:46Speaker 01

  all these other things and different crypto hedge funds and things that I've invested in. And it's like, it's just, it's just kind of like, it feels like how I used to think about money stuff is just, it's just like totally warped. Because you, yeah, you kind of, you stop caring about like the, the, the price and you care about like the product.

• 1:19:10Lex Fridman?

  So but the product, you mean like the different mechanisms that money is exchanged? I mean, money is ultimately a kind of little, you know, one is a store of wealth, but it's it's also a mechanism of exchanging wealth. But that like what what wealth means becomes a totally different thing, especially with cryptocurrency to where it's almost like these little contracts, these little agreements, these transactions between human beings that represent something that's bigger than just like cash being exchanged at 7-Eleven, when it feels like.

• 1:19:42Speaker 01

  Yeah, maybe I'll answer what is finance? Like you, it's what are you doing when you can, when you have the ability to to take out a loan? You can bring a whole new future into being with finance. If you couldn't get a student loan to get a college degree, you couldn't get a college degree, like if you didn't have the money. But now, like weirdly, you can get it with and like, yeah, all you have is this like loan, which is like, so now you can bring, you can bring a different future into the world. And that's how I, when I was saying earlier about if you rerun American history, economic history without these, these, these things, like you're not allowed to take out loans,

• 1:20:26Speaker 01

  you're not allowed to have, have derivatives, you're not allowed to have money.

• 1:20:31Speaker 01

  It would just, it just doesn't really work. And it's a really magic thing, how, how, how much you can do with finance by kind of bringing the future forward.

• 1:20:39Lex Fridman?

  Finance is empowering. It's a, we sometimes forget this, but yeah, it enables innovation. It enables big risk takers and bold builders that ultimately make this world better. You said you were early in on cryptocurrency. Can you give your high level overview of just your thoughts about the past, present and future of cryptocurrency?

• 1:21:01Speaker 01

  Um. Yeah. So my friends told me about Bitcoin and I I was interested in equities a lot. And I was like, well, it has no net present value. It has no future cash flows. Bitcoin pays no dividends. So I really couldn't get my head around it and like that this could be valuable.

• 1:21:23Speaker 01

  And then I but I did. So I didn't feel like I was early in cryptocurrency. In fact, because I was like, it was like 2014. It felt like a long time after Bitcoin. And then, but then I I really liked some of the things that Ethereum was doing. It seemed like a super visionary thing, like I was reading something that was that was just going to change the world when I was reading the white paper.

• 1:21:47Speaker 01

  And I liked the different constructs you could have inside of Ethereum that you couldn't have on Bitcoin.

• 1:21:54Lex Fridman?

  Like smart contracts and all that.

• 1:21:55Speaker 01

  Exactly. Yeah. And even the they were, yeah, even spoke about different, yeah, different constructions you could have.

• 1:22:02Lex Fridman?

  Yeah, that's a cool dance between Bitcoin and Ethereum of it's in the space of ideas. It feels so young. Like, I wonder what cryptocurrencies will look like in the future. Like if Bitcoin or Ethereum 2.0 or some version will stick around or any of those, like who's going to win out or if there's even a concept of winning out at all. Is there a cryptocurrency that you're especially find interesting? That technically, financially, philosophically, you think is is something you keep in your eye on?

• 1:22:38Speaker 01

  Well, I don't really, I'm not looking to like invest in cryptocurrencies anymore. But I I they are, I mean, the there and many are almost identical. I mean, there's not, there wasn't too much difference between even Ethereum and Bitcoin in some ways, right? But there are some that I like the privacy ones. I mean, I was like, I like Zcash for its like coolness. It's actually.

• 1:23:05Speaker 01

  It's it's like a different kind of invention compared to some of the other things.

• 1:23:09Lex Fridman?

  Okay, can you speak to just briefly to privacy? What is there some mechanisms of preserving some privacy of the so I guess everything is public?

• 1:23:18Speaker 01

  Yeah.

• 1:23:19Lex Fridman?

  Is that the problem?

• 1:23:19Speaker 01

  The yeah, none of the transactions are private.

• 1:23:23Lex Fridman?

  Yeah.

• 1:23:23Speaker 01

  Um, and so, you know, even like I have some of my, I have some numerare. And you can just see it. In fact, you can go to a website and says like, you can go to like EtherScan and it'll say like, Numerai founder, uh, and I'm like, how the hell do you guys know this?

• 1:23:41Lex Fridman?

  So they can reverse, you know, whatever that's called.

• 1:23:44Speaker 01

  Yeah. And so they can see me move it too. They can see me, oh, why is he moving it?

• 1:23:48Lex Fridman?

  Yeah.

• 1:23:48Speaker 01

  Um, so, uh, so, but yeah, Zcash, they also, when you can make private transactions, you can also play different games.

• 1:23:58Lex Fridman?

  Yes.

• 1:23:58Speaker 01

  Um, and it's unclear. It's like, what's quite cool about Zcash is I wonder what games are being played there. No one will know.

• 1:24:06Lex Fridman?

  Uh, so from a, from a deeply analytical perspective, uh, can you describe why Dogecoin is going to win? Which it surely will, like it, it very likely will take over the world. And once we expand out into the universe, we'll take over the universe. Uh, or on a more serious note, like, what are your thoughts on the recent success of Dogecoin? Where you've spoken to sort of the, the meme stocks, the memetics of the whole thing. It feels like the joke can become the reality. Like the, the meme, the joke has power in this world.

• 1:24:46Speaker 01

  Yeah.

• 1:24:46Lex Fridman?

  It's fascinating.

• 1:24:48Speaker 01

  Exactly. It's a, it's, it's like, why is it correlated with Elon tweeting about it?

• 1:24:56Lex Fridman?

  It's not just Elon alone tweeting, right? It's like Elon tweeting and that becomes a catalyst for everybody on the internet, kind of like spreading the joke, right?

• 1:25:07Speaker 01

  Exactly.

• 1:25:07Lex Fridman?

  The joke of it. So it's, it's, it's the, the initial spark of the fire for Wall Street Bets type of situation.

• 1:25:14Speaker 01

  Yeah.

• 1:25:15Lex Fridman?

  And that's fascinating because jokes seem to spread faster than other mechanisms.

• 1:25:21Speaker 01

  Yeah.

• 1:25:22Lex Fridman?

  Funny shit is very effective at captivating the, uh, like the discourse on the internet.

• 1:25:31Speaker 01

  Yeah, and I think you can have, like, I like the one meme, like Doja, I haven't heard that name in a long time.

• 1:25:41Speaker 01

  Like, I think back to that meme often. That's like funny. And every time I think back to it, there's a little probability that I might buy it. And so I imagine you just have millions of people who have had all these great jokes told them. And every now and then they reminisce, oh, that was, that was really funny. And then they're like, ah, let me buy some.

• 1:26:05Lex Fridman?

  Wouldn't that be interesting if like the entirety, if we travel in time, like multiple centuries, where the entirety of the communication of the human species is like humor? Like, it's all just jokes. Like, we're high on probably some really advanced drugs. And we're all just laughing nonstop. It's a weird, like, dystopian future of just humor. Elon has made me realize how, like, good it feels to just not take shit seriously every once in a while and just relieve, like, the pressure of the world. At the same time, the reason

• 1:26:44Lex Fridman?

  I don't always like when people finish their sentences with lol is like that you don't, when you don't take anything seriously, when everything becomes a joke, then it feels like that way of thinking feels like it will destroy the world. It's like, I often think that, like, will memes save the world or destroy? Because I think both are possible directions.

• 1:27:12Speaker 01

  Yeah, I think this is a big problem. I mean, America, I always felt that about America. A lot of people are telling jokes kind of all the time. And they're kind of good at it. And

• 1:27:24Speaker 01

  You take someone aside in America, you're like, I really want to have a sincere conversation. It's like, hard to even keep a straight face.

• 1:27:30Lex Fridman?

  Yeah.

• 1:27:30Speaker 01

  Because everything is so, there's so much levity. So it's complicated. I like how sincere actually like your Twitter can be. You're like, I am in love with the world today.

• 1:27:41Lex Fridman?

  I get so much shit for it. It's hilarious. I'm not, I'm never gonna stop because I realize like, you have to be able to sometimes just be real and be positive and just be, uh, say the cliche things, which ultimately those things actually capture some fundamental truths about life.

• 1:27:58Speaker 01

  Yeah.

• 1:27:59Lex Fridman?

  But it's, it's a dance and I think Elon does a, a good job of that. Now, from an engineering perspective of being able to joke, but everyone's, you know, mostly to pull back and be like, here's real problems, let's solve them and so on, and then be able to jump back to a joke. So it's, uh, it's ultimately, I think, I guess a skill that we, uh, have to learn. I, uh, but I guess your advice is to invest everything, uh, anyone listening owns into Dogecoin. That's what I heard from this interaction.

• 1:28:30Speaker 01

  Yeah, no, exactly. Yeah. Our hedge fund is unavailable. Uh, just go straight to Dogecoin.

• 1:28:36Lex Fridman?

  You're running a successful company. It's just interesting because my mind has been in that space of, uh, potentially just being one of the millions of other entrepreneurs. Uh, what's your advice on, uh, how to build a successful startup? How to build a successful company?

• 1:28:54Speaker 01

  I think that one thing I, I do like, and it might be a particular thing about America, but like, there is something about like playing, tell people what you really want to happen in the world. Like, don't stop. It, it's not, it's not gonna make it, um, like if you're asking someone to invest in your company, don't say, I think, uh, maybe one day we might make a million dollars. When you actually believe something else, you actually believe, you're actually more optimistic, but you're toning down your optimism because you want to appear, um,

• 1:29:31Speaker 01

  Like low risk. But actually, it's super high risk if your company becomes mediocre. Because no one wants to work in mediocre company. No one wants to invest in mediocre company. So you should play the real game. And obviously, this doesn't apply to all businesses, but if you play a venture backed startup kind of game, like play for keeps, play to win, go big. And it's very hard to do that. I've always feel like, I, yeah, I start, you can start narrowing narrowing your focus because 10 people are telling you, you know, you got to care about this boring thing that won't matter five years from now. And you should push back and do the real, play the real game.

• 1:30:16Lex Fridman?

  To be bold. So both, I mean, there's a, there's an interesting duality there. So there's the way you speak to other people about like your plans and what you are like privately, just in in your own mind.

• 1:30:32Speaker 01

  And maybe it's connected with what you were saying about, yeah, sincerity as well. Like if you, if you appear to be sincerely optimistic about something that's bagel crazy, it it's putting yourself up to be kind of like ridiculed or something.

• 1:30:46Lex Fridman?

  Yes.

• 1:30:47Speaker 01

  And so if you say, my mission, my mission is to, um, yeah, go to Mars. It's just so bonkers that

• 1:30:55Speaker 01

  it's hard to say.

• 1:30:56Lex Fridman?

  It is, but one powerful thing, just like you said, is if you say it and you believe it, then actually amazing people come and work with you.

• 1:31:09Speaker 01

  Exactly.

• 1:31:10Lex Fridman?

  It's not just skill, but the the dreams. There's something about optimism that like that fire that you have when you're optimistic of actually having the hope of building something totally cool, something totally new, that when those people get in a room together, like they can actually do it.

• 1:31:26Speaker 01

  Yeah.

• 1:31:27Lex Fridman?

  Yeah, there's, yeah, there's, that's, uh, and also makes life really fun when you're in that room. So all all that together, ultimately, I don't know, that's what makes this crazy ride of a startup really look fun. And Elon is an example of a person who succeeded at that. There's not many other inspiring figures, which is sad. I used to be at Google and there's a

• 1:31:54Lex Fridman?

  There's something that happens that sometimes when the company grows bigger and bigger and bigger, where that kind of ambition kind of quiets down a little bit.

• 1:32:02Speaker 01

  Yeah.

• 1:32:03Lex Fridman?

  You know, Google had this ambition, still does, of making the world's information accessible to everyone. And I remember, I don't know, that's beautiful. I, I still love that dream of, that, you know, they used to scan books, but just in every way possible, make the world's information accessible. Same with Wikipedia. Every time I open up Wikipedia, um, I'm just awe inspired by how awesome humans are, man. And creating this together, I don't know what the meanings are over there, but it, they, it's just beautiful. Like what they've created is, is incredible and I'd love to be able to be part of something like that. And you're right, for that, you have to be bold.

• 1:32:45Speaker 01

  And there's, and strange to me also, I think you're right that there's how many boring companies there are.

• 1:32:50Lex Fridman?

  Right.

• 1:32:50Speaker 01

  Something I always talk about, especially in fintech. It's like, why am I excited about this? This is so lame. Like what is, this isn't even like important. Even if you succeed, this is going to be like terrible.

• 1:33:02Lex Fridman?

  Yeah.

• 1:33:03Speaker 01

  This is not good. And it's just strange how people can kind of get fake enthusiastic about like boring ideas.

• 1:33:11Lex Fridman?

  Yeah.

• 1:33:11Speaker 01

  When there's so many bigger ideas that, um, yeah, I mean, you read these things like this company raises money. And it's just like, that's a lot of money for the worst idea I've ever heard.

• 1:33:22Lex Fridman?

  Some ideas are, uh, really big. So like I, I worked on autonomous vehicles quite a bit. And there's so many ways in which you can present that idea to yourself, to the team you work with. To just, yeah, like to yourself when you're quietly looking in the mirror in the morning. That's really boring or really exciting. Like if you're really ambitious with autonomous vehicles. There it it changes the nature of like human robot interaction, it's change the nature of how we move. Forget money, forget all that stuff. It it changes like everything about robotics and AI, machine learning. It changes everything about manufacturing. I mean, cars, the transportation is so fundamentally connected to cars.

• 1:34:04Lex Fridman?

  And if that changes, it you're changing the fabric of society, of movies, of everything. Uh, and if you go bold and take risks and go be willing to go bankrupt with with your company as opposed to cautiously, you could you could really change the world. And it's so sad for me to see all these autonomous companies, autonomous vehicle companies. They're like really more focused about fundraising and kind of like smoke and mirrors. They're really afraid they're the entirety of their marketing is grounded in fear and presenting enough smoke to where they keep raising funds so they can cautiously use technology of a previous decade or previous two decades to kind of test vehicles here and there

• 1:34:47Lex Fridman?

  as opposed to do crazy things and bold and go huge at scale, do huge data collection. I mean, um, yeah, so that's just an example. Like the idea can be big, but if you don't allow yourself to take that idea and think really big with it, uh, then you're not going to make anything happen. Yeah, you're absolutely right in that. So you you've been connected in in your work uh with a bunch of amazing people. How much interaction do you have with investors? With investors like that whole process is an entire mystery to me. Is there some people that just have influence on the trajectory of your thinking completely? Or is it just this collective energy that they behind the company?

• 1:35:30Speaker 01

  Yeah, I mean, I I came here and I I I was amazed how, yeah, people would. I was only here for a few months and I met some incredible investors. But and I almost run out of money and uh.

• 1:35:46Speaker 01

  Once they invested, I was like, I am not gonna let you down. And I was like, okay, I'm gonna send them like an email update every like three minutes.

• 1:35:55Lex Fridman?

  Yeah.

• 1:35:55Speaker 01

  And then they don't care at all.

• 1:35:57Lex Fridman?

  Yeah.

• 1:35:58Speaker 01

  So they kind of wanna, I don't know, like, so for some, I like it when it's just like, they're always available to talk. But um, a lot of building a business, especially a high tech business, um, there's little for them to add, right? There's little for them to add on product. There's a lot for them to add on like business development. And if we are doing product research, which is for us, research into the market, research into how to make a great hedge fund. And we do that for years. There's not much to to tell the investors.

• 1:36:31Lex Fridman?

  So they're basically is like, I believe in you. There's something, I like the cut of your jib. There's something in in your idea, in your ambition, in your plans that I like. And it's almost like a pat on the back. It's like, go, go get them, kid.

• 1:36:45Speaker 01

  Yeah, it is a bit like that. And that's cool. That's a good way to do it. I'm glad they do it that way. Um, like the one in meeting I had, which was like really good with this was meeting Howard Morgan. Who's a, actually a co-founder of Renaissance Technologies in the like nineteen eighties. And worked with Jim Simons. And um, he, he, he was in the room and I was meeting some other guy and he was in the room and I was explaining.

• 1:37:15Speaker 01

  How quantitative finance works. I was like, so you know, they, they use mathematical models. And then he was like, I, yeah, I, I started Renaissance. I, I know a bit about this.

• 1:37:27Speaker 01

  And then I was like, oh, my God.

• 1:37:30Speaker 01

  So, yeah, but then, and then I think he kind of said, well, yeah, he said, well, because I was talking, he was working at First Round Capital. As a partner and they kind of said they didn't want to invest. And then I wrote a blog post describing the idea and I was like, I really think you guys should invest. And then they end up.

• 1:37:48Lex Fridman?

  Oh, interesting. You convinced them. Oh, that, that must be good.

• 1:37:51Speaker 01

  They're like, we don't really invest in hedge funds. And I was like, you don't see like what I'm doing.

• 1:37:55Lex Fridman?

  This is something different.

• 1:37:56Speaker 01

  Tech company, not a hedge fund, right?

• 1:37:58Lex Fridman?

  Yeah, Numerize is brilliant. It's when it caught my eye, there's something special there. So I really do hope you succeed in the, obviously, it's a risky thing you're taking on, the ambition of it, the size of it, but I do hope you succeed. You mentioned Jim Simons. He comes up in another world of mine really often on the, he's just a brilliant guy on the mathematics side as a mathematician, but he's also brilliant finance hedge fund manager guy. Have you gotten a chance to interact with him at all? Have you learned anything from him on the math, on the finance, on the philosophy life side of things?

• 1:38:38Speaker 01

  I've played poker with him. It was pretty cool. It was like, actually, in the show, Billions, they kind of do a little thing about this poker tournament thing with all the hedge fund managers, and that's a real life thing. And they have a lot of like World Series of bracelet, World Series Poker bracelet holders, but it's kind of Jim's thing. And I met him there and yeah, it was kind of brief, but I was just like, he's like, oh, how do you, why are you here? And I was like, oh, Howard sent me, you know, he's like, go play this tournament, meet some of the other players and then.

• 1:39:12Lex Fridman?

  Was it Texas Hold'em?

• 1:39:14Speaker 01

  Yeah, Texas Hold'em tournament, yeah.

• 1:39:16Lex Fridman?

  Do you play poker yourself or was it?

• 1:39:17Speaker 01

  Yeah, I do. I mean, it was crazy. On my right was the CEO, who's the current CEO of Renaissance, Peter Brown, and Peter Muller, who's a hedge fund manager at PDT.

• 1:39:33Speaker 01

  And yeah, I mean, it was just like, and then, you know, just everyone, and then all these brace, World Series, like people I know from like TV. And Robert Mercer, who's fucking crazy.

• 1:39:45Lex Fridman?

  Who's that?

• 1:39:45Speaker 01

  He's the guy who donated the most money to Trump. And he's just like

• 1:39:53Lex Fridman?

  It's a lot of personality.

• 1:39:54Speaker 01

  Character. Yeah. Geez, he's crazy. So it's quite cool how, yeah, like the, it was really fun. And then I managed to knock out Peter Mello. I have a, I got a little trophy for knocking him out because he was a previous champion. In fact, I think he's won the most. I think he's won three times. Super smart guy. But, but, but I will say Jim outlasted me in the tournament. And they're all extremely good at poker.

• 1:40:24Lex Fridman?

  Yeah.

• 1:40:25Speaker 01

  But they're also, so it was a $10,000 buy in. And I was like, this is kind of expensive. But it all goes to charity, Jim's math charity. But then the way they play, they have like rebis. And like, they all do a shit ton of rebis. This is for charity.

• 1:40:46Lex Fridman?

  Yeah.

• 1:40:46Speaker 01

  So immediately they're like going all in and I'm like, man, like. So I end up, you know, adding more as well.

• 1:40:55Lex Fridman?

  So the

• 1:40:56Speaker 01

  It's like you couldn't play at all without doing that.

• 1:40:59Lex Fridman?

  Yeah, the stakes are high. But you're, you're connected to a lot of these folks. They're kind of titans of just, of economics and tech in general. Do you feel a burden from this, you're a young guy?

• 1:41:14Speaker 01

  I did feel a bit out of place there, like the company was quite new. And they also don't speak about things, right? So it's not, not like going to meet a famous rocket engineer who will tell you how to make a rocket. They do not want to tell you anything about how to make a hedge fund. It's like all secretive. And that part I didn't like. And they were also kind of making fun of me a little bit. Like they would say, like they'd call me like, I don't know, the Bitcoin kid or

• 1:41:45Lex Fridman?

  Yeah.

• 1:41:46Speaker 01

  And then they would say even things like, remember Peter?

• 1:41:51Speaker 01

  Yeah, said to me something like, I don't think AI is gonna have a big role in finance. And I was like, hearing this from the CEO of Renaissance was like weird to hear because I was like, of course it will. And he's like, but it, but he can see, I can see it having a really big impact on things like self-driving cars.

• 1:42:09Lex Fridman?

  Right.

• 1:42:09Speaker 01

  But finance, it's too noisy and whatever. And so I don't think it's like the perfect application. And I was like, that was interesting to hear because it's like, and I think it was that same day that Libra, I think it is, the poker-playing AI started to beat like the human.

• 1:42:26Lex Fridman?

  Yeah.

• 1:42:26Speaker 01

  So it's kind of funny hearing them like say, oh, I'm not sure AI could ever get, attack that problem.

• 1:42:31Lex Fridman?

  Yes.

• 1:42:31Speaker 01

  And then that very day, it's attacking the problem of the game we're playing.

• 1:42:35Lex Fridman?

  Well, there's a kind of a magic, magic to somebody who's exceptionally successful, looking at you, giving you respect, but also saying that what you're doing is not going to succeed. In a sense, like they're not really saying it, but I tend to believe from my interactions with people that it's a kind of prod to say, like prove me wrong.

• 1:42:58Speaker 01

  Yeah.

• 1:42:59Lex Fridman?

  That's ultimately, that's, that's how those guys talk. They, they see good talent and they're like, I'm.

• 1:43:04Speaker 01

  Yeah. And I think they're also saying it's not going to succeed quickly in some way. They're like, this is going to take a long time. And maybe, maybe that's good to know.

• 1:43:16Lex Fridman?

  And certainly AI in, in trading, that's one of the most philosophically interesting questions about artificial intelligence and the nature of money. Because it's like, how much can you extract in terms of patterns? From all of these millions of humans interacting using this methodology of money? It's like one of the open questions in artificial intelligence. In that sense, you converting into a data set is one of like the biggest gifts to the research community, to the whole, anyone who loves data science and AI, this is, uh, this is kind of fascinating. And I'd love to see where this goes, actually.

• 1:43:59Speaker 01

  Thing I say sometimes, long before AGI destroys the world, a narrow intelligence will win all the money in the stock market. Way, like just a narrow AI.

• 1:44:09Lex Fridman?

  Yeah.

• 1:44:10Speaker 01

  And I wanna, I don't know if I'm going to be the one who invents that. So I'm building Numerai to make sure that that narrow AI, you know, uses our data.

• 1:44:19Lex Fridman?

  So you're giving a platform to where millions of people can participate and do build that narrow AI themselves. People love it when I ask this kind of question about books, about ideas and philosophers and so on. I was wondering if you had books or ideas, philosophers, thinkers that had an influence on your life when you were growing up, or just today that you would recommend that people check out blog posts, podcasts, videos, all that kind of stuff. Is there something that just kind of had an impact on you that you recommend?

• 1:44:57Speaker 01

  A super kind of obvious one that I really wa- I was reading Zero to One while coming up with Numerai. It was like, I was like halfway through the book. And I really do like a lot of the ideas there. And it's, it's also about kind of thinking big. And, and also, it's like peculiar little book. It's like why, like there's a little picture of the hipster versus Unabomber. And it's, it's a weird little book. So I like, there's kind of like some depth there.

• 1:45:26Lex Fridman?

  Turns out a book on a, if you're thinking of doing a startup, that's a good book.

• 1:45:31Speaker 01

  A book I like a lot is, maybe my favorite book is David Deutsch's Beginning of Infinity.

• 1:45:40Speaker 01

  I just found that so optimistic. It puts you, everything you read in science, it like makes the world feel like kind of colder. Cause the, like, it's like, you know, we're just, just coming from evolution and coming from nothing has, nothing should be this way or whatever. And humans are not very powerful. We're just like scum on the earth. And the way David Deutsch sees things and argues, he argues them with the same rigor that the cynics often use. And then has a much better conclusion. That's, you know, it's some of the statements of things like, you know, anything that doesn't violate the laws of physics.

• 1:46:21Speaker 01

  Can be solved like.

• 1:46:23Lex Fridman?

  So ultimately arriving in a hopeful, like a hopeful.

• 1:46:26Speaker 01

  Yeah, without being like a hippie.

• 1:46:29Lex Fridman?

  You mentioned kind of advice for startups. Is there in general, whether you do a startup or not, do you have advice for young people today? You're like an example of somebody who's paved their own path and were, I would say exceptionally successful. Is there advice, somebody who's like 20 today, 18, undergrad or thinking about going to college or in college and so on, that you would give them?

• 1:46:53Speaker 01

  I think I often tell young people, don't start companies. Is it not, don't start a company unless you're prepared to make it your life's work. Like that's a really good way of putting it. And a lot of people think, well, you know, this semester, I'm going to take a semester off. And in that one semester, I'm going to start a company and sell it or whatever.

• 1:47:14Lex Fridman?

  Right.

• 1:47:15Speaker 01

  And it's just like, what are you talking about? It doesn't really work that way. You should be like super into the idea, so into it that you want to spend a really long time on it.

• 1:47:25Lex Fridman?

  Is that more about psychology or actually time allocation? Like, is it literally the fact that you need to give 100% for potentially years for it to succeed? Or is it more about just the mindset that's required?

• 1:47:37Speaker 01

  Yeah, I mean, I think, well, any, I think, yeah, you don't want to have, certainly don't want to have a plan to sell the company like quickly or something. What's like, or it's like a company that has a very, it's like a big fashion component, like it'll only work now. It's like an app for something.

• 1:47:56Speaker 01

  So yeah, I, that's, that's a big one. And then I also think, something I thought about recently is, I had a job as a quant at a fund for about two and a half years. And part of me thinks if I had spent another two years there, I would have learned a lot more and had even more knowledge to, to be where, to basically accelerate how long numer I took. So the idea that you can sit in an air conditioned room and get free food, or even sit at home now in your underwear and make a huge amount of money and learn whatever you want. And get, it's just crazy. It's such a good deal.

• 1:48:40Lex Fridman?

  Yeah. Oh, that's interesting. That's the case for, I was terrified of that. Like at Google, I thought I would become really comfortable in that air conditioned room. And that I was afraid the quant situation is, I mean, what you present is really brilliant, that it's exceptionally valuable, the lessons you learn, because you get to, you get to get paid while you learn from others. If you see that, if you see jobs in, in the space of your passion that way, that it's just an education. It's like the best kind of education. But of course, you have, from my perspective, you have to be really careful on that to get comfortable. Again, a relationship, then you buy a house or whatever the hell it is. And then you get,

• 1:49:25Lex Fridman?

  you know, and then you convince yourself like, well, I have to pay these fees for the car, for the house, blah, blah, blah. And then, and there's momentum. And all of a sudden, you're on your deathbed and there's grandchildren and you're drinking whiskey and complaining about kids these days. So I, you know, that I'm afraid of that momentum. But you're right. Like, there's something special about the education you get working at these companies.

• 1:49:50Speaker 01

  Yeah. And I, I remember on my desk, I had the, like, a bunch of papers on quant finance, a bunch of papers on optimization, and then the paper on Ethereum, just on my desk as well, and the white paper. And it's like, it's amazing how much, how kind of, and you can learn about, so that, that I also, I think this like idea of like, learning about intersections of things. I don't think there are too many people that know like, as much about crypto and quant finance and machine learning as I do. And that's a really nice set of three things to know stuff about. And that was because I had like, free time in my job.

• 1:50:29Lex Fridman?

  Okay. Let me ask the perfectly impractical, but the most important question. What's the meaning of all the things, you're trying to do so many amazing things, why? What's the meaning of this life of yours?

• 1:50:43Lex Fridman?

  Or ours.

• 1:50:44Speaker 01

  I don't know.

• 1:50:45Lex Fridman?

  Humans.

• 1:50:47Speaker 01

  Yeah. So I have you had some people say, asking what meaning of life is, is like asking the wrong question or something.

• 1:50:54Lex Fridman?

  The question is wrong.

• 1:50:55Speaker 01

  Yeah.

• 1:50:55Lex Fridman?

  No, that usually people get too nervous to be able to say that because it's like your question sucks. I don't think there's an answer. It's like the searching for it. It's like sometimes asking it. It's like sometimes sitting back and looking up at the stars and being like, huh, I wonder if there's aliens up there. There's, there's a useful, um, like a palate cleanser aspect to it. Cause it kind of wakes you up to like all the little busy hurried day to day activities, all the meetings, all the things you'd like a part of. We're just like ants, a part of a system, a part of another system. And, and then when this asking this bigger question allows you to kind of zoom out and think about it.

• 1:51:37Lex Fridman?

  But there's ultimately, I think it's an impossible thing for a limited capacity, like cognitive capacity to, to capture. But it's fun to listen to somebody who's exceptionally successful, exceptionally busy now, who's also young, like you. They ask these kinds of questions about like, uh, death, you know, do you consider your own mortality kind of thing? And, and life, whether that enters your mind, because it often doesn't, it gets, it kind of almost gets in the way.

• 1:52:08Speaker 01

  Yeah. It's amazing how many things you can like, that are trivial, that could occupy a lot of your mind. Until something, until something bad happens or something flips you.

• 1:52:20Lex Fridman?

  And then you start thinking about the people you love that are in your life. And you started thinking about like, holy shit, this ride ends.

• 1:52:26Speaker 01

  Exactly. Yeah. I, I, I just had COVID. Um, and I had it quite bad. It wasn't, what wasn't really bad is just like, I also got a simultaneous like lung infection. So I had like, almost like bronchitis or whatever. I don't even, I don't understand that stuff, but it felt, I started to, and then you're forced to be isolated.

• 1:52:50Lex Fridman?

  Right.

• 1:52:50Speaker 01

  And so it's actually kind of nice because it's very, it's very depressing. And then I've heard stories of, I think it's Sean Parker. He had like all these diseases as a child.

• 1:53:01Lex Fridman?

  Yeah.

• 1:53:02Speaker 01

  And he had to like, just stay in bed for years. And then he like made Napster. It's like, pretty cool. So yeah, I had about 15 days of this recently, just last month. And it, it feels like it did chalk me into a new kind of energy and ambition.

• 1:53:18Lex Fridman?

  Were there moments when you were just like terrified at the combination of loneliness? And like, you know, the thing about COVID is like, there's some degree of uncertainty. Like, it feels like it's a new thing, a new monster that's arrived on this earth. And so, you know, dealing with alone, a lot of people are dying. It's like wondering like.

• 1:53:41Speaker 01

  Yeah, you do wonder. I mean, for sure. And then there are even new strains in South Africa, which is where I was. And maybe, maybe the new strain had some interaction with my genes and I'm just gonna die.

• 1:53:53Lex Fridman?

  But ultimately it was liberating somehow.

• 1:53:55Speaker 01

  I loved it. Oh, I loved, I loved that I got out of it.

• 1:53:59Lex Fridman?

  Okay.

• 1:53:59Speaker 01

  Cause it also affects your mind. You get, you get confusion and kind of a lot of fatigue. And you can't do your usual tricks of psyching yourself out of it. So you know, sometimes it's like, oh, man, I feel tired. Okay, I'm just gonna go have coffee and then I'll be fine. It's like, now it's like, I feel tired, I don't even wanna get out of bed to get coffee. Cause I feel so tired. And then you have to confront, there's no like, quick fix cure.

• 1:54:22Lex Fridman?

  Yeah.

• 1:54:23Speaker 01

  And you're trapped at home.

• 1:54:24Lex Fridman?

  But that, so now you have this little thing that happened to you that was a reminder that you're mortal. And you get to carry that flag in, in, in, in trying to create something special in this world, right? With Nummerai. Listen, this was like, one of my favorite conversations. Cause you were, you're, the way you think about this world of money and just this world in general is so clear. And you're able to explain it so eloquently. Richard, it was really fun. Really appreciate you talking to me.

• 1:54:54Speaker 01

  Thank you. Thank you.

• 1:54:57Lex Fridman?

  Thanks for listening to this conversation with Richard Crabe. And thank you to our sponsors, Audible audiobooks, Trial Labs, Machine Learning Company, Blinkist app that summarizes books, and Athletic Greens, all in one nutrition drink. Click the sponsor links to get a discount and to support this podcast. Now, let me leave you with some words from Warren Buffett. Games are won by players who focus on the playing field, not by those whose eyes are glued to the scoreboard. Thank you for listening and hope to see you next time.