Past performance is not a guarantee of future returns / What exactly does Daedalus do bro?
The story is told of Icarus, the boy who flew too close to the sun. Daedalus, the master craftsman and creator of the Labyrinth, is the name of his father who gave him the wings.
In the myth, Icarus and Daedalus attempt to escape from the island of Crete. They do this using wings that Daedalus constructed from feathers and wax. Daedalus warns Icarus first of complacency and then of hubris, instructing him to fly neither too low nor too high, lest the sea's dampness clog his wings or the sun's heat melt them. Icarus ignores Daedalus’s instructions not to fly too close to the sun, causing the wax in his wings to melt. He falls out of the sky, plunges into the sea, and drowns.
The wings , like algorithmic trading, are just tools. Powerful tools with the power to either enrich one’s life or destroy it, but tools nonetheless.
The word Hubris, meaning exaggerated pride or self-confidence, comes from the Ancient Greek language. It’s etymological origin referred to the idea of excessive pride or defiance of the gods.
The ancient Greeks considered hubris a dangerous character flaw capable of provoking the wrath of the gods. In classical Greek tragedy, hubris was often a fatal shortcoming that brought about the fall of the tragic hero. Typically, overconfidence led the hero to attempt to overstep the boundaries of human limitations and assume a godlike status, and the gods inevitably humbled the offender with a sharp reminder of their mortality.
How does this apply to investing?
In the financial world, hubris is considered a dangerous quality that emboldens an investment professional to take risks beyond what is appropriate for their situation. While such risks may pay off at times, any person who shows such behavioral flaws can easily find their gains erased by dramatic losses.
You might be thinking to yourself , but if the algorithm says a strategy is profitable then it must be right? No! Here is where it helps to be very precise with one’s assumptions and thought processes. Just because something was successful in the past doesn’t mean it will continue to be successful in the future. There are no guarantees in life.
Algorithms are just tools. Nothing more , nothing less. It is up to you to choose your evaluation criteria. For some that is backtesting. They study loads and loads of last data , finally tweaking strategies until they find one that appears to be profitable. Well yea of course if you run even a simple a strategy like “buy one share of Apple every single day”, and you start it from December 12th 1980 when they IPO’d you’d be insanely rich. But that is in no way a guarantee that such a particular strategy will continue to work in the future.
Let me be clear. Algorithmic trading is NOT a get rich quick scheme. It’s just a tool. And like any tool, learning how to use it properly will require work, research, and effort. What we’re building here at Daedalus isn’t some magical pill that will guarantee you to quadruple your portfolio every year, but a powerful tool that you can leverage to execute your ideas faster and easier. When you want to write an email to someone for example, do you need to worry about about the underlying technology of exactly how the text is transcribed and rendered on your end, how the email is sent, how your recipient will be able to open your files? No. You just write the email and press send. That’s the kind of automation Daedalus is bringing to investment strategies. You are the investor. You are the one who knows your life goals , risk tolerance , and free time the best. Only you can make the best investing decisions on your behalf. But once you’ve made those decisions: buy a little SPY daily, sell Amazon stock every time the string “workers rights” is mentioned in the news, buy Bitcoin at 40k and sell Bitcoin at 19k, you shouldn’t have to worry about how exactly that will get executed. You shouldn’t need to keep your eyes on the news waiting for the latest Amazon Warehouse labor code violation, it should just automatically short the stock for you. That’s what we’re building at Daedalus.
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