Risk only turns into loss occasionally when the tide goes out, but the prudent investor and hopefully his or her clients knows that risk is being controlled even at times when it doesn’t come to the surface.

So I think that risk is something to be managed and controlled but not avoided. Risk is indispensable, risk avoidance is not an appropriate goal in investing. I think and my experience tells me from watching others that risk avoidance equates to return avoidance.

Here is a good candidate for a function of consciousness: Our conscious experience of the world typically involves objects and actions, rather than isolated sensations and movements and it is plausible that consciousness is necessary for integrating information (Tononi, 2008), and for broadcasting information between different processing modules (Baars, 1988; Dehaene and Naccache, 2001).

However, we are doubtful. There is increasing evidence that sensory integration happens even at the earliest stages of sensory processing (e.g. Lemus et al., 2010; Watkins et al., 2007) and even high-level, cross-modal integration of symbols can occur without awareness (Faivre et al., 2014). For many activities there is clear need for ‘global availability’ of information. But why should this global access be associated with subjective experience?

Furthermore, decisions, which require the integration of many sources of information, seem to be better made in the absence of conscious reflection (Dijksterhuis and Nordgren, 2006), perhaps because appropriate weighting of multiple sources of information is disrupted by conscious deliberation (Engel and Singer, 2008; Levine et al., 1996). A similar phenomenon can be observed in the performance of highly skilled acts (Beilock et al., 2002).

Mining gold or silver was a relatively straightforward endeavor during the 16th and 17th centuries. In less than a hundred years, the Spanish treasure fleet quadrupled the amount of precious metals in circulation throughout Europe. Those times are long gone, and today prospectors must deploy complex industrial methods to extract microscopic bullion particles out of tons of earth. That does not mean that gold production is at historical lows. On the contrary, nowadays miners extract 2,500 metric tons of microscopic gold every year, compared to the average annual 1.54 metric tons taken by the Spanish conquistadors throughout the entire 16th century! Visible gold is an infinitesimal portion of the overall amount of gold on Earth. El Dorado was always there… if only Pizarro could have exchanged the sword for a microscope.

The discovery of investment strategies has undergone a similar evolution. If a decade ago it was relatively common for an individual to discover macroscopic alpha (i.e., using simple mathematical tools like econometrics), currently the chances of that happening are quickly converging to zero. Individuals searching nowadays for macroscopic alpha, regardless of their experience or knowledge, are fighting overwhelming odds. The only true alpha left is microscopic, and finding it requires capital-intensive industrial methods. Just like with gold, microscopic alpha does not mean smaller overall profits. Microscopic alpha today is much more abundant than macroscopic alpha has ever been in history. There is a lot of money to be made, but you will need to use heavy ML tools.