
New York Magazine's Boy Genius Investor Made It All Up - ColinWright
http://observer.com/2014/12/exclusive-new-york-mags-boy-genius-investor-made-it-all-up/
======
danso
Between this and the Rolling Stone U.Va-rape story...this has been a bad month
for New York-based magazine reporting (and a boon for media critics). The
NYmag reporter insists she made no error, because her lede paragraphs talks
about a "rumor". Yeah, but the point of being a journalist is to find out the
truth behind rumors, not just to say, "Hey, did you know that there are rumors
about a high school boy?"

The reporter claims she saw "bank statements"...the validity of which seem to
be in question if the boy has recanted everything. I wonder if she got taken
in by the good-ol edit-the-HTML-of-official-documents-with-the-Web-inspector
trick?

On the upside, at least this teenager doesn't have to bear eternal Internet
shame for being part of a public prank/lie. His name is pretty much Google-
proof, or at least as Google-proof as someone named "Jesus Christian" would
be. That said...I just Googled "Mohammed Islam" and was pretty surprised to
see all the top results relating to the young man at hand. I would've thought
that Google's algorithm would've associated such a query with Islam the
religion and the prophet Muhammad.

~~~
nemanja
Yes, this story made me cringe really hard as I was reading it last evening.
First off, if the reporter just bothered to speak with _only one_ person who
ever traded derivatives, she would have learned this was a complete hoax.
Simply put, even if the kid started with $1m and ended up with say $60m after
two years (being generous all around given the context), that would still
amount to 6,000% return. Here is why that couldn't happen -

 _He made directional outright bets._ In other words, say he bought call
options betting for the price of the underlying security to go up. This is
akin to buying underlying security with massive leverage. If the bet goes your
way, you could make a massive return (for example, in Oct '05, I made ~1,000%
one-day return on a very small amount buying Google out of the money calls
expiring the next day and selling them in the money after stock picked up
following earnings report). This is an incredibly dumb strategy and it is
completely unscalable to the figures quoted in the article. First,
public/listed options are incredibly illiquid in most stocks/securities, and
particularly at strikes that could yield this return. This would limit him to
making really small bets. Second, you would need a catalyst for a significant
price move, which doesn't come too often, so most of the time you would just
bleed your option time-value ("theta decay"). Finally, and most importantly,
no one is lucky 100% of the time and this type of directional strategy is sure
to backfire on you and cost you ~100% of principal (trust me, been there, done
that)

 _He traded volatility._ This is effectively a hedge fund strategy, where you
buy the option and short the delta of the option in underlying security
("delta hedging"). The hedge gives you protection against the price moves in
the underlying and you effectively make money for small moves in the security,
regardless of whether it goes up or down (due to "convexity"). Most of the
time, you earn pennies on the dollar as the price fluctuates a bit and you
trade your delta, and perhaps some of the time you make a bit more if the
price moves a lot ("gamma event"). Now, here is the kicker - this is not fool
proof either. The strategy trades the risk in the price of the underlying
security to the risk in volatility - in other words, if you buy volatility
high and sell low, you will still lose money. Most listed options have
notoriously bad bid/ask volatility spreads and retail investor would unlikely
make any money consistently and reliably enough following this strategy.
Needless to say - no way to scale it to the numbers quoted in the article
using listed options. Hedge funds and derivative desks at banks mostly trade
in OTC (Over The Counter) options which are bespoke bilateral contracts with a
ton of protective provisions (averaging periods, stock borrow protection,
illiquidity protection, etc) and they still have to take a view on volatility
and they do get it wrong sometimes. Even for professionals who are wicked
smart and do this day in and day out, the only reliable way to make money is
to buy volatility on the cheap in a special situation.

There are a few other strategies that come to mind (e.g. Black Swan) but there
has been either no catalyst to make it work or they would be inaccessible to a
high school kid from Queens.

The second part that really made me cringe were all the negative references to
SV by the kids and by the reporter in her subsequent Tweets. Reality of the
situation is that, whatever you may think about early stage bubble in SV, SV
tech companies actually create real value, have actual products and serve
actual customers/users.

Finally, what is sad about all this is that Mohammed appears to be a smart
talented kid and I can't help but think he tainted his prospects quite a bit
with this debacle. On the other hand, all this makes a hell of a "what I
learned from a failure" college essay.

~~~
noname123
Ditto.

I was once told that in vol trading, if you're "making more than 60% a year,
you're doing something wrong". The point being that with any option spreads,
there is a risk-reward ratio, professional's care about money management than
profit. You're trying to earn on the theta decay or vice versa, facing theta
decay and banking on gamma moves. So you're either facing the death of a
thousand paper-cuts with option time premium eroding your bankroll, or you're
facing the LTCM catastrophic loss with the wrong kind of risk management.

Even when you trade directional, this past year, both realized and implied vol
has been low, with VIX bouncing between 11-20 with median at 13 or 14; you can
make lots of money long OTM options in 2008 or flash crash, basically you're
playing Nassim Taleb's "long-tail"; this past year simply doesn't warrant that
kind of performance unless you're doing some kind of OTM buying on biotech
companies and betting correcting on a majority of your catalyst events.

~~~
nemanja
Yep, you are spot on about how it works in the real world. Incidentally, you
may get all three (i.e. small profits from daily delta adjustments + theta
decay + gamma upside) on some trades, but the bottom line is that it always
requires a vol view when you enter into the position, which lends it self to
being wrong sometimes. There, you hit on another interesting point - even with
all of the mess brewing in Ukraine, realized has been relatively low (and
probably way below desks' expectations) this year, which I would bet caused
some underperformance across the vol desks this year.

Don't know what was realized vol in oil lately (likely high given recent price
action, have no sense of the shape/magnitude), but perhaps that's where he's
seen some returns in simulated trading. Needles to say simulated trading is
very, very different than the real world, with bid/ask spread dynamics,
options illiquidity, collateral requirements, funding costs, borrow costs,
etc.

------
pwthornton
Honestly, this story is so unbelievable that it leads me to believe that many
journalists have no idea how investing or the stock market work. Even if he
started with $100,000 to invest, it would be an insane annual yield. A yield
so high, that even crazy frauds like Bernie Madoff wouldn't promise it.

It's not that you couldn't make $72 million dollars by investing in the stock
market in a few years, but rather that it would usually take a rather large
principal to do so.

This isn't the same as the UVA rape story, as that took months of reporting
and fact checking. That's one of the biggest journalistic mess ups in the last
decade or so, and will have far reaching consequences for Rolling Stone. We'll
be discussing the UVA rape story for the entire next episode of my podcast.

This is the more run-of-the-mill story about how a lot of journalists have so
little knowledge about things outside of journalism that they get duped by
these stupid and false feel good stories. This is more embarrassing than
harmful.

~~~
talmand
It seems that many "journalists" these days can't be bothered to learn much
about anything that they "report" on.

I miss the old days of "two sources or we don't print".

~~~
danielweber
Just a few days ago the New York Times took a google translate of an Italian
Huffington Post article as the source for a papal proclamation.

------
coverband
If anyone fron NYMag is reading this -- I'm the son of late Nigerian king
Joseph Mabadu and would like to share my billion-dollar fortune with him if he
can help me transfer my wealth out of the country. As a show of good faith,
I'm also willing to hand him over my title for the Brooklyn Bridge. Please
call urgently to discuss...

------
austenallred
The average person would be blown away at how sloppy (and really non-existent)
fact-checking has become in the Internet age. Most people on HN seem to be a
little bit pessimistic about it, but it's likely way worse than you think. Of
course, we know that random people retweeting garbage on Twitter aren't fact-
checking, but I'm talking about the largest media organizations around -- they
just don't care enough to check.

We don't need to look any further for this than ISIS. Not only is ISIS
controlling the whole world's talking points by carefully crafting what news
they'll release, but they're spreading stories all the time that are
completely bogus. Look, for example, at this story about ISIS crucifying one
of its own members for corruption:
[http://english.alarabiya.net/en/News/middle-
east/2014/06/27/...](http://english.alarabiya.net/en/News/middle-
east/2014/06/27/ISIS-crucifies-one-of-its-own-in-Syria-for-corruption-.html).
It all started with a tweet from a now-deleted Twitter account, because ISIS
wanted to spread the idea of how intense they are and how strongly they fight
their perceived evil. So they plant a story about how they crucified one of
their own members. Every media organization knows that's free pageviews, so
they report it.

But look at the feature photo in that story, which constitutes most of the
"tip" from the tweet. Do a reverse image search and you find the original
source: It's a Danish Roman Catholic reenacting Christ's crucifixion in the
Philippines. [http://d.pr/i/183Sf](http://d.pr/i/183Sf). The story of the ISIS
crucifixion was made up out of thin air, based on a photo that was easily
discoverable (and in the AFP database), but now the lie is in every mainstream
media publication I can think of, from CNN and The Telegraph to The Guardian
and the New York Times. They didn't even have time for a reverse image search.
And ISIS wins.

A lot of what my startup does is fact-check stuff that's going on in the media
(it's a newsroom for the Internet -
[https://grasswire.com](https://grasswire.com)), and every media organization
(and I mean _every_ ) from Al Arabiya and the New York Times to Newsweek to
Rolling Stone and New York Magazine are quite frequently full of inaccuracies
and intentional lies. Sometimes people catch these lies, a few people freak
out for <24 hours, and we all forget about it.

The notion that a publication's relevance is based purely on its accuracy is,
in my opinion, false. We don't have the time or energy to process which media
organizations we trust and which have mislead us, because, unless we're
ruthlessly sitting behind a computer fact-checking stuff, we probably don't
even know that they're making mistakes in the first place. For every one
person The Daily Mail pisses off by publishing its false stories, 100 people
are reading it and saying, "Wow, The Daily Mail does some daring reporting."
Very few people care anymore -- we don't have time to.

In Trust Me, I'm Lying: Confessions of a Media Manipulator, Ryan Holiday talks
about how easy it is to get lies to spread throughout the Internet, and
thereby all of mainstream media. The premise is very simple. You find someone
at the bottom of the press pyramid - the person responsible for putting out 4
or 5 articles a day so that his or her publication can get enough pageviews to
stay alive. There's not a chance that person can do any sort of verification.
You send them a "tip," get a few smaller blogs to write about it, and the
snowball starts rolling.

These publications all read each other, and most of them just want to pick up
stories from each other and ride the wave of whatever's going viral. That's
not just cat videos; that's stories about ISIS and Russian fighters in Ukraine
and what we consider "hard news." The stuff we all talk about in the United
States is mostly driven by PR folks who are carefully planting stories that
push their agenda forward. In most other countries it's even worse. Few of my
Russian friends are even aware of the fall of the Rouble and the pending
collapse of their own economy.

I don't know what the solution is (I'm trying to find/create one), and I don't
want to pretend like this has only happened since the Internet came into
existence, but I find most people put way too much trust in the press machine
we've created. I would like to think that somewhere there are independent
reporters and people who are digging up stories, but I've come to realize that
most stories aren't ever dug up - they're pitched.

~~~
coob
There are websites that fact check politicians, call them out on big lies,
give them ratings etc. Why isn't there the same for mainstream news?

~~~
austenallred
I don't know; I'm trying to create one
([https://grasswire.com](https://grasswire.com))

------
Rainymood
No fucking shit. Seriously guys? Was this a surprise to anyone?

If it's too good to be true, then it probably is. Words to live by.

~~~
tomp
On the other hand, Facebook _did_ buy WhatsApp for $18bn.

~~~
frakkingcylons
When they were bought, WhatsApp had hundreds of millions of users every month
in parts of the world most companies barely reach.

This was a high school student supposedly beating the market to the tune of
$72m during lunch period.

------
eastbayjake
The real shame is that this article would have still been great _even if she
'd done the fact-checking and found out he was lying._ You've got two kids in
suits buying apple juice and caviar, trying to convince a grown woman that
he's worth $72 million. It's the makings of a great Vice article. I would have
loved to read about these two kids as they try to pull a highly-transparent
confidence scam while all the adults in the room know they're lying.

------
aroman
One thing I'm still confused about: if the parents have literally
excommunicated him/functionally (temporarily) disowned him, who's idea was the
PR firm, and moreover, who is paying for it?

~~~
pavel_lishin
I doubt he's literally disowned. This sounds like some hyperbole on his part,
as well as theirs. Look at the quote:

> So what did your parents think when they’re reading that you’ve got $72
> million? > Mohammed Islam: Honestly, my dad wanted to disown me. My mom
> basically said she’d never talk to me. Their morals are that if I lie about
> it and don’t own up to it then they can no longer trust me. … They knew it
> was false and they basically wanted to kill me and I haven’t spoken to them
> since.

He didn't say they haven't spoken to him; they didn't say they did disown him.
I've had my parents angry at me, to the point where they've yelled and said "I
could kill you!" \- but they're not literally going to murder him, and they're
probably not literally disowning him.

~~~
aroman
I didn't mean to suggest they were literally disowning him — that's why i said
"functionally" and "temporarily".

------
Fede_V
This is the really dangerous consequence of chasing after stories that have
nice narratives. If a story fits your ideological narrative perfectly, you
should be twice as skeptical - real life stories are messy, imperfect, and
very rarely perfectly illustrate whatever theory you have in mind.

~~~
defen
> If a story fits your ideological narrative perfectly, you should be twice as
> skeptical

That's exactly what Richard Bradley said (first prominent person I know of who
publicly doubted the Rolling Stone UVA story; he was Stephen Glass's editor at
George magazine)

[http://www.richardbradley.net/shotsinthedark/2014/11/24/is-t...](http://www.richardbradley.net/shotsinthedark/2014/11/24/is-
the-rolling-stone-story-true/)

"The lesson I learned: One must be most critical, in the best sense of that
word, about what one is already inclined to believe."

~~~
danielweber
On another forum I was on, there was a guy with the handle Japhy who coined
Japhy's Law: that which you most want to be true is that which you should be
most skeptical of.

It came up _all the time_ in political discussions as various participants
would pull in sources showing how their side was right, but would crumble when
subjected to the slightest examination.

------
gadders
Did anyone actually believe the story when they first read it? My first
thought was "Yeah, right."

~~~
jonnathanson
I doubt anyone here believed it. The rest of the Internet? All bets are off.

Look at how many Buzzfeedy hoaxes get passed around like wildfire on Facebook,
week after week, often by the same people in your circle. Some people -- and
by "some," I mean a disappointingly large proportion of people -- don't think
critically about what they encounter on the web. For them, it's not about the
article. It's about the headline, and how the headline makes them feel about
themselves, about the world, or about their friends. By the time they see a
catchy or feel-good headline, they're already racing out to share it with
everybody. If they actually get around to reading the article attached to the
headline, the reading is incidental.

------
razzaj
In my opinion the VAST majority of people never fact check, and most of the
remaining people don't fact check unless the reporter's views strongly
conflict with their own. In the current case being discussed, some
embarrassment, and probably some figurative spanking are the aftermath.

In other more serious cases (crime, armed conflict, group terrorism, state
terrorism) the aftermath of such a pattern is much more dramatic.

The hard truth is that media outlets need money to survive, to get that money
they do two things: publish News/views that won't upset people paying for ads;
and publish scoops that sell. No one is going to read a magazine or news
"paper" that is broke.

But the hard question is: how do you effectively encourage properly done
objective journalism? Is there a Reddit style karma scheme for news outlets? I
imagine this will be effective if taken into account as an SEO signal.

------
nodata
It looks like at least one story is still up:
[http://nymag.com/news/articles/reasonstoloveny/2014/mohammed...](http://nymag.com/news/articles/reasonstoloveny/2014/mohammed-
islam-stock-trading/)

Can't find a reaction yet.

Edit: they updated it. "We presented it as a rumour all along".

~~~
couchand
_An unbelievable amount of money for anyone, not least a high-school student,
but as far as rumors go, this one seemed legit._

------
stale2002
Good on these Stuy kids!

The media will print anything, and they deserve to be messed with every now
and then.

All in all, it was a really funny prank!

~~~
dkrich
I don't understand why anybody would be blaming them. This is 100% on the
author of the story and NY Mag. They published the story, it's their
responsibility to fact-check it. I for one think it's hilarious that they got
this story run at all, although I can understand the stress of being at the
center of a hoax and all of the attention it brings.

------
wnevets
People enjoy pretending _hard journalism_ is the rule rather than the
exception. Having the internet & cable news destroy it is just another part of
the fantasy TV shows like The Newsroom enjoy telling.

------
joeblau
Is there anything in place to ensure accountably of news releases in news
organizations? I'm pretty sure that if enough of this happens; the reputation
of the news organization will suffer.

~~~
cbd1984
> Is there anything in place to ensure accountably of news releases in news
> organizations?

Who do you want ensuring accountability? A government? Another private entity?

~~~
joeblau
Say I'm a news Agency with multiple broadcast mechanisms and I continually
post incorrect information that in turn ends up destroying private citizens
lives; Is there any recourse that private citizens can take against the
organization?

For example, can you take legal action for defamation of character?

------
bsg75
There are no journalists anymore. Just a bunch of social media junkies rushing
to be "first".

~~~
larakerns
The average news consumer expects bite sized, outrageous chunks of information
to wash down with lunch – it's a two way stream of degradation.

------
judk
Didn't we just have the bogus story of the kid who made $300k on penny stocks?

------
nchlswu
How much do PR firms cost? and how well off do you have to be to afford one?

~~~
bvm
The fact the name of the PR firm is mentioned in the article probably means
it's (at least in part) PR for the PR firm as much as anything.

------
mbesto
And the real winners here? The media.

------
michaelochurch
This feels slightly "Black Mirror" but, to me, it's inevitable. It's a
charismatic story. It's somewhat of an advertorial, not just for a person, but
for an idea: that someone at Stuyvesant (which is full of high-talent, mostly
middle-class, students because the truly wealthy go to schools like Dalton
that deliver Harvard if you show up for class, and Stanford as a consolation
prize) can make $72 million on his wits alone. I would want to believe it,
were I not knowledgeable enough on finance to smell the bullshit.

The current corporate world is built on lies, repeated often enough until they
become truth (reputation, prestige, credibility). There are facts, and
occasionally those hit back against an aggressive lie; but most of what drives
economic life (especially at the individual level) is brand and reputation and
social proof. How many corporate executives got there without lying about
their CVs, polishing their career histories and accomplishments, and generally
manicuring their reputations using a number of tools including deceit?
Probably zero. Occasionally, some corporate executive gets caught in a lie and
is scapegoated, usually because he was stupid and lied about something easily
refutable like where he went to college... even though they all do it.

The sad thing here is that we're talking about a teenager who (a) stood to
gain next to nothing and (b) probably didn't intend for any of this to happen
at all. The disgusting thing is that, if he takes a fall for this, then he'll
have fallen not because of any deception but because of social class. A
middle-class kid makes the middle-class mistake of (possibly) lying about
something that can be refuted, and gets burned. An upper-class kid gets a $5
million seed round on parental connections and Stanford Welfare (a more
pernicious lie, because it looks like merit) and gets away with it, being
allowed to play CEO for _years_ until "adult supervision" is brought in to
administer a company that he _still_ owns.

~~~
bullbozer
Whoa, slow down there. Your post is littered with assumptions.

 _Probably zero_ How do you know this, exactly?

 _even though they all do it_ Again, how do you know this?

 _An upper-class kid gets a $5 million seed round on parental connections and
Stanford Welfare (a more pernicious lie, because it looks like merit) and gets
away with it_ Simply making up a hypothetical scenario does not support
whatever point you are attempting to make here. Is there a specific example
you are referring to? And besides, what exactly is this hypothetical upper-
class kid "getting away with"?

------
cmollis
wait.. is this story a lie too?

------
filmgirlcw
_sigh_

------
thret
This sounds suspiciously like the plot of a Farrelly brothers movie.

------
jordache
Yes because ordering freshly squeeze apple juice at a place of eatery denotes
baller status..

the author is crazy

~~~
omarchowdhury
Well he's under 21 and a Muslim, so can't really drop $10K on the goose.

------
kyleblarson
He pulled numbers out of thin air to artificially inflate returns and paint a
rosy picture of his personal economy? I'm sure the US Federal Reserve is
already actively recruiting him.

